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Britain’s annual Brexit capitulation draws nigh

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Well, well, if it isn’t an approaching surrender in the Brexit talks by the UK disguised as victory. Seems like one comes every year. It’s premature to assume a Brexit deal is getting done, of course: this is Boris Johnson’s erratic government and his eccentric backbenchers we’re talking about, not to mention some EU member states neurotically obsessed with fish who may just, horrible though it is to contemplate, not be bluffing. Still, the chatter is pointing to a fairly obvious potential agreement on the “level playing field” issues. Britain will allow countermeasures in the form of tariffs or other trade restrictions if EU environmental or labour standards end up much stricter than in the UK, and theoretically vice versa.

The plan has dangers, which we described when it was floated six months ago, of perpetual judicial-political conflict. We’ll assume divergence is judged by a WTO-style arbitration panel, since realistically we can’t see the EU getting away with an antidumping-style arrangement where it imposes punitive tariffs based on its own judgment. As it happens, on Wednesday the EU and UK announced a roster of experts to arbitrate the initial Withdrawal Agreement, but that is rather less contentious than the trade deal. The panel members for the latter, if they start authorising tariffs because of carbon taxes or what have you, should prepare for personalised “Enemy Of The People” front pages in the Daily Mail and purple-faced eruptions from the Tory ranks about unaccountable international liberal judicial elites. But better to take that long-term risk than plunge into no-deal now? We’d say so.

Today’s main piece, on a calmer note, is a look back at how globalisation hasn’t imploded in 2020 despite the coronavirus pandemic, and we then return to Brexit for a Tall Tale about how the EU is a touch less evil and manipulative than its foes allege.

Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to trade.secrets@ft.com or email me at alan.beattie@ft.com

The death of globalisation is postponed once again

Twenty-twenty was a year in which globalisation nearly imploded, but actually didn’t. To be quite honest, this is getting a bit repetitive. It was going to collapse a couple of years ago as a result of President Donald Trump’s US-China trade war, and before that in 2009 because of the financial crisis, and for your true Depression-redux hipsters it was the Sars epidemic (the first Sars, that is, back in 2002, a very niche virus). 

The second wave of Covid has been vicious for many. But the panic about trade has calmed a lot. In October the WTO’s economists updated their forecast for goods trade and took a big turn towards the optimistic, projecting a 9.2 per cent fall in merchandise trade in 2020 — barely more than a quarter of the 32 per cent collapse that was its pessimistic scenario back in April. Next year it reckons that 9.2 per cent contraction should mainly be undone with a 7.2 per cent increase. It’s unlikely to catch up with lost growth rather than just regain most of the level, but we can live with that.

Services trade has been absolutely hammered — US imports and exports of services are both about a quarter down on where they were in January — but a lot of that is travel and related services and should recover as bans on movement lift. There might be some permanent changes, obviously, Zoom calls displacing the Heathrow-JFK red-eye, but a secular shift in cross-border movement from flesh to pixel isn’t a crisis of globalisation.

Is it all over? Nothing to see? Well, maybe, but there are still some lessons to be learned. For a start, to what do we owe this welcome resilience? Partly, as we may once or twice have said, it turns out that a largely automated capital-intensive trading system can survive a pandemic pretty well. Goods trade has performed much better relative to gross domestic product than during the financial crisis, when it collapsed faster than a Boris Johnson negotiating position.

But also it’s got a lot more to do with macro than trade policy. Apart from a few rather feeble gestures about keeping trade going (weaker than the anti-protectionism pledges during the financial crisis, and we didn’t think much of those either), governments really haven’t built much of a multilateral wall against trade wars. Subtler forms of protectionism have continued to flourish

It was public spending and monetary loosening that did most to rescue trade by softening the blow to GDP, together with public procurement to ease particular shortages and stimulate the production of a Covid vaccine. The medical protective equipment crisis in the early months, for example, was ended by governments procuring more face masks, not by regulating trade to prevent export restrictions, which they emphatically failed to do.

