Hello from Brussels, where we’ve been basking in what passes in this miserably cold year as a heatwave, interspersed with monsoon rains. We’re looking at two issues today, both of which involve some transatlantic jockeying for position, particularly newsworthy in view of Joe Biden’s European trip this week and next. In an extended introduction we’ll look at the vaccine patent waiver in the World Trade Organization, due to be discussed by ambassadors this week. In a shorter-than-usual main piece we’ll examine the EU’s carbon border adjustment mechanism, a draft of which leaked on Friday. Charted Waters looks at how much the global deal on tax is likely to boost government coffers.
First, the WTO waiver. We realise our resolution not to write about Covid-19 vaccine patents until something significant happened hasn’t lasted long. But something significant has happened, or rather it’s significant that something ought to be happening but isn’t. A month ago, the US got a lot of credit for supporting, in principle, a patent waiver in the WTO’s IP agreement (Trips). We ourselves hoped that Washington was back to leading debates in the WTO after years of destructive obstructionism under Donald Trump, and looked forward to some detailed Trips negotiations on a workable legal text.
Instead, we’ve had a wildly unrealistic proposal from India and South Africa, almost as sweeping as their initial bid for a waiver last October. This would be the time for the US to focus the debate by producing a negotiating text of its own, especially as there’s a full meeting of WTO ambassadors on the subject this week. Instead . . . nothing. No text, no plans, no comment. One Geneva trade official said during an informal meeting last week the US made a short statement that simply suggested other countries should submit texts for discussion.
The EU, correctly continuing to argue that patents aren’t the main thing with vaccine supply, is now getting sufficiently irritated by campaigners’ attacks that it has begun to make the odd pointed remark. Last week, trade commissioner Valdis Dombrovskis told the FT there was “no concrete proposal from the US on the table, and we also don’t have any information that it’s coming”. Brussels continues to push its own plan to enhance countries’ flexibilities in using compulsory licensing rather than a waiver: it may be a limited proposal, but on the upside it does have the virtue of actually existing.
We try not to be reflexively cynical: the US declaring itself open to agreeing a waiver is symbolically a huge deal. But the Biden administration’s actions so far are consistent with pulling a PR stunt and then avoiding blame for any subsequent disappointment by hanging back, meanwhile wanting credit for finally beginning to donate its surplus vaccines abroad. If this continues it’s not going to be good for reasoned debate on the issue, and campaigners may start to doubt the US is acting in good faith. The issue has the potential to overshadow the biennial WTO ministerial meeting in Geneva at the end of the year. We’ve said before there is some benefit to a limited waiver if it leans on the pharma companies to do more on transferring technology and production, but if it becomes clear the initiative is going nowhere, that incentive disappears. All we are saying is give us a text.
Talking of debates, you can’t fault the EU’s courage in leading the charge on carbon border measures, designed to equalise emissions prices in domestic production and imports. Is it wise as well as brave? Less clear.
The latest draft of the EU’s carbon border adjustment mechanism (CBAM) was leaked on Friday. It’s pretty much as expected, targeted at a few industries (iron and steel, aluminium, cement, fertiliser, electricity generation). To try to make it compatible with WTO law, it’s also linked to the EU’s own emissions trading scheme and envisages a complex system of carbon content assessments and an import licensing authority able to issue permits based on not just national but individual companies’ emissions.
We’ll leave aside the technicalities (there’s a very detailed thread here on the draft) until a final version comes out, and instead look at the political economy of it all. There’s no doubt the EU is taking a chance in single-handedly proposing the idea. The US is going back and forth on whether carbon border measures are a good idea, and in any case doesn’t (yet) have a domestic national carbon pricing scheme of is own. The likes of China and India are flat against. Pushing the CBAM now risks the issue dominating the whole climate change debate this year to the detriment of other elements like corporate governance and with no guarantee of progress.
The initial choice of products for the CBAM won’t mainly affect the geopolitical giants. The goods involved generally have short supply chains and the mechanism will principally clobber the EU’s near neighbours — Russia, the UK, Turkey — which Brussels is happier to annoy than it is China or the US. The situation with the UK, by the way, is quite entertaining, and highly symbolic of its post-Brexit status. If Britain joins the EU’s emissions trading scheme it will automatically be exempted, as are European Economic Area members including Switzerland. If it doesn’t, — even if it adopts a similar scheme of its own — more bureaucratic hassle in the form of assessments and licensing awaits. Welcome, UK, to the paperwork involved in notional sovereignty, part 237.
Despite its attempts to get the US onside, it’s quite possible the EU will end up diplomatically isolated. The ideal outcome would be other countries, perhaps a group of them in a “carbon club” (though see the links section below for the problems with those) adopting carbon pricing under the threat of CBAM before actually seeing their exports to the EU taxed. Ideally the EU would never have to extend it beyond an initial set of products or impose it on more than a limited number of nations. But given the complexity of the mechanism and the political cost of increasing trade conflict with the likes of China, it’s not clear whether a threat to expand it radically is even credible (you occasionally hear some EU officials concede that in fact it is mainly designed as a threat rather than an irrevocable commitment, an admission that suggests they’ve not played much poker in their formative years).
It’s going to be fascinating to see how this plays out. The EU wants to be a geostrategic player: we’re about to see how good its political judgment and diplomatic skills can be.
There was big news on tax over the weekend, as Group of Seven finance ministers agreed to a global minimum rate of 15 per cent for corporate tax. The minimum rate is the second of two pillars global officialdom is discussing.
The first, which is more important to European members, focuses on how to tax Big Tech under a global digital tax. As Chris Giles and Delphine Strauss say here, a lot of debate lies ahead, with negotiations now heading to the Group of 20. But if the rules are passed in their current form, the chart below shows how much they’ll raise per annum, according to the Organisation for Economic Co-operation and Development. Claire Jones
Bernice Lee and Richard Baron, writing for the World Economic Forum, argue that setting up limited “carbon clubs” of countries co-operating on carbon tariffs is a bad idea.
Jim Brunsden and Valentina Pop in the FT’s Europe Express say the EU is waiting for action on trade from the US on a range of issues.
The issue of allowing developing countries leeway to reduce overfishing is dominating talks on fisheries at the WTO, according to the news service SeafoodSource.
Writing in the FT, David Frost, the UK’s Brexit minister, again reveals he did not understand (or is pretending not to) the protocol Britain signed over Northern Ireland in the withdrawal talks, and wants the EU to fix the problem (our characterisation of the situation, not his). Alan Beattie