Trading Games

By Global Tax Weekly

Despite occasional mis-steps, such as over solar panels, and the little “misunderstanding” between the US and Europe over phone bugging, you’ve got to hand it to the EU on the free trade front. A Commission Vice-President weighed in this week in support of the TTIP (Transatlantic Trade and Investment Partnership), and talks continued both on an investment agreement with China, and a free trade agreement with Japan. Full marks for trying, but one has to be sceptical about the chances for all three of these deals to come to fruition. Of the three, perhaps the most likely to work out is the China investment deal: it’s a fact that current levels of investment between the two parties are extremely feeble, although the figures given by the Commission may underestimate triangular flows, for instance through Hong Kong into China and via such as the British Virgin Islands into the EU. At all events, this is definitely a win-win situation, with few vested interests standing in the way, something you cannot say of the TTIP, where entrenched backwoodsmen on both sides are holding their fire until they can see the whites of their enemies’ eyes. I wouldn’t want to equate the US Democrats with the European Parliament in too many respects, but it’s fair to do so in terms of their ability to spoil trade deals.

It’s also true that the pro-trade interests on both sides are not masters in their own houses. In the US, the absence of the Trade Promotion Authority (the TPA) hobbles the President, whose support for free trade is in any case ambiguous at best, so that the game will be played out to a large extent in Congress. What chance is there of an accord between Republicans and Democrats on such a thorny subject? And if the Democrats win back the House in the mid-terms, something that is much more likely than a Republican victory in the Senate, the TTIP is surely dead meat. In Europe, the equivalent battle will be between the Commission (mostly pro-trade) and the Parliament (mostly against everything except making endless, vexatious changes to the Commission’s proposals on behalf of the “social partners,” Eurospeak for Luddite, anti-competitive workers). And I haven’t even mentioned the French.

That leaves the Japanese FTA. If it were not for Shinzo Abe’s astonishing success so far in pushing his reform agenda, I would say the EU FTA was a non-starter, and there is plenty of raucous opposition to it already from Abe’s political opponents. Probably it all depends on Abe’s ability (and willingness) to tame the farm lobby, and the jury is very much out on that score. I am not very sanguine.

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