The same is true of the other bits of globalisation. The first few months of the pandemic saw the biggest outflows of portfolio capital from emerging markets on record, part of a general flight to quality. Again, loose fiscal and monetary policy in both advanced and emerging markets came to the rescue, and markets stabilised. Possibly a bit more worrying is the fall in migrant remittances — bigger than official aid or foreign direct investment flows — which the World Bank reckons will next year be 14 per cent lower than in 2019. But then you’d expect the movement of migrant workers to recover more slowly than goods containers and high-frequency air travel, and it’s not a calamitous drop. 

So fine, hooray for the world’s central banks and the finance ministries, some of them. Assuming the vaccine gets distributed en masse and there isn’t a premature shift to removing macro stimulus next year, the biggest immediate threats to globalisation should continue to dissipate.

And then all we have to worry about is the fracturing of global commerce in goods, services, data, capital, people and ideas from the US-China geostrategic conflict, the protectionist moves afoot in many countries to reshore production, the moribund state of multilateral rulemaking and the intense pressure that climate change will put on global models of growth and trade. We’ll come back to those next year. For now: phew.

Charted waters

UK goods exports have lagged behind peer countries this year in both the EU and other significant markets across the world, according to Financial Times research that highlights the scale of the challenge facing Britain as it seeks post-Brexit trade deals. The UK is recording falling market shares in goods exports in many key destinations, according to the analysis. During the six months to October, for example, Italy became a larger exporter of goods to the US than Britain for the first time since records began in 1980.

Bar chart of % reporting improving minus those reporting deterioration,  November 2020 showing UK exporters record deteriorating competitive positions

Tall Tales of Trade

The US-Canada-Mexico deal involves Washington using rules of origin to micromanage hourly wage rates in its neighbours © Susana Gonzalez/Bloomberg

Back to Brexit. The “wah-wah not FAIR” stuff from Brexiters criticising the level playing field rules holds that the EU is trying to dictate regulations to a trading partner in an unprecedented way. (Unprecedented apart from Switzerland, Norway, Iceland, Ukraine etc, but we digress.) The US doesn’t do that to Canada and Mexico, so why does the EU to the UK? Not FAIR. However, as pointed out by Jonathan Portes, myth-buster extraordinaire on trade and immigration, the US-Canada-Mexico deal (USMCA) actually involves Washington using rules of origin to micromanage hourly wage rates in its neighbours. (Check this out for heavy-handed bureaucracy: minute detail on inspections, required documentation, everything.) Even France hasn’t tried to do that to Britain. 

In fact, even with further-flung trade partners, the US is sometimes more neurotic and prescriptive than is the EU, partly because Washington feels it is losing the global regulatory battle to Brussels. The UK can do a deal with the EU and follow whichever food hygiene rules it likes domestically, if it accepts the border frictions. By contrast, Washington’s chemical-washed obsession with dictating sanitary regulations in its trading partners is legendary. The rules on labour and environmental standards in the level playing field talks are a pretty small subset of the regulations that determine trade. If the Brexiters are really going to block a deal on these grounds, it’s either because they’re too ignorant to grasp the issues or cynical enough to pretend they haven’t.

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Turkey’s marine crisis: ‘death knells are ringing for Sea of Marmara’

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For a decade, marine biologist Nur Eda Topcu has fought to preserve delicate corals off the Istanbul coastline, which environmentalists say are threatened by the dumping of industrial waste, fuel and sewage.

Now she fears a new threat may hasten the end of the Sea of Marmara’s coral reefs. A gelatinous substance colloquially known as sea snot has in recent months choked aquatic life, blighted fishing and repelled swimmers.

Long brown streaks of the marine mucilage were still visible across the Marmara in late July, while the gooey foam sank below the surface settling on the rare corals. Scientists warn that the sea, whose mix of Mediterranean and Black Sea currents foster coral usually found at far deeper depths, itself is at risk.

“The death knells are ringing for the Marmara,” said Topcu after surfacing from a recent dive to clean the slime that coated normally fuchsia-hued corals off an Istanbul archipelago. “We can’t stop the mucilage. It’s smothering the gorgonians [and] infecting them with harmful bacteria.” She fears most of Marmara’s soft, red Paramuricea clavata, listed as a vulnerable species of coral, will perish this year.

