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14 February 2018

‘Project Fear’ must not be allowed to derail a post-Brexit US-UK trade deal

by Julian Jessop

Originally published by Brexit Central.

The US is likely to be at ‘the front of the queue’ for a new trade deal with the UK after Brexit, given half a chance. However, sceptics on this side of the Atlantic keep trying to put obstacles in the way.

Some of these obstacles would not just threaten a US-UK trade deal. They would also undermine the whole point of Brexit. For a start, the Government must resist calls to remain in a full customs union with the EU, or else the UK will not be able to conclude its own trade deals with anybody. Some form of half-way house, where the UK has a free hand in respect of services but not goods, would almost certainly rule out a meaningful deal with the US too.

The UK must also be able to diverge from EU regulations. It would be reasonable for a future UK-EU trade deal to set terms that apply specifically to bilateral trade with the EU. But these must not prevent the UK from applying different rules for the rest of the economy, including trade with other countries. Otherwise, this would severely limit the UK’s ability to do independent deals.

Sceptics have also raised many concerns about the US in particular. First, it’s said that the US doesn’t even want a deal. This is wrong. President Trump is clearly wary of big, multilateral agreements, such as NAFTA or the proposed Trans-Pacific Partnership (TPP). But he has been enthusiastic about the prospect of a bilateral deal with the UK, and there is staunch support on Capitol Hill too.

Second, it’s often said that the additional gains from a trade deal with the US would be small, partly because existing links are so strong. The infamous leaked Whitehall analysis reportedly put the boost to UK GDP at just 0.2% over 15 years. This is implausibly low.

It is true, for example, that the UK already exports more goods to the US than to any other country, and the US and the UK are each other’s largest source of foreign direct investment. But this high base also means that only a small percentage improvement is necessary to deliver big gains. What’s more, the close links that already exist with the US mean that it should be relatively straightforward to build on these links. The UK should certainly be able to conclude a good trade deal with the US sooner than the EU ever could.

Funnily enough, though, the opposite point is often made when questioning the benefits of new deals with countries with whom we currently don’t do much trade. For example, the CBI has stressed that the 11 members of the proposed TPP account for only 7% of UK trade, compared to 11% for Germany alone.

This misses the point that the UK doesn’t yet have its own trade deal with the TPP countries, and the fact that the importance of these faster-growing markets will increase over time. Viewed more positively, early deals with the US, and other friendly countries like Australia and New Zealand, would get UK trade negotiators back in the swing again and help with the harder talks that lie ahead with emerging economies, such as China and India, where the potential gains are even greater.

Some sensitive issues will have to be managed carefully. However, British opponents of a US-UK trade deal have tended to exaggerate the risks here too. These include fears that a US-UK trade deal would inevitably lead to the ‘Americanisation’ of the NHS, a free-for-all for powerful multinational corporations, or a race to the bottom in food standards.

The scaremongering over the NHS is depressingly familiar to anyone who has dared to question what to many seems to be a ‘sacred cow’. In reality, a trade deal with the US may simply mean that more of the contracts that are currently awarded to private British or EU companies would go, in future, to private US companies instead. Increased competition from a wider pool of potential suppliers should then improve quality and keep costs down.

What’s more, there is no reason whatsoever why the nationality of firms providing goods and services to the NHS should undermine the fundamental principles on which the NHS is run. Healthcare would remain universally available and free at the point of delivery – unless the UK government decided otherwise.

The second concern may be only slightly less paranoid. This is the fear that an investor-state dispute settlement (ISDS) mechanism would allow US companies to prevent the UK government from, for example, protecting the environment or workers’ rights. As it happens, it is not obvious that free trade deals must include an ISDS mechanism. But the implications in practice would depend on the terms of the agreement. It is hard to see why a well-designed system should penalise a government which is acting reasonably. And this is an odd complaint from those who are happy for the UK to remain subject to the jurisdiction of the ECJ!

The third concern is perhaps the most serious. It is often argued that a trade deal with the US could undermine the UK’s high agricultural standards. However, there are a lot of scare stories here too. Rules should be science-based and proportionate, and the EU doesn’t always get the balance right, or the US wrong. There are also many cases where the choice could simply be left to the consumer. In any event, the UK government has already made it clear that it will not compromise on food safety or animal welfare.

What about the upsides from a US-UK trade deal? There are many areas – including aviation, defence procurement, chemicals, pharmaceuticals, and financial services – where trade could be liberalised to the benefits of both sides. But here are just two examples where the UK would clearly gain.

First, if US firms are allowed more access to UK public sector contracts, the UK can expect the same access to the much larger US markets in return. Second, the liberalisation of agricultural trade would result in more choice and lower prices for UK consumers – including for many foods (such as rice and citrus fruits) which UK farmers do not even produce and where animal welfare is simply not an issue.

Overall, then, there is much to gain and little to fear from a US-UK trade deal. Post-Brexit Britain must be given the chance to set out its stall as a global champion of free trade.



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