FT Premium Subscribers can click here to receive trade secrets by email.
It's Valdis Dombrovskis's first full week after being confirmed in the job of EU Trade Commissioner, and we have an interview with him on ft.com and more about him in today's Brussels briefing. Like his predecessor "Big Phil" Hogan, he was an elected politician (Latvian Prime Minister), but his style is very different from that of the clumsy Irishman. We refuse to call him "Big Valdis" but we have chosen our official trade secret adjectives: methodical and phlegmatic. In contrast to the fiery first meeting between Hogan and U.S. sales representative Robert Lighthizer, for example, Dombrovski's & # 39; first conversation with his American counterpart appeared to have involved a lot of indifferent repetition of the EU case without getting embroiled in a series. His message in our interview sounded harsh: the EU is ready to overwhelm the US with tariffs after winning a World Trade Organization case against subsidies for Boeing. But today's main piece is why we don't put this in the "catastrophic transatlantic trade war" box. Our guest is Peter Draper, Executive Director at the University of Adelaide's Institute of International Trade, while our day pass sheds light on the economic disparities between East and West due to the pandemic.
Don't forget to click here if you'd like to receive trade secrets every Monday through Thursday. And we want to hear from you. Send your thoughts to [email protected] or send an email to [email protected]
The airlines with long delays, but fair compensation
When the US launched the first WTO case against illegal government subsidies for Airbus in 2004 and prompted the EU to take countermeasures against Boeing, George W. Bush was President of the first term, Romano Prodi head of the European Commission and if so younger readers can imagine something like this, Angela Merkel was not yet a German Chancellor. Sixteen years later, hostilities are still being exchanged.
This week, the EU is likely to get around $ 4 billion worth of sanctions on imports from the US. Washington has been charging US importers with $ 7.5 billion worth of goods, including EU spirits, since last year. It's a shame that American single malt scotch drinkers, who were affected by a 25 percent tariff, were forced to switch to cheaper blended whiskey – or in some desperate cases, supposedly to resort to bourbon. Brussels has made its own hit list, but will wait until after the November 3rd elections to raise tariffs if they backfire politically.
The EU wants to negotiate a new long-term regulation for aircraft subsidies, which the USA renounced in 2004 as inadequate. But even after the elections, it is unlikely that the dispute will be resolved quickly. Airbus and Boeing claim they have obeyed decisions against their state subsidies, but their respective governments with opposite numbers disagree. The EU wants to move forward on an "anticipated compliance" basis, eliminating illegal subsidies from this point and making the past forgotten. The US seems to want compensation for past mistakes and believes that higher honors give it more leverage to force a better deal.
Was the entire legal process a waste of time? Was it the only accomplishment to send many business lawyers' children to college?
Washington has charged US importers with $ 7.5 billion worth of goods, including EU liquor © Reuters, since last year
We would say no and here is why. It will always be difficult to create real competition in an area like Large Civil Aircraft (LCA), with huge barriers to entry due to enormous product development costs. There is always a risk of a subsidy arms race in prestigious industries like aircraft manufacturing, where corporations often conquer governments (when this author first went to Brussels to talk to the Commission about Airbus-Boeing in the mid-2000s, he was slightly surprised to see a large-format model of the then newborn Airbus A380 on the desk of the officer in charge).
Sixteen years of litigation haven't got rid of subsidies, but successive rulings have forced governments to be more cautious about handouts, and companies need to actually innovate and compete. For example, while failing to properly comply with WTO rulings, EU governments have had to refine and restrict the “jump-start”, product development support they give Airbus.
Dispute settlement has steered trade disputes into relatively manageable and legitimate channels. Contrary to much of the Trump administration's trade policy, its dealings with Airbus-Boeing have been stubborn, but not arbitrary or senselessly destructive. It has imposed sanctions, but less than the full amount approved by WTO rulings. The EU’s projected price of $ 4 billion is less than 1 percent of total US imports.
