Tuesday, July 31, 2018

Bloomberg News - EU Hurtles Toward a Pyrrhic Brexit Victory

Defeating the U.K. in negotiations will be easy. Dealing with inflamed anti-Europe sentiment won’t.

Be careful what you wish for, Mr. Barnier.
 Photographer: John Thys/AFP/Getty Images

There were a few “Amens” coming from the U.K. after Italy’s far-right deputy prime minister, Matteo Salvini, reportedly told The Sunday Timesthat “there is no objectivity or good faith from the European side” when it comes to the bargaining over the terms of the U.K.’s exit from the European Union. He urged U.K. Prime Minister Theresa May to hold out for a better deal and prepare to walk away.
Salvini represents a populist euroskeptic party, hardly a mainstream European voice. And yet his words were music to the ears of those who suspect that the EU is out to swindle Britain as it negotiates to leave the bloc, and those who welcome any crack in the EU’s united front, no matter how small, as a sign they can still get their way.
There are two kinds of hardline Brexiters now. One is hopeful but deluded, the other realistic but destructive. The hopefuls argue that while the EU stayed united when it came to talking about the divorce payment or EU citizens’ rights, once the talk turns to car sales and the intricacies of supply chains, the different economic and political interests of member countries will assert themselves and a deal will be possible.

There is, in fact, almost no chance of the EU’s united front crumbling now. Chief EU negotiator Michel Barnier poured buckets of cold water on May’s post-Brexit trading proposal, increasing the likelihood that there will be no deal at all, never mind a cake-eating one.
Barnier may have seemed more conciliatory lately when it comes to access for London’s financial services industry. But he hasn’t conceded anything, really; London will be treated like New York and other financial centers, which gain access only once the EU has certified the “equivalence” of their regulatory systems to the EU’s. That’s a long way from the U.K.’s demands for “mutual recognition” of each other’s independently drafted rules.
The EU’s clear preference is to conclude a withdrawal treaty that paves the way for a transition period and a new negotiated trade relationship. But its bigger goals are preserving the unity of the bloc, the integrity of the single market and the sanctity of the 1998 Good Friday agreement that brought peace to Northern Ireland.
While the U.K. could help motivate talks by offering more payments into EU coffers (something Brexiters would find anathema) or a more generous deal for EU migrants, none of these things are tradable against the market access the U.K. wants. Financial services are important, but the industry is not the carrot, or the stick, that Brexiters once assumed.
In terms of trade, it is true that the EU stands to lose from a no-deal Brexit; the U.K. is its most important trading partner. But the hit to individual EU countries is much less than the hit to the U.K. A study last year calculated the share of gross domestic product of each EU country tied up in trade flows with the U.K., and vice versa; only Ireland comes close to what Britain has at stake (10 percent of its GDP is tied up in trade flows with Britain).
The EU is happy to prove the deluded hopefuls wrong and drive the hard bargain it has always intended. But it’s the other group of Brexiters it should worry about more.
They’re the ones who have taken accurate stock of the EU arsenal and the U.K. political terrain. They are resigned to retreating, but prefer to blow up everything along the way. They’ll take a no-deal Brexit over May’s compromise plan any day. Their goal is now to make sure that the blame falls on the EU, May, the Remainers and anyone other than those who voted for Brexit. They plan to rally the resentful at the next election.
British Foreign Secretary Jeremy Hunt alluded to this last week when he told a German audience that the approach being pursued by EU negotiators risks a no-deal Brexit happening “by accident,” and that this would “change British public attitudes to Europe for a generation.”
Salvini, too, knows the power of anti-EU sentiment. But does Barnier, a former French foreign minister and pan-European enthusiast? In seeking to extract more than the U.K. can reasonably give for gains the EU doesn’t really need, the EU risks triggering a collapse in negotiations for which it will share the blame. Barnier may have a plan to defeat the deluded hopefuls, but if he doesn’t help get a deal, he risks entrenching anti-EU sentiment even further. 
To be fair, he doesn’t have much operating room — EU members and the European Parliament still need to approve the final withdrawal agreement. But the EU has long experience in creative fudging when principles and rules clash with political reality. Just ask any country that has violated EU rules on fiscal discipline.
What could Barnier do? He could signal a willingness to give the U.K. more time to negotiate by extending the two-year deadline that makes the divorce official on March 29, 2019. He could work toward an alternative solution to the fiendishly tricky Irish border problem (there are no easy or perfect solutions, but there are ideas with legs). He could at least work with May to modify her plan for a free-trade area for goods.
The withdrawal agreement is 80 percent concluded; the remaining 20 percent should be doable. But even if the end result isn’t an agreement, Barnier’s bigger goal should be to show British voters, and more importantly all euroskeptics, that the EU makes a good-faith effort to win their trust and their trade. The rest is up to them.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners

