The US will temporarily lift punitive tariffs on £550m worth of UK exports such as Scotch whisky and Stilton cheese, imposed as part of a row with the EU over subsidies to Boeing and Airbus, in an attempt to de-escalate one of the longest trade disputes in modern history.
The move follows the UK’s unilateral decision to suspend tariffs against the US from January 1, which took both Brussels and Airbus by surprise. Brussels has disputed that the UK had the right to act unilaterally in a trade dispute between the EU and the US when it has left the bloc.
Liz Truss, UK international trade secretary, said she was delighted that US president Joe Biden had agreed to suspend tariffs on UK goods for four months. The move would help to improve transatlantic relations, she said.
The US trade representative’s office confirmed that it would temporarily suspend the tariffs, to allow time to negotiate on settling the aircraft dispute.
The Johnson government has come under heavy fire over the tariffs in particular from the Scotch whisky industry, whose exports to the US plunged 30 per cent last year.
“The easier it is for Americans to buy a bottle of Macallan, Talisker or Glenmorangie, the more money those producers will have to invest in their businesses, their staff and futures,” Truss said. “Trade equals jobs.”
The US-EU aircraft subsidies dispute is one of the longest-running cases in the World Trade Organization’s history, reflecting the importance of the industry to each side and the intense competition between Boeing and Airbus.
The battle dates back to 2004, the year after Airbus first overtook its US rival in terms of deliveries. Both sides have been found guilty of providing billions in illegal subsidies to their aircraft makers.
Brussels was last year given the green light by the WTO to impose tariffs of up to 25 per cent on $4bn worth of US products, after Washington announced duties on $7.5bn worth of European imports.
Both Boeing and Airbus welcomed any move that could help to bring the two sides together. “We welcome USTR’s (US Trade Representative) decision to suspend tariffs for allowing negotiations to take place,” Airbus said in a statement. “Airbus supports all necessary actions to create a level-playing field and continues to support a negotiated settlement of this longstanding dispute to avoid lose-lose tariffs.”
Boeing said: “We commend this action by the US and UK governments creating an opportunity for serious negotiations to resolve the WTO aircraft dispute. A negotiated settlement will allow the industry to move forward with a genuinely global level playing field for aviation.”
However, Britain’s departure from the EU has raised questions about how effective any UK-US suspension can be. With no precedent to follow, trade lawyers have said it is unclear whether the UK still had a right to impose or suspend tariffs that were granted to the EU.
Whitehall officials insisted the UK had the right to revoke retaliatory tariffs. One individual close to the process said: “This whole issue shows the benefit of being an independent trading nation . . . if we can get this done, it paves the way to a deeper trading relationship with the US and will help free trade deal negotiations.”
Despite this, there appear to be very few signs of progress in the trade talks between the US and UK. In January, White House press secretary Jen Psaki indicated that securing a deal would not be a priority for the Biden administration.
Last month, Biden’s nominated top trade adviser Katherine Tai told senators that she would “review the progress” of the talks that had taken place between the two sides over the previous two and a half years.
Both the EU and the US have long argued for a resolution to the dispute, but have remained far apart on the terms of any agreement on how to fund new aircraft development.
After Biden’s election as US president, there was a feeling in Europe that a deal could be within reach. There has been growing speculation that talks were progressing.
However, in late December, the US further raised tariffs on European goods, specifically targeting French and German products.
The EU has said it is in intensive talks with the US in a bid to quickly secure a deal to remove punitive tariffs.
“We have proposed that both sides agree to suspend tariffs for six months,” a European Commission spokesperson said. “This will help restore confidence and trust, and thus give us the space to come to a comprehensive and durable negotiated solution.”
A US administration official said that while he could not indicate whether there were plans to imminently remove the EU tariffs, the Biden team was continuing to review the dispute. “The goal is to resolve the dispute and create a level playing field,” the official said.
Both Brussels and Washington are keenly aware that the rules need to be set before China becomes a significant competitor to Boeing and Airbus.
