Hello from brussels.todays big trade news here is yet another escalation of the brexit bar brawl, with the eu saying it will sue the uk over its plans to violate last year's withdrawal agreement. more conflict: just what a fraught and delicate situation needs. meanwhile, world trade organization member countries are already (confidentially) casting their preferences in the second stage of the director-general race, with the result to be announced next week.
Weve heard the latest about the eus collective discussions on their preference for wto chief, which are a bit surprising to some. theyre heading towards consensus where all 27 member states vote as one (an eu policy, not a wto rule) except perhaps hungary which, trolling as ever, has said it will break ranks and back uk brexiter liam fox. fox, incidentally, has continued to attract support from one member state (as well as hungary) despite the british governments admitted disregard of international law. wed love to discuss this with him. however, after his pr folks pitched an interview to the financial times, they cancelled it last week shortly after we asked fox in a press conference if he backed the destructive tactics in the wto of his friends in the trump administration, and then repeated the question after he failed to address it.
Anyway, as expected, the eu is leaning towards backing nigerias ngozi okonjo-iweala. but we have it on good authority its second preference is very likely to be south koreas yoo myung-hee rather than the joint overall favourite, kenyas amina mohamed. mohamed might still make it through to the final two along with okonjo-iweala, but that then suggests the eu will back the latter in the final round, leaving mohamed with a lot of support to find elsewhere. more on the race and what its like to run for wto dg next week. todays main piece focuses on how the covid-19 reshoring wave just isnt happening, and tall tales examines a crafty bit of british disingenuousness about selling beef to americans. our chart of the day looks at the carbon offset market.
(its from one of the great cinema ad campaigns of all time.) your trade secrets author today has a piece up on the ft website about the great reshoring, and how it hasnt actually happened as a result of covid-19, or not yet. worsening relations between the us and china will almost certainly have a bigger effect, and at the margin the pandemic has merely exacerbated that tension rather than created it. in any case, thats more likely to result in us and european companies moving capacity for basic work to other low-cost countries such as the asean nations, particularly vietnam, and higher-value production to middle-income economies such as mexico.
A few other things occur to us on this subject. one is that the stickiness of supply chains involves a fairly hefty irony. for readers old enough to recall when the internet was a new thing, remember how it was all about the free flow of information, with ideas and conversations and services (and money, obvs) shooting instantly round the planet? remember how there would be a single world market in knowledge that would empower citizens against governments and globalisation against nationalism?
Take a look now at the online economy (as opposed to digitally enabled goods trade). as the grating neologism goes, the age of the splinternet is here. the two biggest economies, the us and china, are dividing into separate data realms. they have almost no apps in common for the most important stuff: internet search (baidu vs google), messaging and social media (wechat vs whatsapp, facebook, twitter and instagram), music (kugou vs spotify), payment (alipay vs paypal), dating (momo vs tinder). even tiktok, although owned by the same company (bytedance), is kept separate from its chinese counterpart douyin because of chinese censorship and control. obviously, thats not stopped us president donald trump from trying to make it choose to be in one world or another, and other china-sceptic countries such as india banning it altogether.
Meanwhile, boring old goods trade has so far largely defied official attempts to reshore or even decouple the us from china, notwithstanding some (in reality heavily overblown) examples touted by trump of us companies coming home. it turns out that digital is faster to adjust than goods when separating as well as integrating.
Given the increasing intertwining of goods supply chains and data streams, its not clear how long that contrast between the globalisation of the physical and the fracturing of digital can endure. (well come back to this at some point.). but for the moment the contrast is striking.
The other theme that struck us was the resistance from business to government pressure to relocate and particularly to reshore. on this subject, its worth having a look at the submissions to the us international trade commissions inquiry into coronavirus-related goods (posted here, registration required). the usual protectionist suspects are there with their arguments about building up domestic production, including textile companies and their associations which point out that they were called on to manufacture face masks in the us at short notice.
However, so is the pharmaceutical industry, whose trade lobbying is more usually confined to pushing for longer patent protection in the intellectual property (ip) chapters of preferential trade agreements. the generics part of the pharma industry is relatively keen on bringing production home, albeit also being keen on an international production alliance of like-minded countries including india, canada, jordan and mexico.
However, phrma, the association representing the ip-protected part of the pharma industry, argues strongly that it be allowed to carry on sourcing around the world and that reshoring would seriously drive up costs. these people have the power to block trade deals: they were holding up the trans-pacific partnership in congress even before trump pulled the us out. theres a lobbying struggle ahead if trump or indeed joe biden if he wins the us presidency makes a big effort to reshore.
We stress its way too early to be definitive about the impact of covid-19, still less the us-china trade conflict, on supply chains. but certainly the arguments of the pandemics early months about the need for rapid switches of production in the face of widespread supply shocks look a lot less convincing now than they did then.
Big corporate buyers from oil major bp to french luxury group kering and tech powerhouse google have breathed fresh life into the carbon-offset market over the past year, writes anna gross. this fresh wave of companies voluntarily opting to offset their emissions rather than being forced to reflects a wider commitment to lowering the environmental impact of business operations. most projects are based in the developing world, with china, india, turkey and brazil together accounting for almost 44 per cent of active projects in the voluntary market. but the us hosts the single largest number of projects, with almost 23 per cent of the total.
The uk department for international trade released a bit of communications legerdemain on wednesday. it lauded the first exports of british beef to the us for more than 20 years following the lifting of a ban imposed after the bse beef scandal in 1996, and pivoted to talking about export opportunities for farmers from a bilateral deal with the us. leaving aside the fact that beef shipments in a reciprocal uk-us trade deal are mainly likely to be coming the other way, linking the two and talking about export opportunities arising from brexit is a touch misleading.
The uk negotiated re-entry for its beef (on technical grounds regarding standards and inspections) while it was still a member of the eu. it was, by the way, five years behind ireland. moreover, while it took more than 20 years to overturn the us ban, a 1996 eu restriction on uk beef exports was partially lifted in 1999 and fully abolished in 2006. and when france attempted to ignore the 1999 relaxation, the uk got a european court of justice ruling forcing paris into retreat. in other words, the eu is not just a much bigger export market but one where membership gives far swifter redress for unfair trade restrictions. its good for british farmers that theyve got access to the us. but its kind of dwarfed by the coming frictions over trade with the eu and particularly the looming disaster of a no-deal brexit.
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