The litigation has also transformed domestic political debates exactly as international treaties provide by helping governments face their own businesses. Commission officials became increasingly frustrated that Airbus and its allies in member states were trying to water down the subsidy reform. Successive WTO judgments against the start-up aid have reinforced the Commission's arguments. When Airbus finally upheld or asserted its decisions earlier this year, the famous former Commission Trade Director David O & # 39; Sullivan wrote triumphantly on Twitter: “It's not like we didn't tell them to do this many , many years. "
WTO dispute settlement is not just a criminal offense system where the affected party pays the damaged party in cash and life is left unchanged. Ideally, his decisions change the offensive behavior in order to keep the global trading system as open and unbiased as possible. Of course, it would have been better to have resolved this a decade ago through negotiations without punitive tariffs. However, 16 years of litigation isn't necessarily a failure: it limits the damage and structure future conversations.
We're not going to say exactly, "It can go on for a long time," but let's not assume that it was all a waste of time and money. Oh, and if you want to feel a little better about the Airbus-Boeing litigation, let's see what happens when China dominates the global life cycle assessment market to a large extent, and see how harmonious the subsidy disputes then play out.
Different approaches to tackling the pandemic are driving wide disparities in outcomes, with China, Taiwan and other Asia-Pacific economies growing in 2020 even as coronavirus endemic countries suffer from strong contractions, Robin Harding writes , Ben Hall and Davide Ghiglione. They also highlight a key question for 2021: can East Asia, which has traditionally relied on customers in Europe and North America to fuel its growth, instead become a source of demand for the rest of the global economy?
Tit for tat
Peter Draper, Executive Director at the Institute for International Trade at the University of Adelaide, answers three open questions with us.
What do you think the new WTO DG should have top priority?
It depends on the outcome of the US presidential election. A Biden win is likely and will likely lead the US to re-engage in the WTO. Appeal body reform should be a top priority for the new administration, so the new DG should prioritize solving this issue based on the Walker principles. Settling the dispute settlement system is fundamental to the relevance of the organization, and the US will need it to contain China, and vice versa. However, this cannot be done based on the old business as usual. If the Trump administration returns, the existential crisis of the WTO will worsen and the real question will be whether the US will withdraw from the organization. In this case, the DG's top priority will be to deal with the demise of the WTO – an outcome that no serious trade policy wants.
What is the best way for the WTO to advance industrial subsidy reform?
The core business must be built among the main culprits, which means the G20 after the rescue packages from Covid-19. G20 leaders need to embark on a serious process of withdrawing and reforming subsidies, including capital-based trade and finance officials, rather than paying lip service to WTO reforms as they have in the past. This process needs to be reflected in Geneva by their commercial agents who need to consult other relevant WTO missions involved in subsidy reform. In essence, the G20 needs to task key multilateral organizations with collecting robust data on subsidies they pay to their domestic companies, since without such data, negotiations will take place in the dark. Getting these process problems right is critical. Even if a deal is closed, it will take years to close.
Do you think that in the age of decoupling, plurilateral trade agreements are a good compromise between multilateral and bilateral trade agreements?
I am in favor of plurilateral agreements (e.g. on subsidies) which are the best way to make progress in the WTO. In order to avoid a general stasis, these agreements must take into account the interests of willing developing countries through different treatment and tailor-made aid packages. However, important issues of interest to developing countries, such as the reform of agricultural subsidies, cannot be left off the table and should be included in the search for plurilateral solutions. Ultimately, the WTO can only make progress through a kind of "plurilateral of plurilaterals" – a fascinating architecture that I play with, but which I cannot fully explain!
Do not miss
The EU’s new head of trade has called on the US to withdraw punitive tariffs on EU products worth more than US $ 7 billion or to prepare for additional tariffs on exports to Europe when he resolved the two sides’s 16-year dispute over Airbus and Boeing demanded.
The US has banned Hong Kong residents from accessing at least two federal government websites that provide economic data. This could lead to growing tensions between Washington and Beijing over the semi-autonomous area.
JPMorgan Asset Management strategist Karen Ward writes in the FT's Markets Insight column how a Brexit deal or the lack thereof will affect the markets.
The best trading stories from Nikkei Asia
Ahead of Thanksgiving in the US and the Black Friday holidays, shipping costs from China have hit an all-time high of $ 3,900 for a 40-foot container as shipping companies cut their trips and store stocks run low.