China is expected to be the fastest-growing market for commercial aircraft over the coming decades and Beijing has made it a strategic priority to break the global duopoly in an attempt to claim some of that market for Chinese industry. Later this year, China’s Comac is expected to have fully certified its first major commercial aircraft, the C919 single aisle.
Post-Brexit rules threaten N Ireland aerospace, minister warns
Northern Ireland’s economy minister is pushing the UK government to ease the strains of post-Brexit rules that threaten the competitiveness of the region’s aerospace industry by forcing companies to pay tariffs on raw materials imported from Great Britain.
Diane Dodds outlined aerospace companies’ mounting concerns in a recent letter to Lord David Frost, the Cabinet minister in charge of post-Brexit trade arrangements, and urged him to “ensure that the competitive position of Northern Ireland businesses within the UK internal market was not damaged” by the imposition of tariffs.
Under the Northern Ireland protocol, which sets the terms for the region’s post-Brexit trade, raw materials moved by aerospace companies from Britain to Northern Ireland are defined as being “at risk” of being moved into the EU.
That means the importing company has to pay tariffs on the raw materials as soon as they enter Northern Ireland or Ireland, a cost that could run to £14m a year according to ADS, Britain’s trade body which represents most of the 90 aerospace companies that employ more than 10,000 people in Northern Ireland.
The actual tariffs are ultimately refundable, but ADS said administration costs could run to as much as £65m annually and argued that the raw materials should be tariff-exempt because they are highly specific and only ever likely to be used for aerospace, an industry whose products are generally exempt from tariffs under World Trade Organization rules.
Dodd’s intervention came as prime minister Boris Johnson told the BBC that he was still trying to remove what he termed the “ludicrous barriers” and “unnecessary protuberances” thrown up by the protocol.
Johnson’s repeated denials of the practical realities arising from the protocol since its October signing have caused significant frustration among EU member states and the European Commission, which has launched legal action to force the UK to fully implement the deal.
Neale Richmond, European affairs spokesman for Ireland’s Fine Gael party — a member of the ruling coalition — accused Johnson of deploying “needless verbiage” instead of focusing on making the protocol operational. “Worth remembering that what Boris Johnson calls ludicrous is what he himself negotiated & ratified, the post Brexit protocol isn’t a foreign construct,” he added on Twitter.
The commission declined to comment on Johnson’s latest remarks, but said it was continuing “technical level” talks with the UK over the protocol’s implementation. Germany’s Europe minister, Michael Roth, repeated on Tuesday that the EU wanted the UK to commit to a “binding timeline for the full implementation of the protocol”.
Northern Ireland’s aerospace industry wants the UK government to use the UK-EU Joint Committee, which oversees the implementation of the UK’s withdrawal agreement, to agree a tariff exemption that “recognises the tariff-free nature of international trade in aircraft components and enables them to compete on a level playing field”, said Kevin Craven, interim chief executive of ADS.
The current regime “risk(s) putting companies at a disadvantage against international competitors”, Craven said.
Northern Ireland has a long-established aerospace cluster spanning design to manufacturing, including aircraft seats for many of the world’s airlines. America’s Spirit AeroSystems, which took over Bombardier’s Northern Ireland operations last year, is one of the largest employers and makes the wings for the Airbus A220.
Several manufacturers told the Financial Times the issue was already affecting supply chains. One executive reported recently cancelling a contract with a longstanding raw material supplier based in Britain in favour of an EU alternative.
“Northern Ireland needs to get support from [the Republic] and London and I don’t see much effort in London to help the situation,” Conor McCarthy, founder of Dublin Aerospace, one of the Republic of Ireland’s largest aerospace companies, said.
“The deep engineering and manufacturing heritage in NI should be the attraction and the payback for the British government is to alleviate their economic burden there with two out of every three jobs being a government job of some description.”
The Department for the Economy in Northern Ireland said the minister had asked the UK government to consider how tariffs could damage the industry.
“The difficulties this sector has experienced around the world due to Covid-19 are well known. This is also a sector where components tend to move between manufacturing sites during the manufacturing process,” it added.
