Hello and welcome to Trade Secrets. As this lands in your inbox, the EU and the US will be coming towards the end of their second Trade and Technology Council (TTC) meeting, this one in Saclay, a tech hub on the outskirts of Paris. (Did you know Paris had a tech hub? I didn’t.) The atmosphere has been a lot more positive than the first one, in Pittsburgh in September last year. For one thing, France, which came close to sabotaging the last one, is much more enthusiastic now. First, it’s hosting the meeting. Second, the techno-interventionist French internal markets commissioner Thierry Breton, who was excluded from the Pittsburgh meeting, has been allowed a walk-on part, if not actually chairing the thing, this time. Today’s main piece looks at how the TTC model is being applied more broadly, and its limitations. Charted waters revives the topical subject (with Boris Johnson in Belfast to try to facilitate a new Northern Ireland government) of the impact of Brexit on UK-EU trade.
And as ever, let me know what you’re thinking on alan.beattie@ft.com.
Co-ordinate, don’t negotiate
It’s amazing how much transatlantic co-operation on tech and security becomes possible when there’s an enemy like Russia to unite against. Today’s TTC is riding on the momentum of an unusually rapid and effective co-ordination of export controls and financial and trade sanctions between Brussels and Washington since the invasion of Ukraine. The concluding statement for the meeting, drafts of which have been floating around for a couple of weeks, are expansive in their ambitions for the US and EU to work together in areas from technology standards to the rare earth supply chain to foreign direct investment. The final agreement will be published later this afternoon Paris time and the press conference will be streamed here around 13.30 CEST.
This looks a vindication for the strategy that the EU and US (particularly the latter, which was very keen on this format) have taken with the TTC. Instead of getting bogged down in a massive binding treaty-based trade agreement where agreement on one subject requires agreement on all — no one wants the traumatic Transatlantic Trade and Investment Partnership (TTIP) experience again — the two set up a flexible multi-stranded consultation and co-operation arrangement. You could also see as part of the same phenomenon the US’s proposed Indo-Pacific Economic Framework (IPEF) agreements in Asia, which are supposed to replace the Trans-Pacific Partnership (TPP) the US started but has now abandoned.
Such frameworks are easy to set up, as they don’t require formal negotiating mandates or treaty ratifications, but will they deliver? International organisations and agreements have various functions. One is to develop and disseminate best practice. Another is to overcome purely organisational challenges to co-operation. The TTC and IPEF can do both of these. What they can’t do, unlike formal trade deals, is make trade-offs across different areas. Governments can’t compensate for the political cost of exposing one domestic constituency to competition by giving a different industry export markets or regulatory influence in return. The US in effect expanded some of its intellectual property regime abroad in TPP by trading off improved access to its consumer market. If it doesn’t have market access to bargain, what will it expect to get back? This was a point forcibly made last week by a gang of Republican senators, who don’t think much of the IPEF.
Frameworks such as TTC or IPEF aren’t, or probably shouldn’t be, a model to replace formal trade agreements where those are still possible. Ursula von der Leyen, European Commission president, announced a TTC with India recently while on a trip to New Delhi. This came as a surprise to the officials at various directorates back in Brussels who would have to run it: they are currently negotiating an actual binding trade deal with India and have hopes of finishing it next year. (It’s not the first time von der Leyen, who is unimpressive on trade issues, has unhelpfully freelanced in a meeting with a foreign leader.)
For the moment, the shared need to take on Russia has given the EU and US enough incentive to co-operate. But EU officials privately reckon that longer-term co-operation is likely to be limited in breadth and depth. There still remain institutional jealousies that prevent Washington and Brussels agreeing unified regulation across a bunch of areas. And while there are 57 references to Russia in the draft TTC conclusions and only three to China, the main antagonist in the medium-term on tech, trade and security issues is Beijing, not Moscow. There the EU and US maintain marked contrasts in approach — the US much more confrontational, the EU more nuanced.
The TTC statement is ambitious. But at this point it’s still much bigger on best practices and exchanges of experts, joint road maps and moving towards shared methodologies, promoting transparency and early warning systems for disruptions and what have you, than on anything more practical. The transatlantic pals aren’t coming up with a single technical standard for electric vehicles or a rare earths mining and depository scheme.
They’ve promised to “minimise the impact of any protective measures” in solar power supply chains, but the US is in a right old mess at the moment trying to onshore solar manufacturing — not to mention potentially imposing new “national security” tariffs on neodymium magnets, which are used to make electric vehicles. Both sides have agreed to be transparent on semiconductor production subsidies, but not to limit or co-ordinate them. They’re generally in favour of reforming the World Trade Organization, but they don’t say how. And so on.
Let’s give them some space: the TTC was always supposed to be a process, not a single deal. The Ukraine war has created the best opportunity for transatlantic regulatory and trade co-operation for decades. There’s still time to take it. But it would be nice to see some solid results soon.
As well as this newsletter, I write a Trade Secrets column for FT.com every Wednesday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.
Charted waters
Some things look so obvious that you wonder whether there is a catch. But no. The following is a pretty clear chart based on research by the London School of Economics Centre for Economic Performance. The researchers analysed movements in trade patterns for 1,200 individual product lines in the EU — a fairly comprehensive study and, according to the Centre for Economic Performance, the largest. The figures, published last month, are worth reconsidering today as the UK prime minister flies to Belfast and the Northern Ireland protocol is once again the subject of British (and Irish) political debate.
The data chime with warnings from business groups that smaller firms have struggled to absorb customs controls, value added tax and regulatory red tape, with many quitting exporting altogether. There are undoubtedly winners as well as losers from any new trade arrangement, but in this instance cross-border trade between the EU and the UK is not one of them. (Jonathan Moules)
Trade links
The US is suffering from a shortage of baby formula and continuing to block imports, but then that’s what happens when you confuse resiliency with self-sufficiency.
The Financial Times looks at whether blockchain can ease clogged-up supply chains.
Unhelpfully, given the interruption to supply from the Ukraine war, the global wheat crop will fall for the first time in four years.
Just to ring the changes, Bangladesh has decided to slap import tariffs on onions to protect its own farmers, with a consequent sharp rise in domestic prices. (h/t @SimonEvenett).
Trade Secrets is edited by Jonathan Moules