ECONOMY

The submarine spat and the future of transatlantic trade

Trade disputes updates

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Hello from Brussels, where on the bright side at least everyone is much better versed in submarine manufacture and defence contracting than they were last week. The obvious question for us is whether the Aukus spat (in which, to be frank, we have some sympathy with France) will derail trade and other economic relations more generally with the countries involved. The French internal markets commissioner at the European Commission, Thierry Breton, evidently thinks so: he told my colleagues in Washington yesterday that something was broken in the transatlantic relationship. So does the French government, which has explicitly said it would collapse talks on the EU-Australia bilateral and has been arguing inside the EU for next week’s inaugural meeting of the Trade and Technology Council (TTC) with the US to be postponed.

We are less bothered about the Australia deal. Even assuming Paris is serious about ending the talks (it routinely threatens to collapse trade deals as a bargaining ploy), France was not moutarde-keen on the bilateral anyway, with all those beef farmers to placate, and given the sizes and distances involved, it is not exactly the deal of the century. Undermining the TTC, the new centrepiece forum for transatlantic co-operation which purports to be based on common values, would be a much bigger deal. Today’s main piece takes an overview of the council and what it’s supposed to do, and why it’s particularly vulnerable to national security and strategic issues. Charted waters is about the surge in energy prices in the UK.

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From chemical chicken to semiconductor supply

Listening to the briefing beforehand, especially from the EU side, it is easier to say what the TTC isn’t than what it is. It definitely isn’t formal talks over a new trade deal along the lines of the Transatlantic Trade and Investment Partnership (TTIP), which barely got off the ground after its launch in 2013 before crashing to earth three years later. The European Commission does not have a mandate from the EU member states to open formal trade negotiations. It is not a rerun of the forerunner of TTIP, the Transatlantic Economic Council (TEC), which hilariously decided to pin its credibility on fixing the chemical-washed chicken issue and has never really got airborne.

According to the EU at least, it is not really going to do negotiations over a new deal for cross-border data flow to replace the Privacy Shield arrangements, because those talks are handled separately. It is not going to be a vehicle for discussing broad policy towards China, because the official line is it is not aimed at Beijing and, in any case, there is a separate forum for doing that. It is not directly going to address steel and the section 232 national security tariffs, because that needs a quick resolution. And it is not going to go anywhere near chemical-washed chicken.

Rupert Schlegelmilch, a senior official at the European Commission trade directorate heavily involved in TTC, told a European Policy Centre seminar last week: “We have had longstanding complaints in the past on our agricultural policy from the US, and we have longstanding complaints about some of the aspects of US policy. All of that I think is really dwarfed by the fact that we need to make sure that the nexus between technology and trade and digital development, and also national security to some extent, is discussed in a comprehensive manner.”

The specific issues involved are very important but are resistant to short-term fixes: they included artificial intelligence, semiconductor supply chains, climate and green tech, foreign direct investment screening and export controls. (We will look at the last two of these in more detail at some point.)

Because they are much more closely tied to strategic policy than traditional trade issues — China was not trying to corner the world market in chemical chicken — it makes the whole project hostage to national security issues. On the US side, the White House and the state department are directly involved in a way they generally were not with trade talks.

From the EU side, the commission has traditionally been allowed a degree of independence to negotiate deals within a mandate from the member states. But as current events are showing, the TTC is much more vulnerable to sudden interventions over the heads of the commission by member state governments, which retain powers over national security. Hence the importance of the Aukus spat. As the argument from Paris runs, you cannot seriously plan for joint security of supply of semiconductors with a supposed ally whose commitment to strategic collaboration you do not trust.

Haven’t trade and national security always been closely intertwined? Not really, no. The Trans-Pacific Partnership is a good example. Despite the foreign policy imperative of extending US influence in the Asia-Pacific, the TPP had stalled in Congress on purely commercial issues such as pharmaceutical intellectual property even before Donald Trump pulled the US out. Similarly, no one in the EU regarded Trump as a reliable ally, but still managed to negotiate mini-deals to avoid escalating a trade war over cars.

If there is progress in TTC it is going to be slow and unspectacular, and also subject to diplomatic spats like the Aukus incident. The TTC is trading off the simplicity of agriculture for the multi-faceted nature of modern international economic relations. To be fair, it is the obvious way to go. Putting together nano-deals on lobster tariffs was frankly a bit of a silly way to be running transatlantic trade policy, and issues such as chemical chicken are utterly intractable. But it also means we need to monitor the general diplomatic temperature across the Atlantic much more closely than before.

Charted waters

With the UK’s largest energy suppliers calling on the government to set up a multibillion-pound emergency support package, including the creation of a “bad bank” to absorb potentially unprofitable customers from failing rivals, it is fair to say high gas prices are causing some angst in the UK right now.

While the problem of high energy costs is more severe in Britain at the moment, there are broader concerns across Europe, with a lack of supply from Russia among the factors driving fears that a cold winter could lead to soaring costs. Claire Jones

Trade links

Elsewhere in the FT, Gideon Rachman welcomes Aukus on the grounds that it represents the US stepping up its efforts to counter Chinese power in Asia-Pacific. The ever-excellent Europe Express for today examines Brussels’ attempts to stem the use of online ads by political parties.

At long last, the US will relax air travel restrictions for vaccinated foreign passengers. Europe’s shortage of lorry drivers, meanwhile, is likely to disrupt Christmas and worsen further next year, according to haulage companies.

More news on China’s application to join the CPTPP. Malaysia has thrown its support behind Beijing’s bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, “possibly as early as next year”. (Nikkei, $) Nikkei also has an opinion piece arguing that the gap between CPTPP’s high standards and China’s existing international obligations may be narrower than many people think. The South China Morning Post argues ($) that, even if Beijing’s bid is rejected, it could bring with it some diplomatic and economic benefits. Jaime Tijmes, a law professor at Universidad de La Frontera, writes in the International Economic Law and Policy blog that the move highlights US passivity and lack of leadership.

The EU will start a two-year-long revision of its Generalised Scheme of Preferences, which gives special trade access to developing countries. Alan Beattie, Francesca Regalado and Claire Jones

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