German ruling party backs Laschet as candidate to succeed Merkel as chancellor
Armin Laschet has won the backing of Germany’s governing Christian Democratic Union in his bid to succeed Angela Merkel as chancellor, after a campaign that exposed deep rifts in the party five months before national elections.
Thirty-one of 46 members of the CDU’s executive committee backed Laschet in a secret vote, with his rival, Markus Söder, prime minister of Bavaria, receiving just nine, according to the party. There were six abstentions.
The result means Laschet is all but certain to be the centre-right’s candidate for chancellor in September’s Bundestag election, when Merkel will bow out after 16 years as Germany’s leader.
Söder, who is leader of the Christian Social Union, the CDU’s Bavarian sister party, had said he would accept a clear vote in favour of Laschet.
But the ballot revealed deep misgivings among senior Christian Democrats about Laschet’s suitability to run. The party executive had given its unanimous backing to his candidacy last week, but he garnered just 77.5 per cent of the vote, with 22.5 per cent going to Söder.
Laschet, 60, was elected CDU leader in January. But he has struggled in the polls, and many in the CDU/CSU bloc thought they had a better chance of winning the election with Söder as their candidate.
The chaos within the ruling party has also reflected its performance in the polls. The CDU surged to almost 40 per cent last year as voters rewarded it for Germany’s deft handling of the first wave of the coronavirus pandemic.
But its approval rating has slumped in 2021 as public anger mounted over the slow pace of Covid-19 vaccinations and the revelation that some MPs earned huge commissions on deals to procure face masks.
The CDU also faces a strong challenge from the opposition Greens, which some pollsters believed could take the chancellery in the election. The party chose Annalena Baerbock, a 40-year-old MP, as its candidate for chancellor, in a smooth process that marked a sharp contrast with the open power struggle in the CDU/CSU.
The son of a miner, Laschet studied law and edited a Catholic newspaper before being elected to the Bundestag in 1994. He served as a minister in the government of North Rhine-Westphalia, Germany’s most populous state, in the 1990s and became prime minister there in 2017.
Laschet is an ideological ally of Merkel and has said that if elected chancellor, he would continue her middle-of-the-road policies. He was long considered her natural successor.
But his popularity has suffered over the course of the pandemic, when he has come across as hesitant and erratic. By contrast, Söder, who earned a reputation as a decisive crisis manager, has seen his polling soar.
Laschet was endorsed on Monday by some of the CDU’s most influential grandees, such as Wolfgang Schäuble, the former finance minister and Bundestag president, Volker Bouffier, prime minister of the western state of Hesse, and Ralph Brinkhaus, leader of the CDU/CSU parliamentary group.
But other members of the executive, such as Peter Altmaier, economy minister and a close Merkel ally, favoured Söder, a move that will badly dent Laschet’s authority.
The prime ministers of Saxony-Anhalt and Saarland also broke ranks with Laschet in recent days and threw their weight behind Söder, saying he enjoyed far more support among the party’s rank-and-file members. The powerful youth wing of the CDU, the Junge Union, also backed the Bavarian.
Söder garnered support among many CDU MPs who fear they will lose their seats in September if Laschet leads the campaign.
Some attendees of Monday’s meeting said the CDU/CSU parliamentary group and regional party bosses should be involved in any decision on who should run for chancellor.
But Laschet insisted that only the executive could decide and demanded a vote to resolve the issue. “We should decide today, as we planned to at the beginning,” he said, according to participants.
Söder made clear he would respect the CDU executive’s decision, telling reporters this week he had made the party a proposal “but only the CDU can decide if it wants to accept this offer”.
After Afghanistan, China and Russia will test Biden
“America is back” proclaimed Joe Biden, a few weeks ago. But in Afghanistan, America is out. The US president has just announced the withdrawal of all remaining American troops from the country. A 20-year war will end on the symbolic date of 9/11, 2021.
