The visit of US President Donald Trump has reinvigorated discussions about a potential Free Trade Agreement (FTA) with the US upon the conclusion of the Brexit process. President Trump has stated on a number of occasions that he will offer the UK a wide-ranging trade deal as quickly as possible, indeed it is quite likely that he sees the successful negotiation of such an instrument as a boost to his campaign for re-election in 2020.
For those who have supported Brexit, an FTA with the US represents one of the great advantages of being in charge of our own trade policy once outside the EU.
A US/UK FTA would most likely be comprehensive in nature, covering not only trade but also investment, competition, intellectual property, and digital trade. The US will seek tariff free access for a wide range of goods, especially in the agricultural sector. It is true that some US standards on food products are lower than those to which UK consumers are used to under the nexus of the EU, but many of the EU’s food standards were excessive and unscientific. Unlike the EU, which tends to adopt an overly cautious approach to health risks, the US’s focus in that regard has been informed by science and the control of genuine risks.
That focus is very much in keeping with WTO principles whereas the EU has flaunted these rules on a number of occasions, notably in relation to genetically modified organisms and hormone treated beef. UK consumers should not be concerned about dangerous foods – the UK will almost certainly not allow imports of these products (nor would the US allow the production of them). Of course it is also a matter of consumer choice. British consumers will be free to reject agricultural goods from the US if they wish and purchase the (likely more expensive) European version. It is noteworthy that the EU has indicated that it would not include agriculture in a future FTA with the US, suggesting that a UK/US FTA is much more likely to be concluded in the near future than a US/EU one.
For manufactured goods, the UK as a member of the EU has tended to favour more liberal rules of origin than the US has done, in particular in some of the US’s new FTAs. This could be contentious going forward as the US has indicated that he will seek high thresholds for local content, potentially interfering with some established value chains involving EU components, for example.
For its part the UK will seek tariff free access to the US market for goods but also for services, where coverage under the WTO’s General Agreement on Trade in Services (GATS) is somewhat less than comprehensive than the General Agreement on Tariffs and Trade (GATT) for goods. The most vital of these services for UK suppliers is financial services but telecommunications and transportation will probably also be covered.
The US and the UK share a common approach to regulatory issues in financial services and therefore we can expect that agreement on this sector will be reached without difficulty in conjunction with the FTA. It is encouraging that the US tends to include services in its FTAs via a ‘negative list’ format in which all sectors are included except those which are not, helping to achieve broad liberalization across sectors and modes of supply. There has been much concerned expressed in the British media that the US will seek to bid for the supply of health services, raising the potential for the ultimate privatization of the NHS, which has alarmed many in the UK for whom any interference with the NHS is unthinkable. Under the current EU regime, companies in other EU member states are already able to tender for various health services for which private provision is available. Under an FTA with the UK the US will merely seek to replicate this entitlement for their suppliers. The UK will likely reserve a broad component of health services from coverage under the FTA because of the sensitivity of this issue, notwithstanding the fact that some further element of competition would likely do the NHS some good. Excluding various sectors is quite common in services agreements and it is unlikely that it would be a deal-breaker in a UK/US FTA.
Competition and intellectual property issues should also feature in a UK/US FTA and again there is broad consensus on many aspects these issues in both countries, although in relation to intellectual property the US tends to seek stronger protections for the holder of intellectual property rights than the UK has done. There are also ongoing controversies in relation to the UK’s slightly different approach to geographical indicators. Investment will almost certainly feature in a UK/US FTA although it is uncertain if it will include the controversial investor-state dispute settlement (ISDS) which has attracted broad criticism, including within the EU which has replaced arbitration with a specialized court in its new FTAs. ISDS has been excluded from the new NAFTA (the USMCA) between Canada and the US, although it has been retained for certain sectors between the US and Mexico. It is unclear what stance the UK will take on this matter however it is unlikely that differences in approach to this procedural mechanism would operate as a stumbling block to the treaty.
Digital trade and e-commerce issues will become even more important in the future than they are today and we can expect that the US will seek guarantees regarding the free flow of data across borders and also prohibition of data localization requirements in an FTA with the UK. Consensus on these issues may be somewhat more problematic for the treaty partners given that the UK has adopted the EU’s data protection rules and intends to keep them going forward. These rules are viewed as unduly restrictive by the US, as are the data localization requirements which the EU maintains.
Generally speaking, while FTAs always require extensive negotiation and compromise, it appears as though a comprehensive FTA between the UK and the US is quite likely in the short to medium term, possibly as early as autumn 2020 if the will is there. The UK would be wise to take advantage of Donald Trump’s soft spot for this country as it we cannot be certain that the next US president will be as eager to pursue an open trade agenda as enthusiastically.