Hello from Washington, which is missing quite a lot of the US cabinet because they accompanied President Joe Biden on his jaunt to Europe. Katherine Tai, US trade representative, meanwhile, is today in London, where she’ll be hoping to replicate her success with the Airbus-Boeing deal struck with Brussels by striking a similar bilateral deal with the UK. We’ll be keeping an eye on things.
Our main piece focuses on how the deal got passed. The short answer to which is by leaving out an awful lot of the detail on how the truce will work.
Charted waters graphs globalisation’s decline.
Washington and Brussels have been arguing about Airbus and Boeing for nearly two decades, but have just reached a detente that includes a five-year suspension of substantial tariffs on $11.5bn-worth of transatlantic trade.
How did they do it? The Biden administration brought a change of tone, diplomats tell us. We’d argue there was another important factor. The two sides came up with a way to elegantly sidestep their bickering over the legalese of any agreement for the past few years: don’t really write anything down.
The two-page text of the deal, or “understanding on a co-operative framework”, is extremely high-level and vague. Points 1 and 2 of the first page establish a working group, which will “seek to overcome disagreements” (this sort of already exists, presumably?). Points 3 and 4 refer to the heart of the current dispute — the US accuses Europe of undercutting market rates and terms when extending loans to Airbus for aircraft development, and Europe accuses the US of being opaque when it comes to research and development funding and contracts awarded to Boeing by federal agencies, such as the Pentagon and Nasa. So both sides agree to stick to market rates and be transparent. Point 5 is a crucial point — the two sides agree to figure out what points 3 and 4 mean in practice and how that can be put into operation. This is the whole crux of the argument, which is not solved by this document. Point 6 promises the two sides will do some things on China (I’ll come back to this). Point 7 is the other most important point — they will suspend the tariffs for five years, and point 8 is that they’ll continue chatting about existing subsidies.
When it comes to the page on “non-market economies”, again, things are very vague, but working together on China is one of the conditions on which the tariffs stay off. There are some loosely worded things on screening investments into aircraft manufacturers, and on co-ordinating on screening investments by aircraft manufacturers in joint ventures and factories based in said “non-market economies”. There is, additionally, a commitment to information sharing. This all feels very early-stage, but the Americans, as you might expect, seem pretty serious about it.
So, um, what now? Well, there is quite a lot missing, and it seems like quite a lot more talking to do. This is by no means the end. One of the huge themes across the calls and press conferences of Tuesday was the idea of ending endless litigation. This sounds good. But what happens if the two sides continue to disagree over what subsidies are allowed? For example, who decides what constitutes market rate if it isn’t the market, but a government issuing a loan? The answer, a US trade official says, is that there is a “shared understanding” with Europe that it means “terms that a private lender . . . would offer for specific projects”. Does that need to be tested in some way? Should the European government seek a quote? The shared understanding is not codified anywhere. The official adds: “One of the values of an agreement like this is we don’t have to try to pin the uncertainty down on these details that are unknowable right now.”
There is also, notably, no real outline of a dispute settlement mechanism or process for escalating complaints, of which we assume there will be many, because they’ve been fighting over this for [checks notes] nearly two decades. Officials again say this is because they are moving beyond litigation. I love this lofty new theme, and it’s an amusing contrast to the USMCA trade deal, where US officials are all about escalating disputes and formally registering disgruntlement by using the various legal tools embedded in their trade agreement. With Europe on Airbus/Boeing, though, they’ve decided it’s best if everyone just proceeds without this stuff. This is best summarised by one US official, who said: “We don’t want this to be a new form of litigation, we want a shift from that. It’s a conscious choice to not put in all the procedures or mechanisms in order to resolve our dispute, and basically say, ‘we’re going to keep litigating’.”
This is probably genius. It’s almost an acknowledgment that trade lawyers have just become far too lawyer-y for their own good, and actually everyone is just going to snap out of it and sort this out over a beer, or pick up the phone and yell at each other for a bit — I mean, really, who knows? This is particularly amusing when you remember it was the US who first started litigating over this dispute by lodging a complaint at the World Trade Organization, convinced they would win an enormous ruling in their favour (which they sort of did, to be fair).
So will we get a more detailed agreement in five years once we’ve thrashed some stuff out? Not necessarily, say officials. It’s not a goal. Who needs trade agreements and details and laws? Not these guys. And if things don’t work and “expectations” are not met? Well, the tariffs go back on.
Maybe this can work. We remain a little bit cynical, but for now this is a welcome truce, that’s for sure.
We think this chart speaks for itself, we’re not going to waste too many words on it. However, we imagine that readers will have their own ideas on what’s driven globalisation’s decline, and would welcome your thoughts in the comments section below, or by email. Claire Jones
After more coverage of the Airbus-Boeing dispute? We’d recommend this, from Peggy Hollinger, on why, truce or no truce, there’s a way to go before the spat is finally put to bed. It makes the point that going easy on the detail means the root causes of the dispute remain unresolved.
The US made a shock appointment last night, naming Lina Khan the head of the Federal Trade Commission, the country’s competition authority. Those of you who have come across her paper, Amazon’s Antitrust Paradox, will be aware that this is likely to have massive implications for the policing of Big Tech, and indeed competition policy more broadly. For those of you who haven’t, it’s well worth a read and can be found here. We’d also recommend her Lunch with the FT. Meanwhile, Nikkei ($) reports that Amazon is taking on Alibaba in its own backyard, by stepping up its recruitment of sellers in Vietnam. More from Nikkei. Japan’s concentration of the technology needed to stack chip layers has drawn the world’s biggest contract chipmaker, Taiwan Semiconductor Manufacturing, into a new research and development centre in the country. Recall that Japan dominated the chips industry in decades past. British manufacturers are — amazingly — likely to have less protection against cheap imports from the UK’s post-Brexit trade regulator than they had under the EU regime.
North Korea, which has kept its borders tight shut during the pandemic, is facing more food shortages. Claire Jones