Monday, July 30, 2018

Reuters News - China tempts Britain with free trade, says door to U.S. talks open

By Ben Blanchard
BEIJING (Reuters) - China offered Britain talks on a post-Brexit free trade deal on Monday, reaching out to London as Beijing remains mired in an increasingly bitter trade war with Washington, even as a senior Chinese diplomat reiterated its door remained open for dialogue.

China has been looking for allies in its fight with the United States, initiated by the Trump administration, which says China’s high-tech industries have stolen intellectual property from American firms and demanded Beijing act to buy more U.S. products to reduce a $350 billion (267 billion pounds) trade surplus.
Britain has pushed a strong message to Chinese companies that it is fully open for business as it prepares to leave the European Union next year, and China is one of the countries with which Britain would like to sign a post-Brexit free trade deal.
Speaking to reporters in Beijing after meeting British Foreign Secretary Jeremy Hunt, the Chinese government’s top diplomat, State Councillor Wang Yi, said both countries agreed to step up trade with and investment in each other.
Hunt said Wang had made an offer “to open discussions about a possible free trade deal done between Britain and China post Brexit”.
“That’s something that we welcome and we said that we will explore,” Hunt said, without elaborating.
Wang, standing next to Hunt at a state guest house in the western suburbs of Beijing, made no direct mention of the free trade talks offer but said both countries had “agreed to proactively join up each others’ development strategies, and expand the scale of trade and mutual investment”.
While a trade pact with China would be a political win for Britain’s government, formal talks cannot begin until it officially leaves the EU next year. Free trade talks typically take many years to conclude.
In the briefing, Wang again slammed Washington for intransigence and intentionally hyping up the idea that the United States is the real victim in their trade dispute.
“The responsibility for the trade imbalance between China and the United States lies not with China,” Wang said, citing the global role of the U.S. dollar, low U.S. savings rates, huge levels of U.S. consumption and U.S. restrictions on high tech exports as amongst the reasons.
The United States has benefited a great deal from trade with China, getting lots of cheap goods, which is good for U.S. consumers, and U.S. companies benefit hugely in China too, he added.
Both China and the United States had appeared to have avoided a full-scale trade war in May, with China agreeing to buy more U.S. agriculture and energy products, but the deal collapsed and the two sides slapped import tariffs on their respective goods.
Washington has since threatened to set tariffs on an additional $450 billion worth of Chinese goods, and no formal negotiations between the two countries have taken place since early June.
China says it is committed to resolving the dispute via talks, and has appealed to other countries to support it in upholding free trade and the multilateral trading system, though European countries in particular have many of the same market access complaints as the United States.
Wang said the current tensions were initiated by the United States, and the two should resolve their issues under the World Trade Organisation framework, rather than in accordance with U.S. law.
“China does not want to fight a trade war, but in the face of this aggressive attitude from the United States and violation of rights, we cannot but and must take countermeasures,” he said
China and the United States have had talks and had reached a consensus, but the United States did not meet China half way, he noted.
“China’s door to dialogue and negotiations is always open, but dialogue needs to be based on equality and mutual respect and on rules,” Wang said. “Any unilateral threats and pressure will only have the opposite effect.
Reporting by Ben Blanchard; Writing by Beijing Monitoring Desk; Editing by Sam Holmes