The watching world will wonder if a gap is emerging between White House rhetoric about re-engagement with the world, and a reality of continuing retreat. Biden insists that this is not the case. He argues that America has achieved its counter-terrorism aims in Afghanistan and now intends to “fight the battles for the next 20 years, not the last 20”.
But perception matters. The danger is that the pullout from Afghanistan will be seen outside America as a Vietnam-like failure that could eventually lead to the fall of Kabul to the Taliban, a replay of the fall of Saigon to North Vietnam in 1975.
Rival powers, in particular Russia and China, could now be emboldened to test the Biden administration’s resolve a little further. The obvious flashpoints are Ukraine and Taiwan. In recent weeks, the Kremlin has assembled more troops on its border with Ukraine than at any time since 2014 when Russia grabbed Crimea. Last week, China sent a record number of military jets into Taiwanese airspace. Both countries are combining military muscle-flexing with warlike rhetoric.
Biden himself has used confrontational language with Russia and China. He has called Vladimir Putin, Russia’s president, a killer and his administration has branded China’s actions in Xinjiang a genocide. The US also recently imposed sanctions on Russian and Chinese officials and has eased restrictions on American officials meeting their Taiwanese counterparts.
The strategic situation in Asia and Europe is similar in one key respect. The US has expressed strong support for both Taiwan and Ukraine, but neither country enjoys an explicit American security guarantee. The US relies on a policy of “strategic ambiguity” over Taiwan. The idea is that China should understand there is a strong chance that the US would fight to defend Taiwan, without a firm promise being made. In a similar way, the US has never spelt out what it would do if Russia launched a full-scale invasion of Ukraine.
Although Taiwan and Ukraine are separated by thousands of miles and involve different antagonists, the two stand-offs feel connected. Ivo Daalder, a former US ambassador to Nato, believes that: “Moscow and Beijing will look closely at how we react in one situation to set the stage for the other.” Daalder argues that “we need greater strategic clarity on what we would do if Russia moved militarily against Ukraine, or China on Taiwan”.
There are voices in the US calling for America to now make an explicit security guarantee to Taiwan, and for Nato to accelerate the process that would allow Ukraine to join its alliance. The hope is that these moves would deter Moscow and Beijing, and so reduce the risk of war starting by miscalculation. The argument against these policy changes is that China and Russia may interpret them as a threatening shift in the status quo — and feel compelled to respond. American allies in Asia and Europe may also feel that explicit security guarantees for Taiwan and Ukraine are too provocative. The joint statement issued by Biden and Yoshihide Suga, the Japanese prime minister, after a meeting last week, stressed the importance of peace in the Taiwan Strait, but remained vague about how Washington and Tokyo might respond if conflict broke out.
It would obviously be particularly difficult for the Biden administration to respond to simultaneous crises over Taiwan and Ukraine. Some western strategists are concerned that Moscow and Beijing may be co-ordinating their actions, to maximise the pressure on the Biden administration. They point to an increase in the frequency of high-level meetings between the Russian and Chinese governments. Beijing and Moscow also made statements, after a recent meeting between their foreign ministers, which signalled a deepening of their strategic relationship and a more open rejection of a western-led world order.
The internal situations in Russia and China may also be raising the dangers of conflict. Putin recently imprisoned Alexei Navalny, the most popular and dangerous opposition leader he has ever faced. Navalny is currently on hunger strike and may soon die, sparking further protests. The Kremlin knows that conflict over Ukraine boosted Putin’s popularity back in 2014. Another small war may look like a tempting option.
As the Chinese Communist party prepares to celebrate the centenary of its foundation later this year, President Xi Jinping may be looking for a triumph over Taiwan. American officials believe that Xi and his advisers have convinced themselves that the US is in deep and terminal decline. They fear that the Chinese leadership may believe the US would ultimately back down rather than fight over Taiwan.
But even the most confident and nationalistic officials in Beijing and Moscow will still be conscious of the risks of head-on confrontation over Taiwan and Ukraine. The likelihood is that Russia and China will continue to use “grey zone” tactics that stop just short of all-out conflict. As America discovered in Afghanistan, it is much easier to start a war than to control its outcome.
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