Hello from Brussels. Two days to go until Joe Biden’s inauguration, and people here are assuming that surely even Donald Trump’s administration doesn’t have much time left to do destructive things on trade.
Last week, outgoing US trade representative Robert Lighthizer topped up the toxins in the transatlantic dispute chalice before handing it on, his department declaring Austria, Spain and the UK to be discriminating against the US with digital services taxes. Along with its similar previous finding against France, and the deferral of the decision to put tariffs on French goods, he’s created a tricky legacy for the Biden administration, as we explained last week. (Trump also took one final — probably — kick at Huawei.)
Today’s main piece is on the UK, and whether it can fulfil its ambitions to play a post-Brexit role in global trade and other economic governance. Tit for tat poses three questions on the post-Brexit relationship between the UK and the EU to Holger Hestermeyer of King’s College London. Charted waters looks at how Turkey’s president Recep Tayyip Erdogan has strengthened trade links between his country and Africa.
“I talked with President Kennedy of many things, including Great Britain’s position in the world as some kind of honest broker. I agreed with him that no nation could be more honest. He agreed with me that no nation could be broker.”
That was the great comedian Peter Cook in the early 1960s, satirising UK prime minister Harold Macmillan’s attempts to find a new place in the global order. The British empire was dissolving. A few years earlier the Suez crisis had embarrassingly exposed the UK’s failure as an independent power. Eventually Britain found a slot in what became the EU. But the UK’s post-colonial links, and military and intelligence capability, always gave it a separate identity. Brexit now supposedly gives it a bigger chance to, as it were, strut its stuff on the global parade ground.
In trade terms the UK has already made its “Global Britain” pitch, looking beyond Europe and particularly to Asia. To be fair, this isn’t entirely meaningless. Compared with the EU, for example, Britain is helpfully free of neurosis about addressing digital trade in the form of cross-border data flows in deals. Britain added a data and digital chapter when it replicated the EU’s trade deal with Japan, for instance. And it is negotiating a bilateral deal with Singapore that covers data alongside financial services, intellectual property rights and consumer protection that it hopes might attract a few more countries and turn into a plurilateral agreement.
Trade Secrets also has it on good authority the UK is planning this week formally to submit its application to join the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). However, as we’ve said before, CPTPP isn’t remotely a replacement for EU membership. Britain is inconveniently located on the wrong ocean: many of the bloc’s member countries are small, and all are far away. Membership might also create some awkward clashes with the EU. Liberalisation of data flows under CPTPP could complicate the UK’s ability to get a data adequacy agreement with its big neighbour: Brussels will be wary about EU citizens’ personal details being transferred on elsewhere.
If the UK is to play a world role, it will be through brains, not brawn, as an intelligent facilitator rather than an economic heavyweight. Two interesting papers look at this. One is by Robin Niblett, director of Chatham House, which examines Britain as a “global broker” in a rather more constructive tone than Peter Cook (disclosure: today’s Trade Secrets author is also a fellow at Chatham House, but wasn’t involved with this report). The other is a joint effort by Georgina Wright of the Institut Montaigne think-tank in Paris and Ben Judah, a British-French journalist.
As Niblett points out, the UK has some advantages, including good diplomatic links, the right instincts on climate change, and expertise in public health and combating tax evasion. As it happens, Britain has a chance this year to show its convening and power-broking skills: it is chairing the COP26 UN climate change conference planned for Glasgow in November and the Group of Seven (G7) advanced countries, whose leaders are set to meet in Cornwall in June.
Given its intelligence capability, the UK is also quite well-placed to tackle the increasing intertwining of trade with national security. The idea of inviting in three more democracies — India, South Korea and Australia — to form a “D10” to look at the issue of Huawei and 5G, for example, is a good one. As so many trade/technology/security issues involve China, it’s also helpful that Britain is less politically beholden to Beijing than some others (our opinion on the EU-China investment treaty in this regard, incidentally, got us some fairly trenchant pushback in Brussels and other European capitals, but we’re sticking with it). The UK, alongside Canada, last week imposed import restrictions designed to block goods made with forced Uighur labour in Xinjiang province, something the EU is moving towards rather more slowly. Some in the UK parliament want to go further: the House of Commons will decide this week whether to let British courts determine whether a genocide is taking place in a foreign country, potentially leading to Britain pulling out of any trade deal with it.