Thursday, July 26, 2018

BBC News - Trump and EU's Juncker pull back from all-out trade war

The US and EU have agreed to avoid an all-out trade war and work to lower tariffs, in talks that US President Donald Trump hailed as "a very strong understanding".
He and European Commission chief Jean-Claude Juncker announced a "new phase" in EU-US relations, after more than two hours of talks at the White House.
Mr Trump's threat to impose tariffs on European cars was put aside.
The EU plans to buy more US liquefied natural gas (LNG) and soybeans.
A joint statement said the two leaders agreed to "work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods".
US import tariffs of 25% on steel and 10% on aluminium, imposed in March, will however remain in place.
The two sides will launch an expert working group to facilitate trade and lower barriers, and they pledged to refrain from new trade restrictions during those negotiations.
A full-blown trade war had been looming, fuelled by the tariffs introduced by Mr Trump.
EU-US relations had been further frayed by Mr Trump's tributes to Russian President Vladimir Putin and his attacks on Nato and the EU.
Mr Trump's language after meeting Mr Juncker was enthusiastic, in contrast with the angry tone he adopted previously towards the EU, calling it a "foe" on trade.
Mr Trump has come under pressure domestically because of retaliatory tariffs imposed on US goods by China, the EU, Canada and Mexico.
US chipmaker Qualcomm Inc appeared to be the latest casualty of the trade row with China, as Beijing made no announcement on Qualcomm's proposed takeover of NXP Semiconductors, a deal valued at $44bn.
On Tuesday the Trump administration announced up to $12bn in aid for US farmers hurt by the Chinese tariffs.

What was agreed?

Speaking at the White House, Mr Trump declared a "new phase in the relationship" between the US and the EU, calling it a "very big day for free and fair trade".
"We are starting the negotiation right now but we know very much where it's going," he said.
Mr Juncker thanked the president and hailed a "constructive meeting".
Mr Trump said the EU would become a "massive buyer" of US liquefied natural gas and the joint statement said EU imports of LNG would increase, to diversify Europe's energy supply.
Mr Trump has condemned Germany's project to expand imports of Russian natural gas, via a new Baltic pipeline.
"The EU is going (...) to buy a lot of soy beans from our farmers, primarily in the Midwest," Mr Trump said.
Presentational grey line

Some relief after months of turbulence

The BBC's Adam Fleming in Brussels writes:
This is a ceasefire, not a peace treaty. Long-term, both sides have agreed to talk about trade issues. In the meantime neither will introduce any new tariffs, which presumably means Donald Trump will not follow through on his threat to target cars imported from the EU.
Brussels' pledges to import more soybeans and to upgrade Europe's infrastructure to buy more gas from the US cover some things that were probably going to happen anyway.
Mr Juncker will need the approval of the member states, which have different national interests and does he actually have the power to make the European economy gobble up more beans? Without details, it's all just warm words, but after a turbulent few months of transatlantic relations those are worth something.
The pair also agreed to work towards reform of the World Trade Organization (WTO). Mr Trump accuses the WTO of treating the US unfairly - though mostly the US has won in arbitration cases there.
Mr Juncker said striking a deal on zero tariffs on industrial goods was his "main intention".
"I had one intention today, to make a deal, and we made a deal. We have a number of areas on which to work together," he said.
No announcement was made on car tariffs, and it was not clear whether any progress had been made on resolving the issue. Mr Trump had threatened to impose 25% import tariffs on European cars.

What's been the reaction to the agreement?

On Twitter, EU Trade Commissioner Cecilia Malmstrom said the two were "turning a page" on trade, while German Economy Minister Peter Altmaier hailed it as a "breakthrough".
German Foreign Minister Heiko Maas tweeted (in German): "Juncker showed in Washington that it's really not about who tweets most aggressively, but about whether one offers real solutions. Because Trump's grassroots also feels that it only loses when we impose more and more senseless tariffs on each other."
Mr Trump's "America First" policy made him a fierce critic of the proposed EU-US Transatlantic Trade and Investment Partnership (TTIP), which is at a standstill. But his "deal" with Mr Juncker echoes some of TTIP's ambition.
A former US Ambassador to the EU, Anthony Gardner, made that point in a tweet.

