Hello from Brussels. Surely the happiest man in town this week is one of Trade Secrets’ favourite members of the European Parliament, Reinhard Bütikofer. The German Green, a fierce critic of China — and Volkswagen, which has a plant in the oppressed Uyghurs’ region of Xinjiang — was on the somewhat peculiar list of individuals and organisations put under travel and business sanctions by Beijing this week. (See Tall Tales below for the absurdity of one such target.)
Evidently revelling in his status as scourge of the Middle Kingdom, Bütikofer started tweeting about arranging a trip to Taiwan. More about what the Chinese sanctions mean for the EU-China investment agreement next week. (Spoiler: it’s not a net positive.)
In today’s main piece we brace ourselves for more argy-bargy over Covid-19 vaccines, discussing the EU’s plans for targeted export restrictions against countries that don’t export much themselves and have high vaccination rates. Who could they mean? The EU is not alone in taking this route, with India reportedly planning to block vaccine exports as cases shoot up in the world’s second most populous nation. Charted waters, meanwhile, looks at the scenes going on in the Suez Canal, where as of noon CET the Ever Given container ship remains stuck, blocking one of the major arteries of world trade.
Legal? Probably. Fair? Probably not. Sensible? Nope.
It’s with trepidation we raise again the politically taut subject of Covid-19 vaccine exports, especially between the EU and the UK, which usually provokes a hostile flotilla of reactions on Twitter sailing rapidly in our direction and a fusillade of cross emails landing in our inbox.
But here goes. Three questions on the export restrictions (not a ban, European Commission, happy now?) that will be discussed at today’s meeting of EU governments. Are they legal? Are they fair? Are they sensible? Respectively we’d say probably yes, not really, and no.
Let’s go one by one. On the issue of legality, World Trade Organization rules prohibit blocks on exports, though with loopholes for measures to protect human life and health, and temporary restrictions to prevent or relieve critical shortages of goods. But those exemptions have constraints. The restrictions cannot discriminate explicitly or implicitly between trading partners, and measures taken on health grounds have to be “necessary”. The WTO dispute settlement system has in the past ruled against governments attempting to use those loopholes on grounds of discrimination.
The EU says its measures will be “proportionate”, but gives itself a lot of discretion over which trading partners it can restrict exports to. As well as reciprocity of trade in vaccines, one of its criteria is whether the destination country has a higher inoculation rate than the EU. This seems quite odd to us. Should the EU give itself the power to punish other countries for being better at vaccinating their populations, possibly for reasons unrelated to vaccine supply?
The commission has already signalled it’s likely to exempt the US from export restrictions, partly because America sends vaccine components to the EU. But so does the UK: EU production of the Pfizer vaccine relies on lipid nanoparticles from Britain. Less than three weeks ago, Charles Michel, president of the European Council, accused the UK and US in the same breath of having an “outright ban” on vaccine exports. The EU will need a solid argument about its selection decisions to survive legal challenge at the WTO.
In reality, the EU would probably get away even with a WTO-illegal action. The regulation “as such”, as the legal term has it, probably isn’t against WTO rules. The regulation “as applied” may be, but in the time it takes a case to go through the WTO process, vaccine supply will surely have risen anyway and the question will be moot. Losing a case, however, would do further damage to the EU’s reputation as a rules-based open trading economy. Developing countries have already lined up to blip the EU on the head at the WTO for its existing export restrictions.
On fairness, we’ve been through this and it’s debatable but we don’t think so. The UK’s alleged “export ban” is a matter of procurement, not government intervention in contracts, and it came as part of a coherent plan of research and development and production. This is our considered view, and no more correspondence will be entered into.
Are the measures sensible? This one we’re pretty sure of: no. As noted by one of the wise people in this area, Jacob Funk Kirkegaard of the Peterson Institute for International Economics, for one of the world’s biggest vaccine producers to sign EU-only supply deals is likely to hurt its strategic interests in the long run. And for a net exporter more generally to start fracturing value chains and playing around with export restrictions is a dangerous game.
EU officials retort that it’s countries such as the UK that have put such chains at risk with their export policies. But Britain is at least exporting vaccine components. Tit-for-tat restrictions will make everyone worse off.
As it happens, my Brussels colleagues report that scepticism of the commission’s proposal is common among the member states, especially those such as Belgium with a big pharma industry, and moderates in the European Parliament. So where do we go from here? The EU would like the UK to share forthcoming EU-based output, perhaps with the threat of export restrictions kept in reserve to intimidate AstraZeneca (with whom it is far angrier than with UK prime minister Boris Johnson’s government) out of selling abroad.
For the UK, accepting a sharing mechanism might not seem fair, but it might well be expedient. The EU and UK released a statement last night suggesting they were indeed trying for a negotiated settlement.
Britain is discovering what it’s like living next to an economic hegemon used to getting its own way. The EU is a rules-based organisation, sure, but it often sets the rules. If AstraZeneca buckles under EU pressure, will Johnson really want to start a public dispute with a UK-based company, overshadowing the success of Britain’s vaccination programme?
It’s at this point that global governance types (our people, basically) start staring wistfully at the far horizon and thinking of international agreements on developing, producing, trading and procuring of vaccines. It’s obviously the right solution. But given EU governments’ sense that they have been taken for mugs over vaccine exports this time round, they might take a bit of convincing.
The Ever Given remains wedged into the banks of the Suez Canal, after becoming stuck there on Tuesday morning.
The canal is an important route for the transportation of oil — something that’s been reflected in the price of crude, with a barrel of Brent up by about 5 per cent to $63.79 per barrel as of noon CET.
Another big question is what this means for the transportation of raw materials and consumer goods by container ship. Data from the Suez Canal Authority show container ships dominate the route in terms of tonnage.
According to project44, a platform for shippers and the logistics industry, by 3:50pm CET yesterday, 34 container vessels were either immobilised in the canal, or en route to the zone, representing 379,200 TEUs (or twenty-foot equivalent units) of capacity.
The longer this goes on, the worse it gets for the container shipping industry and the exporters that rely on it. With the industry still reeling from the pandemic, nor could it come at a worse time.
Tall tales of trade
It’s a stretch to imagine that any member of the European Parliament could “severely harm China’s sovereignty and interests”, but we guess if you’re going to go after anyone, it’s at least logical to target inveterate critics of Beijing such as Reinhard Bütikofer or the French leftist Raphaël Glucksmann. However, the weirdest name on the Chinese sanctions list was the Germany-based think-tank Mercator Institute for China Studies (Merics), which strongly rejected the accusation of bias against China.
Merics has a point. Among the items on the front page of the Merics website this week were pieces entitled “Why countries choose Chinese vaccines”, “The envy of the world: China’s economic growth avoids major disruptions in a challenging year”, “China’s global healthcare ambitions: Gaining influence on the international stage” and “Beijing fills gaps left by Brussels in the Western Balkan”. These aren’t exactly the words of the attack dogs of western imperialism, are they?
Rescuers have warned that the Suez Canal could remain blocked by a grounded giant container ship for “weeks”, raising fears of significant disruption to global trade.
UK meat producers face up to £120m a year of extra long-term trading costs and the loss of at least a fifth of their total export trade because of post-Brexit requirements on shipments to the EU, the industry has warned.
The FT’s editorial board says the Xinjiang sanctions are a sign of western resolve on China.
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