Trade Tracker – July trade talk more show than substance | Apparel Industry Comment

While NAFTA negotiations are due to start mid-August, it is not known how long US Congress will then take to approve what is agreed

Despite claims of major trade changes throughout July by governments in the EU, Japan, the US and the UK, there is little that is likely to affect apparel importers or exporters for years, according to Mike Flanagan.

The EU and Japan

On 6 July, the world’s media carried reports of a Free Trade Agreement between the EU and Japan.

This suited Japan (still angry that the US had walked out of the planned Trans-Pacific Partnership) and the EU (whose imminent collapse had been forecast in the UK and US since last year’s UK Brexit vote). Japan and the EU were both able to present themselves as open, trade-oriented economies.

But absolutely nothing of substance had been agreed.

  • The EU’s own announcement stressed that the negotiations on the alleged agreement “are not concluded yet, therefore the published texts should be considered provisional and not final.”
  • No timetable was announced for concluding negotiations – never mind moving on to getting legislatures to agree or officials hammering out implementation details.
  • Neither side said whether they expect to reach an implemented agreement within years or decades. Negotiations so far have already taken years; in fairness, a huge number of issues need to be addressed. But Japan’s current 30% import duty on European shoes will not be eliminated until ten years after the agreement comes into force – and there is no published timetable for eliminating duty on textiles or apparel.

Agreeing more controversial issues – like how disputes will be settled, or the complexity of agricultural trade – could mean several more years before the deal comes into force. Or that it never actually materialises.

Though governments love announcing imminent trade deals, because it makes them look progressive, turning them into new rules takes forever. The EU announced an FTA with Vietnam in December 2015 and suggested it might be implemented in early 2018. EU leaders are now merely saying they will “speed up review” of it. There is not even a commitment to a date for starting ratification.

US commitments disappear

Some politicians seek credit for creating new trade deals. In the US, Donald Trump campaigned for office on the promise he’d take the US out of trade deals he thought were damaging the country.

Six months into office, his lack of progress is spectacular.

  • Republican leaders announced on 27 July that the party’s mid-2016 commitment to impose higher duties on all imports was being dumped. The statement gave no details about future plans.
  • Negotiations on the future of the North American Free Trade Agreement (NAFTA) with Mexico and Canada are due to start in mid-August, with US hopes for an end this year.
  • But there is no knowing how long US Congress will then take to approve what negotiators agree. Trump and the Republicans promised a year ago to repeal Barack Obama’s healthcare bill but, on 28 July, the Republicans in Congress failed to agree on the details of the repeal, and have almost certainly now abandoned it.
  • On trade with China, loud threats of instant sanctions against Chinese trade dominated the November election. Since then, US manufacturers and their workers have been devastated by more and more dumping of foreign steel – much of it Chinese. But all Trump has managed to do is mouth vacuous threats no-one takes seriously any more. “[China’s] dumping steel and destroying our steel industry, they’ve been doing it for decades, and I’m stopping it. It’ll stop,” said Trump on 12 July. “There are two ways: quotas and tariffs. Maybe I’ll do both.”
  • He’s done neither. Trump seemed to convince himself in April that his negotiating skills could turn China into a kind of ally: both in dealing with North Korea and in finding new opportunities in China for US businesses. He’s getting next to no help on either front, and seems to have given up honouring his public commitments.

But all these three areas of impotence display a more fundamental problem, which isn’t unique to Trump.

Electorates don’t share common views – or interests – on trade. Claiming to get tough with China was electorally popular. But though cheaper Chinese steel, for example, hurts American steel producers, it also ensures US steel users (like car-makers) stay competitive with manufacturers in other countries that tolerate cheap Chinese steel. Voters and businesses don’t want a tough stance on China if it hurts them. 

Brexit means – well, what exactly?

More than a year after the UK voted to leave the EU, its government has produced no realistic vision of its timetable for leaving or plans for its relations with the rest of the world thereafter.

But it will continue offering duty-free access for products from the world’s poorest countries – like Bangladesh, Cambodia, Laos and Haiti. This is almost the only credible commitment it has made about trade relations after March 2019.

Even the effective leaving date is unclear. Prime Minister Theresa May, committed at the beginning of the year to leave at the end of March 2019.

But, as she went on holiday in late July, her Chancellor of the Exchequer, responsible for Britain’s economy, claimed her team was united in wanting a subsequent three-year transition period in which practically all Britain’s EU membership rights and obligations remain unchanged.

Almost immediately, Liam Fox, Britain’s Minister for Overseas Trade, denied he accepted such a period, and other key Brexit supporters agreed with him. On 31 July, Mrs May’s spokesman said some controls on people moving between the UK and the rest of Europe would be established in March 2019, but gave no details.

With no deputy appointed to run things in Mrs May’s absence, and no scheduled meeting until early September to clarify government Brexit policy, confusion reigns.

At present, the UK government seems committed to re-establishing Customs checks on merchandise moving between Britain and its neighbours sometime between March 2019 and 2022. But no-one has any idea when.

And trade relations with others? As long as Britain has a frictionless trading relationship with the EU, it cannot have its own free trade deals with anyone else. Since no-one knows when Britain will quit its current frictionless EU deal, or what its post-membership EU deal will look like, only a fool would predict the kind of deal any other country would sign with Britain.

So no-one was surprised when Donald Trump claimed in early July that he had “been working on a trade deal [with the UK] which will be a very, very big deal, a very powerful deal, great for both countries and I think we will have that done very, very quickly.”

And no-one believed Trump had any idea what he was talking about.

Britain may or may not negotiate a deal with the US after it leaves the EU. But nothing any foreign statesman now says makes such deals likely until Britain really leaves the EU.

What happens if you translate politician-speak into plain English?

Well, it’s not just what the politicos say. What the Japanese and Europeans announced was scrupulously accurate – but most media, though, turned it into a far bigger story than it was. That, of course was the plan.

Trump’s statements aren’t intended to predict what’s going to happen: for him, they’re what he thinks some audience wants to hear.

The UK government really doesn’t have a plan for Brexit, except to keep its supporters content: when ministers announce common agreement on something, they’re trying to pressure colleagues into agreeing it.

In plain English: as of 31 July, there is no imminent, significant change likely in the rules imposed on imports by the EU, UK, US or Japan between now and at least mid-2018.  

However hard politicians want to persuade you differently.

Mike Flanagan is chief executive of Clothesource Sourcing Intelligence, a UK-based consultancy that provides the western apparel buying community with objective information on apparel production, trade, price competitiveness, and apparel producers in over 100 countries.

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