How did we get here?

Mr Trump imposed tariffs on steel and aluminium products from the EU, Canada and Mexico on national security grounds - something the EU is challenging at the WTO.
Mr Trump has railed against what he believes are unfair trade practices by US allies.
Steel and aluminium map
The EU has in turn retaliated with tariffs on iconic US goods ranging from Harley Davidson motorbikes to bourbon.
Harley Davidson and US car manufacturers have recently warned of the financial cost these tariffs are causing to their businesses.

Wednesday, July 25, 2018

BBC News - US to give farmers $12bn trade war bailout

The Trump administration has unveiled a $12bn (£9.1bn) plan aimed at helping US farmers hurt by the intensifying trade war.
The aid is intended to protect the industry as countries raise taxes on US products such as soybeans in response to the president's new tariffs.
The US plans to provide subsidies to farmers and buy unsold crops, among other measures.
Tariffs have irked farmers, a crucial voting bloc for President Donald Trump.
Mr Trump has said his tariffs - which he described on Tuesday in a tweet as "the greatest" - are intended to pressure countries to change their policies toward US exports.
In a speech on Tuesday, he said farmers would be the "biggest beneficiary" of the disputes after countries strike new trade deals.
But the agriculture industry, which draws about 20% of its income from exports, said the president's approach is hurting demand for its goods and causing long term damage to relationships with buyers.
Prices for soybeans have already fallen by more than 15% since April, when China - a major buyer of the crop - announced its plans to retaliate.
"Farmers need stable markets to plan for the future," said Brian Kuehl, executive director of the industry group Farmers for Free Trade, which represents pork producers, corn growers and others.
"As such, we urge the administration to take immediate action to stop the trade war and get back to opening new markets."
Image copyrightGETTY IMAGES
Image caption
soybeans in the US being farmed
Most of the $12bn in aid will go direct to farmers

Tariffs at a glance

March: US announces tariffs on foreign steel and aluminium. The US imported roughly $46bn of the two metals in 2017.
April: China retaliates for metals tariffs by raising duties on $3bn-worth of US products.
June: Exemptions to US metals tariffs for EU, Canada and Mexico expire. The three countries retaliate with tariffs on a total of almost $20bn in US products.
July: US and China impose tit-for-tat tariffs of $34bn on the other country's products. A second round of $16bn-worth of tariffs on goods is delayed.
Coming up: The US is also considering additional tariffs of more than $200bn on Chinese products, as well as duties on foreign cars and car parts, which represent more than $300bn in annual trade. Canada, Mexico and the EU have said they are prepared to respond.
Presentational grey line
The US Agriculture Department said it expects losses of about $11bn as a result of the trade disputes.
Much of the $12bn in emergency relief, which does not need congressional approval, will go towards direct payments to farmers of commodities such as soybeans, sorghum, and wheat, officials said.
The US also plans to buy crops such as fruits and nuts, distributing them to food banks and other government nutrition programmes.
Some of the money will also go to boosting export efforts.
The first assistance is expected to be distributed by the beginning of September.
The programme, which will be deployed using powers created during the Great Depression, is not intended to extend beyond this year, officials said.
"This is a short-term solution that will give President Trump and his administration time to work on long-term trade deals that benefit agriculture and all sectors of the economy," US Agriculture Secretary Sonny Perdue said.
Some Republicans and even Democrats backed the aid package.
But industry groups that represent agriculture, as well as politicians from agricultural states, criticised the relief as a short-term solution to a self-inflicted problem.
"Time and time again I've heard from farmers that they want trade, not aid," said Senator Ron Johnson, a Republican from Wisconsin.
"Instead of throwing money at a problem we've helped create, the better option is to take action to make it easier for our farmers - and manufacturers - to sell their goods at fair prices to consumers around the world."
Senator Rand Paul, a Kentucky Republican, tweeted on Tuesday: "If tariffs punish farmers, the answer is not welfare for farmers. The answer is remove the tariffs."
Senator Ben Sasse, a Nebraska Republican, said in a statement: "This trade war is cutting the legs out from under farmers and White House's 'plan' is to spend $12 billion on gold crutches."

