FTI Consulting International Trade Bulletin – 8th July

FTI’s Key Headlines

An EU Hope 

The buzz from Brussels this week is the news that EU foreign ministers will endorse draft plans to provide a ‘sustainable alternative’ to China’s Belt and Road Initiative, the global infrastructure initiative aimed at extending the country’s international influence. The project has seen Beijing invest an estimated $200 billion in emerging markets, potentially reaching $1.2–1.3 trillion by 2027, aimed at extend their international influence. The EU move follows on from the G7 pledge, made in Cornwall last month, to establish a “Build Back Better” infrastructure partnership to contribute to the estimated $40tn required by developing nations by 2035. The European Council conclusions call for the EU to adopt a geostrategic approach to connectivity and to identify and support “high impact and visible projects” around the globe.

Reports have also emerged that the EU’s upcoming Carbon Border Adjustment Mechanism (CBAM) will raise €9bn a year in import duties, money earmarked to cover a small slice of the cost of the EU’s €750bn Covid recovery fund. The mechanism is designed to prevent so-called “carbon leakage” which involves companies moving their operations outside the EU to avoid climate regulations. European steelmakers have been pushing for the carbon tax to be introduced so that they do not have to pay a rising EU carbon price whilst their competitors outside the block do not.

The European Commission intends to introduce the tax gradually starting in 2023 and initially targeting a limited number of imports including iron, steel, cement and fertilisers. Russian companies stand to be among the biggest loser from the tax due to the high carbon intensity of their imports.

The Protectionists strike back

Back in the UK the age-old battle between free-marketeers and protectionists rages on. The self-proclaimed champion of free trade Liz Truss this week overruled the Trade Remedies Authority (TRA) and made a last-minute decision to extend tariffs on steel imports to the UK, despite the considered advice of a body only set up by her own department on the 1st June . This is an inauspicious start for the TRA, charged as it is with adjudicating on Britain’s trade policies. Truss has undoubtably undermined the authority of a body that was heralded as a key plank of Britain’s drive to be a leading global voice in rules based trade liberalisation and the Trade Secretary was even required to pass emergency legislation to enable her to disregard the advice of her officials.

Trade experts have already warned that  Truss’s decision could well be subject to a challenge at the World Trade Organisation (WTO),  risking another headache for the Trade Secretary who is already locked in a legal battle with British Sugar over her decision to cut tariffs on some UK sugar imports. It also sets an unfortunate precedent for the next occasion when a UK exporter wants to rely on rational, rules-based decision making from another nation’s domestic trade authority to overcome local political priorities.

Truss can at least expect support from the Opposition with the Labour party unveiling a new ‘Buy British’ policy earlier this week, which avows to award more public contracts to British companies. This is a clever political wedge move from the opposition. Starmer’s team know that even as the government has been creating a more favourable environment for UK firms doing business with foreign governments, the quid-pro-quo is greater foreign access to the UK’s government procurement schemes. Between the UK’s commitments under the WTO’s Government Procurement Agreement (GPA), liberal GPA chapters in new bilateral deals and the whoopsie-daisy over the Royal Yacht, , the Opposition may have a great deal of fuel to support its drive toward protectionist populism.

All in all, it seems protectionism is very much flavour of the month in UK politics.

Return of JD

Following last week’s agreement of a ceasefire in the “sausage wars” between the UK and the EU you would be forgiven for thinking that tensions in Northern Ireland might start to die down. Yet tensions in the province continue to rise following the election of the third leader of the Democratic Unionist party (DUP) in less than two months.

Veteran Westminster MP Sir Jeffrey Donaldson pledged to remove the controversial post-Brexit customs border in the Irish Sea in his inaugural speech. Donaldson said the border had already caused “instability” and that his goal was to remove the border “in the weeks ahead”. This stands in contrast to his predecessor Edwin Poots who favoured taking a gradual approach but echoed warnings from Lord Frost, the UK’s Brexit Minister, that the three month truce is just a “sticking plaster” that addresses just a “tiny part of the problem” with the Northern Ireland Protocol.

Donaldson’s speech will be unwelcome news to both the UK and the EU, who have been working behind the scenes to lower tensions over the past week, and raises the prospect of the DUP leader attempting to bring down the region’s power sharing government at Stormont.

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