Yesterday marked some added significant developments related to the ongoing Brexit transition, along with a ruling from the World Trade Organization in favor of a claim from China.
Brexit Transition Talks Turn Tumultuous
In our last update regarding the Brexit Withdrawel transition Supply Chain Matters indicated that brinkmanship scenarios obviously ring familiar and judging from the ongoing transition talks the parties thus far, a semblance of orderly timing seems to be once again out of the cards.
It what is now being described as one of the most extraordinary turns since the 2016 Brexit referendum held in the United Kingdom, the government in Britain now indicates it plans to break international law by breaching parts of the Withdrawal Agreement signed at the beginning of this year.
What is being described as an interpretation issue on the part of Prime Minister Boris Johnson’s government, Britain’s Parliament is now considering legislation that reportedly rewrites portions of the Withdrawal Agreement related to the Irish border. While the measure has passed the House of Commons, it is expected to receive resistance in the House of Lords.
That development has now reportedly turned Brexit talks into a turmoil with a threat of collapsing. The EU is threatening legal action if the legislation is not withdrawn by the end of this month, while Britain has refused, indicating that its Parliament is sovereign above international law.
In addition to threats of legal action, the EU is reportedly stepping up plans for a hard, no deal Brexit to occur at the end of this year.
Once again, with the deadline of the end of October looming to have all of the portions of the Withdrawal Agreement signed and agreed to, the situation is not looking that optimistic at this juncture.
Meanwhile, Nikkei Asian Review reports that the United Kingdom is holding multiple rounds of talks with the eleven member states of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in hopes of joining that trade pact. The U.K. government has just reached a basic trade agreement with Japan and noted as a first step in joining CPTPP. This agreement will reportedly provide the U.K. with preferential tariffs under an agreement Japan has with the European Union.
International Trade Minister Liz Truss indicated in an interview with Nikkei reporters that the Japan deal will be the first as a newly independent trading nation. Further stated was that the Japan agreement will not only lock in the benefits of the EU-Japan deal, but goes beyond in certain other areas such as digital and data. The Trade Minister further indicated that skeptics had indicated that the U.K. would take years be able to negotiate trade deals outside the EU, with the trade deal with Japan serving as evidence to the contrary.
WTO Rules in Favor of China
The World Trade Organization (WTO) has ruled that the United States violated international rules when it imposed upwards of $400 billion in tariffs on Chinese export goods in 2018.
In its petition to the WTO, China claimed that the duties went beyond established rules on treating all WTO members the same. China further alleged that the duties broke a key dispute-settlement rule requiring countries to first seek recourse from the WTO before imposing retaliatory measures against another country. The U.S. had claimed that the tariffs were necessary to confront intellectual property rights misconduct.
In the ruling, the three-member trade expert panel indicated in a written statement that: “the United States had not met its burden of demonstrating that the measures are provisionally justified.”
Bloomberg today reported: “While the ruling bolsters Beijing’s claims, Washington can effectively veto the decision by lodging an appeal at any point in the next 60 days. That’s because the Trump Administration has already paralyzed the WTO’s appellate body, a tactic that has rendered toothless the world’s foremost arbiter of trade.”
U.S. Trade Representative Robert Lighthizer indicated in a statement: “Although the panel did not dispute the extensive evidence submitted by the United States of intellectual property theft by China, its decision shows that the WTO provides no remedy for such misconduct.” Lighthizer further indicated that the existing Phase One trade deal with China has no effect to this ruling .
China’s Ministry of Commerce indicated in a statement that “China hopes that the American side will fully respect the ruling of the expert group.” The statement further described the WTO as the: “core of the multilateral trading system which forms the cornerstone of multilateral trade.”
Global trade experts indicate that this WTO ruling provides no winners in the ongoing trade dispute other than a paper victory for China. Further, the existing gutting of the judicial review process of the global trade agency places into question whether there is any global trade arbitration process exiting across the globe.
Thus in the midst of the ongoing COVID-19 disruption, multi-industry supply chains will have to continue to assess the impacts of a hard Brexit and a more frosted trade relationship and the partial de-coupling of the manufacturing economies of China and the United States.
Bob Ferrari
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