Tuesday, July 24, 2018

Reuters News - Threat from Trump trade wars gives fresh purpose to BRICS bloc

by Joe Bavier
JOHANNESBURG (Reuters) - As Donald Trump’s tariff salvos threaten global trade wars, leaders from the BRICS bloc - Brazil, Russia, India, China and South Africa - are expected to band together in defense of the multilateralism the United States once championed.

The heads of the major emerging nations meet in Johannesburg from Wednesday for their first summit since Trump’s administration launched a push to rebalance trade relationships that the U.S. President has deemed unfair.
From threatening to tear up existing trade deals to hiking steel and aluminum tariffs, the U.S. move toward unilateral action has rattled traditional allies and rivals alike. And BRICS nations have been on the frontline of the global tensions.
Last week Trump said he was ready to impose tariffs on all $500 billion of imported goods from rival economic superpower China. But even South Africa - a tiny exporter of steel, aluminum and automobiles to the United States - is facing barriers.
“If you don’t have an agreed rules-based trade system then it’s a matter of power. And unilateralism is not something you want to contemplate,” Rob Davies, trade minister of the bloc’s current chair, South Africa, told Reuters.
BRICS’ dominant member China has stressed the need to fight protectionism and promote multilateral global trade.
“We are against unilateralism - we are in favor of free trade,” Chinese Premier Li Keqiang said earlier this month in response to Trump’s trade moves.
From its origin as an acronym coined in 2001 by then-Goldman Sachs chairman Jim O’Neill, BRICS has struggled to take shape as a body voicing cohesive positions on politics and forging deeper trade ties.
Its collective gross domestic product grew more than six-fold from $2.7 trillion in 2000 to over $17 trillion last year, eclipsing that of the European Union.
However, the value of trade between its members has actually fallen nearly 9 percent to $312 billion over the past five years, according to Johannesburg-based Standard Bank.
Analysts say global trade turmoil could give the group a shot in the arm.
“BRICS knew what they weren’t - i.e. Western - without quite knowing what they were,” said Martyn Davies, Deloitte Managing Director for emerging markets and Africa. “Now with the Trump administration, suddenly there’s an emerging common interest, ironically around trade.”


Though they will not condemn the United States, BRICS leaders will staunchly defend multilateralism and organizations including the World Trade Organisation, according to a diplomat involved in drafting the summit’s final statement.
“The language of the statement will not be standard language because we live in special times,” the diplomat said.
A push to foster trade flows between BRICS member states is also expected, officials and analysts said.
Those efforts include bolstering the New Development Bank (NDB), the grouping’s financial institution.
Russia said this month it was in talks with the bank about borrowing more than $1 billion. On Monday, it approved loans totaling $600 million for energy and transportation projects in South Africa and China.
The NDB is expected to lend $4 billion to BRICS members this year. And South African deputy foreign minister Luwellyn Landers said this week the bank would begin lending to non-members, giving BRICS more clout as representative of the “global South”.
South Africa has invited the leaders of 22 additional countries to participate in this week’s summit, including 19 from Africa.
“There is a pretty big space for the BRICS nations to work together ... to create economic heft and ease the negative impacts of unilateralism and trade protectionism,” said Mei Guanqun of the China Center for International Economic Exchanges, a state-backed think-tank.
As the member hardest-hit by Trump’s trade moves, China is looking to diversify its trade ties to mitigate fallout.
Some analysts say agreeing preferential trade policies between BRICS members is a logical next step. But that may prove to be a bridge too far, at least for now.
Beijing already dominates BRICS and is involved in 80 percent of trade within the bloc. Opening the door to more and cheaper Chinese imports could be seen as too great a risk for the group’s smaller, less industrialized members.
“All those who are affected by lesser access into the U.S. market are likely to want to diversify their exports and just push everything into everybody else’s backyard,” said South Africa’s Davies. “I don’t think that would be desirable.”
Additional reporting by Christian Shepherd in Beijing, Anthony Boadle in Brasilia and Katya Golubkova in Moscow, Editing by Ros Russell