Eda Eryalçın Topçu (right), Marine biologist at Istanbul University, and Serço Ekşiyan, of the Deniz Yaşamını Koruma Derneği (Marine Life Conservation Society) during a research dive in the Marmara Sea south of Istanbul
Nur Eda Topcu, right, and Serco Eksiyan, of the Marine Life Conservation Centre, during a research dive © Bradley Secker/FT

A thick layer of marine mucilage known also as ‘sea snot’ covers the surface of the Marmara Sea
A thick layer of marine mucilage covers the surface of the sea © Bradley Secker/FT

Factories have nearly doubled the deluge of wastewater they discharge into Turkey’s seas in recent years, according to official statistics. The 50,000 tankers that sail through the Marmara each year illegally dump waste and fuel, according to one municipal monitor. Almost two-thirds of the nation’s industry, including an oil refinery, carmakers, chemical plants and power stations, is concentrated in the region.

Most wastewater from Istanbul, Turkey’s largest city, is only treated to remove solids, then pumped to the bottom of the sea. “We use it as our cesspool,” said Levent Artuz, a hydrobiologist at the Marmara Environmental Monitoring Project and author of a new book A Recent History of the Polluting of the Sea of Marmara.

The situation was not helped by the fact that sea temperatures had climbed by an average two degrees Celsius in the Marmara since the start of this century as pollution trapped heat, he said. A state project that diverted the Ergene River, one of Europe’s most toxic waterways, to the Marmara last year was “the tipping point”.

“The essential problem isn’t mucilage. That’s just a link in the chain of decades of degradation,” Artuz said. “We have zero chance of recovering the Sea of Marmara as it was. What we have to do now is figure out how to prevent the Marmara from harming us.”

Sea snot and pollution can be seen in the Marmara Sea
Long brown streaks of the marine mucilage seen across the Marmara Sea in late July © Bradley Secker/FT

The borders of the Marmara Sea, which has been heavily affected by the ‘sea snot’
Scientists and fishermen say the current flare-up is unprecedented © Bradley Secker/FT

In recent years, marine life has died in mass mortality events, and there have been infestations of jellyfish and algal blooms such as red tides and mucilage.

But scientists and fishermen say the current flare-up is unprecedented. Phytoplankton is flourishing because of nutrient-rich sewage and fertiliser from agricultural runoff while overfishing has wiped out populations of small fish and crustaceans that would consume the algae.

Gone are the mackerel, tuna, swordfish and other seafood that Istanbul was known for. This year’s haul was down 90 per cent from 2020 as mucilage clogged and dragged off nets, said Erdogan Kartal, the head of Istanbul’s fishing co-operative. “Even if we could supply fish markets, customers aren’t buying out of disgust.”

Recep Tayyip Erdogan, Turkey’s president, has vowed to crack down on polluters and “save our seas from this scourge of mucilage”. Thousands of cubic metres of the sea snot had been vacuumed up, the country’s environment minister said. In early July, he pronounced the Marmara “cleaner and bluer” than before.

Turkey is the only G20 country that has not ratified the Paris accords on climate change, and grassroots movements to protect the environment are often viewed as provocateurs by the government.

Authorities have refused to register a new Green party eager to fight climate change. Scientists also say that a planned shipping canal from the Black Sea to the Marmara could deplete oxygen in the Marmara and promote hydrogen sulphur gas that would envelop Istanbul with the stench of rotten eggs. Erdogan’s transportation minister argues that the cleaner water coming through from the Black Sea would improve the quality of the Marmara.

Along the way, there have been successes for Topcu and members of Istanbul’s Marine Life Conservation Society (MLCS). They secured protected status for the tiny outcrop of Neandros this April, stopping boats from dropping anchors or trawling for fish near its corals. They spent two summers transplanting fan-like yellow sea whips to Neandros after a nearby colony of the golden Eunicella cavolini was buried in debris from a government construction project.

“We carried them like a heart or kidney for transplant, keeping them in cold water and in the dark to prevent shock,” said Serco Eskiyan of the MLCS. It took more than 100 dives to harvest and replant 300 corals 30 metres down.