Bold stuff. But if the UK really wants to be a global broker, Boris Johnson’s government needs to grow up a bit. Any major governance initiative needs the EU, or at least its big member states, on board. Childish point-scoring, such as this Conservative party ad praising Britain’s superior performance to continental Europe in Covid vaccinations while conveniently ignoring its record pandemic death rates, won’t help. Nor, given the importance of being a big aid donor in international credibility, will its antics on development assistance. Subsuming the Department for International Development back into the Foreign and Commonwealth Office is a seriously retrograde step, shackling one of the world’s best official development operations to the FCO’s instinctive mercantilism and malign politicisation.
The other big risk is the UK government losing interest in global issues, especially if focusing on rarefied international matters makes it unpopular at home. Scottish fishers and English lorry-drivers going bust — “no nation could be broker” — because of post-Brexit bureaucracy are unlikely to be comforted by a warm patriotic glow about data regulation deals with Singapore.
Still, the promises about Global Britain have been made. The UK has talked a good game. It now has a couple of big appearances this year to show it can get things done on the international stage. We’ll be watching the outcome with interest.
The final instalment of Laura Pitel’s eye-opening series on Turkey’s foreign policy covers the ties Recep Tayyip Erdogan has built with African nations, primarily Ethiopia.
Co-written with Andres Schipani, the piece flags the impact of the push on trade, including how, since 2005, the number of Turkish companies in Ethiopia has risen from three to 200, covering markets ranging from wires to textiles and beverages. The data show the ties have led to a boom in exports over recent years, with the impact on imports from Africa much less dramatic.
We ask Holger Hestermeyer, a professor of law at King’s College London, to answer three questions about what happens next between the EU and the UK.
1. You have followed the Brexit process closely. What has surprised you most about the nature of the final deal?
There were, of course, a number of surprises concerning specific contents of the agreement: benefits that resemble the European Health Insurance Card, for example, or provisions on public procurement that go beyond the relevant WTO agreement, even though the UK had initially not included government procurement in its negotiation objectives. With regard to the structure of the agreement, though, what surprised me was the combination of fragility and governance for the future.
As to fragility, the agreement does not just grant parties the right to terminate the treaty overall, it is riddled with provisions that either allow or even provide for the termination of parts of it. Nevertheless, the agreement contains a significant governance structure (for a free trade agreement, that is) and provides for numerous areas in which the parties are supposed to co-operate.
2. One of the thorniest issues towards the end of the negotiations was over the level playing field. How do you think the rebalancing mechanism agreed under the terms of the deal will work in practice?
The provisions ensuring a level-playing field in areas ranging from subsidies control to environmental protection are among the most interesting. The reason being that they tackle a problem that does not just arise in the EU-UK relationship. To some extent, these provisions are not entirely unfamiliar, even if stronger and far more detailed than usual. They include a combination of detailed binding disciplines, non-regression clauses and provisions on enforcement. What is new, however, is a so-called “rebalancing mechanism”.
Under that mechanism, parties remain free to develop their regulations in areas such as labour or environmental protection, but where they diverge significantly, materially impacting trade or investment, a party can take rebalancing measures, provided that certain conditions are complied with. Used sparingly, this mechanism could be a useful tool allowing countries to raise their regulatory standards without risking their competitiveness. If used, or rather abused, too often, the mechanism will threaten the stability of the relationship.
An additional threat to the stability of the UK-EU relationship is that the UK government will feel pressure to diverge from EU regulations for the sake of divergence and without regard to the impact or desirability of the divergence from a regulatory point of view, as freedom from EU regulation was argued to be a major benefit of Brexit.
3. You have written about how Brexit has provoked a constitutional crisis. How do you expect that crisis to play out in the years ahead?
Brexit has exposed rifts in the constitutional fabric of the UK. The first rift runs between the four countries that constitute the UK. England and Wales voted for Brexit in the 2016 referendum, Scotland and Northern Ireland against. Since then, the division has deepened. The Scottish parliament and the Northern Ireland Assembly denied legislative consent both to the implementing legislation of the withdrawal agreement in 2020 and to that of the EU-UK trade and cooperation agreement. According to surveys, a majority in Scotland now favours independence from the rest of the UK.
Not any less problematic is the second rift that runs between the UK population, between Leavers and Remainers. It has poisoned public discourse. I look towards the next couple of years with some trepidation: while my hope is that the importance of Brexit in public discourse will diminish, the EU will be rediscovered as the UK’s partner and the rifts can be tackled and healed, this is far from certain.
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