Eda Eryalçın Topçu (left), Marine biologist at Istanbul University, preparing her equipment prior to a research dive next to Tavsan Adasi
Topcu, left, prepares her research equipment before diving in the Sea of Marmara © Bradley Secker/FT

Eda Eryalçın Topçu, Marine biologist at Istanbul University, shows a photo from a research dive next to Tavsan Adasi, in the Marmara Sea south of Istanbul, after repeatedly applying good bacteria to the coral, to combat the ‘sea snot’ which continues to kill the sea bed ecosystem
A photo from a dive. Sea snot continues to kill the seabed ecosystem, clogging corals © Bradley Secker/FT

But Eskiyan, who has dived the waters off the islands since the 1970s and knows the area “like the rooms in my house”, was unable to locate the transplants in July, blinded by the sea snot that reduced visibility to a metre or two. “It looks like a different planet,” said Topcu.

A generation ago, the Marmara’s rich fauna included seahorses, poisonous scorpionfish and great white sharks, now all gone, though Eskiyan still occasionally confronts a rare angular roughshark when he hunts for “ghost nets” abandoned by industrial fishing boats that choke the corals. The MLCS has collected 32,000 square metres of the meshing since 2015.

“I have faith in the sea’s ability to renew itself from the damage people do. But now I question how much longer it can fight back,” Topcu said.



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Ransomware attacks rise despite US call for clampdown on cybercriminals

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Ransomware updates

In mid-June, US president Joe Biden held talks with his Russian counterpart Vladimir Putin to discuss a recent scourge of cyber attacks against the US, including by Russian-based criminal ransomware hackers. 

Biden has said he told Putin in no uncertain terms that “certain critical infrastructure should be off limits to cyber attack — period”. Nevertheless, data show that ransomware attacks continue apace, including in sectors such as healthcare and education. It is unclear whether Biden will take further action in light of this. 

Ransomware, which usually involves hackers seizing an organisation’s data or computer systems and only releasing access if a ransom is paid, has long plagued businesses large and small. The first known ransomware virus, PC Cyborg, was recorded in 1989, with victims infected via floppy disk and told to send a $189 cheque to an address in Panama.

Today, these financially motivated hacks are far more sophisticated — and are proliferating fast. Attacks have quadrupled during the pandemic, SonicWall data show, partly because the shift to remote working has left staff more vulnerable than if they were connecting to more secure corporate networks. 

Chart showing that ransomware attempts reached an unprecedented level in 2021

Additionally, hackers have swapped demanding cheques for requesting hard-to-track cryptocurrencies, meaning that as the price of bitcoin has risen during the past year, the business of ransomware has become all the more lucrative. It is also easier to launch attacks with little to no technical knowhow, given the growing market for “ransomware-as-a-service”, where hackers maintain their ransomware code but rent it out to others and take a cut of any extortion payouts. 

While known attacks have reached unprecedented levels, the story of what we do not know — given that there are few rules around disclosure — may be far worse. Earlier this week, Bryan Vorndran, assistant director of the FBI Cyber Division and other cyber agency officials called for mandatory reporting rules around attacks, so that accurate data can be gathered and analysed by the US government.

Chart showing the median size of companies targeted by ransomware (number of employees)

Small businesses with little spare resources have tended to be the hardest hit by ransomware attackers. But the matter was thrust into the spotlight earlier this year after several audacious attacks on critical infrastructure such as the Colonial Pipeline, which led to fuel shortages for several days on the US east coast, the Irish health system and Brazilian meat supplier JBS. All of these attacks were believed to originate from Russia-based ransomware hackers, although the US government has accused Chinese state-backed groups of also orchestrating attacks.

The number of ransomware gangs stretches into the dozens and continues to proliferate as the economics remain so profitable. Vorndran said the FBI tracked 100 gangs, using an algorithm to rank them and the effect that each has on the economy. The largest one rakes in an estimated $200m a year in revenues, he said.

Chart showing that ransomware demands can often be negotiated down

To help victims fight the gangs, a cottage industry for “ransomware negotiators” has emerged. These middlemen are tasked by victims with haggling down the ransom payments. As go-betweens, they also collect data on attacks, learning the playbooks of various groups in order to best know how to speak to them. 

According to data from Coveware, the average ransom payment has fallen in the second quarter to $136,576, from more than $200,000 in the first quarter, amid an emergence of smaller ransomware groups. But in the majority of attacks — about 80 per cent — hackers are using the newer tactic of threatening to leak data as extra leverage in extorting victims. About half of these “leak threat” victims paid out in the second quarter, Coveware said.

Chart showing publically reported ransomware attacks on US healthcare, public, state or local government and schools, by month

Unfortunately, the negotiators’ services continue to be in high demand. According to data on reported attacks collated by Recorded Future, in the US there have been 10 attacks on healthcare, nine on schools and 10 on public state and local government groups during June and July this year. Despite Biden urging Putin last month to crack down on the criminal groups and warning against attacks on 16 critical entities, attacks on many of these key sectors have continued.

“The volume of targeted attacks on government organisations and enterprises that impact civilians, countries and the global economy will not end without a change in approach,” said Bill Conner, the chief executive of SonicWall.



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France delays EDF reforms after failure to agree terms with Brussels

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EDF updates

France has been forced to delay the restructuring of state-owned utility EDF after it failed to agree the terms with the EU, a setback to a major economic reform promised by President Emmanuel Macron.

“Significant progress has been made in our discussions with the European Commission, but to date we have not reached an overall agreement,” said a government official. “Therefore it is not possible to submit a draft law to parliament if the principle points of the reform have not been agreed to in advance.”

Jean-Bernard Lévy, EDF chief executive, on Thursday declined to provide a specific timetable for when the reform could be completed, but analysts said it would likely prove difficult at least until after the French presidential elections next April.

“I regret that this reform that is indispensable to EDF cannot happen now,” said Levy. “Our short term [prospects] are guaranteed, but our medium and long term are not if we want to play in the big leagues, which is what is expected of EDF.”

Dubbed Project Hercules, the planned overhaul of EDF was meant to give it the financial firepower to invest in both nuclear and renewable energy in the coming decades.

An important element would be changing the mechanism and regulated prices at which EDF sells nuclear power, which provides 70 per cent of France’s electricity. France wanted to push through higher regulated prices for nuclear power, so EDF could pay down heavy debts and absorb the high costs of maintaining its nuclear reactors.

But Brussels would have to approve such a change because of its remit to ensure free competition in the energy sector and to prevent member states from unfairly bailing out companies.

The plan would effectively split up EDF by creating a government-owned mother company, EDF Bleu, containing the nuclear assets as well as a hydroelectric subsidiary. Another subsidiary, EDF Vert, would house renewable assets, the networks and services businesses, and would be publicly listed with about a third sold to raise funds to boost EDF’s green energy investments.

Macron has argued that the changes are vital for EDF to flourish and keep up with rivals. Given that France owns almost 84 per cent of the group, the government had also hoped the reforms would lighten the state’s financial burden.

But the overhaul has been caught in wrangling with the commission. Le Monde reported that the key sticking point was how the relationship between the newly created entities would work and whether cash could freely flow between them as if the company were still fully integrated.

The French finance ministry, which has piloted the talks, and the Elysée Palace declined to comment further on the details.

EDF’s powerful labour unions had opposed the plan as a prelude to the group being broken up or privatised, and have also raised concerns that it would pave the way for nuclear energy to be marginalised.

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“We celebrate the knockout punch delivered to Hercules,” the far-left CGT union said. “The only aim of these manoeuvres is to pull off juicy financial transactions at the expense of consumers and EDF employees.”

EDF shares fell as much as 4 per cent on Thursday as the reform’s failure overshadowed strong second-quarter financial results that showed the utility rebounding as economic activity picked up despite the Covid-19 pandemic.

Barclays analysts wrote in a note that investors were being too pessimistic on the outlook for the reform even if its timing was hard to predict.

“We continue to believe that ultimately there will be an agreement between the EU and France on EDF’s reorganisation.”

Additional reporting by David Keohane



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