2 March 2019

Trump’s objectives for US-UK trade agreement – key takeaways

On Thursday, February 28, amidst another busy news day in Washington, the Office of the U.S. Trade Representative released its summary of negotiating objectives for a proposed United States-United Kingdom trade agreement. The timing was not arbitrary.

Under the rules of the 2015 Bipartisan Congressional Trade Priorities and Accountability Act, the legislation under which U.S. administrations can negotiate trade agreements with foreign governments, the US President must submit negotiating objectives to Congress at least 30 days before starting formal talks on any such deal. Releasing the objectives on that day means the United States and the United Kingdom can begin talks as early as March 30, the day after the current date set for Brexit.

Most of the 18 pages of bullet points released by the USTR are standard fare for any such agreement. Many of the objectives will be encouraging for those who support free and robust trade. Other objectives are disappointing and even worrying, especially when compared to the proposals in “The Ideal U.S.-U.K. Free Trade Agreement” released last fall by the Initiative for Free Trade, the Cato Institute, and nine other non-profit research centers in the two countries.

One of the most promising objectives proposed by the USTR is to “secure comprehensive duty-free market access for U.S. industrial goods,” and presumably reciprocal access for UK industrial goods. No exceptions are mentioned for passenger vehicles, steel, or other sectors that hold special fascination for the Trump administration.

On agricultural goods, the slightly hedged objective is to “secure comprehensive market access for U.S. agricultural goods in the UK by reducing or eliminating tariffs,” and there, too, presumably to offer the same access for UK goods in the US. No mention is made of exceptions for sugar, dairy, or other politically sensitive US farm sectors.

On trade in services, the USTR sets down the right markers. It seeks prohibitions against discrimination against foreign services suppliers, and against restrictions on the number of suppliers in the market and requirements that cross-border service suppliers establish a local presence. If any exceptions are sought from core principles, those should be applied on a negative list basis and with “the narrowest possible exceptions with the least possible impact on US firms.”

Financial services is one area that the USTR document calls out as a special opportunity to “develop new approaches.” It calls for negotiators to seek to expand opportunities for US financial service suppliers “to obtain fairer and more open conditions of financials services trade.” It also seeks to ensure that the UK’s financial regulatory rules are administered in a way that is transparent and equitable to US suppliers. Ensuring robust competition in financial services is also one of the priorities of the proposed IFT/Cato model agreement.

The USTR objectives also include such worthy goals as reducing or eliminating barriers to US investment in the United Kingdom, protection of intellectual property, higher de minimis thresholds for small package shipments, and prohibition on any restrictions on the flow of data or the location of computing facilities. So far, so good.

In the category of disappointing if not surprising is the Trump administration’s undue focus on the politically connected domestic textile industry. It seeks duty-free access in the UK for US textile and apparel products “while taking into account U.S. import sensitivities.” As for the highly protectionist Merchant Marine Act of 1920, aka the Jones Act, which bans any foreign competition in US domestic waterborne shipping, the administration seeks to “retain flexibility for US non-confirming measures, including US non-confirming measures for maritime services.”

Defending yet another sacred cow, the Trump administration will seek to preserve the ability to “enforce rigorously its trade laws,” including the much abused US antidumping law as well as countervailing duties and safeguard laws. In stark contrast, the IFT/Cato ideal agreement states that “The Parties agree to refrain from invoking their antidumping or safeguard laws and from imposing antidumping or safeguard measures against any other Party.”

On government procurement, the USTR objectives carve out huge loopholes. While it seeks greater market access for US exporters and reciprocity for US suppliers in the UK, it also puts the UK on notice that it will seek to “exclude sub-federal coverage,” i.e. state and local government, while retaining “Buy America” requirements on federal assistance to state and local projects, as well as “key Department of Defense procurement.” This also falls far short of the ideal agreement’s government procurement chapter, which declares that “all national, state, provincial, and local government procurement is open to tenders from entities of all Parties.”

In the categories of the mildly absurd, and the somewhat insulting, are the objectives on labor, environment, and corruption—subjects that were wisely excluded from the IFT/Cato ideal agreement—since both parties cover for these areas domestically, and through other international treaties. On labor, the USTR objectives include language that will require the UK to adopt and maintain such core labor standards as the right to collective bargaining, elimination of all forms of forced or compulsory labor, effective abolition of child labor, and elimination of discrimination in employment and occupation. To ensure UK compliance, the US will seek to establish a senior-level Labor Committee to meet regularly to oversee implementation of all labor commitments under any agreement. In fairness to the Trump administration, this has become boilerplate language directed by Congress to address groundless concerns about a “race to the bottom.”

The USTR objectives on the environment run for a full page and cover 13 bullet points, including that the agreement establish rules to ensure the UK does not weaken its environmental laws to encourage trade or investment. This too is directed from Congress based on the same false fears driving the labor provisions, fears which are totally unjustified in trade between two advanced democracies.

On anti-corruption, the objectives certainly border on the insulting. The USTR declares that it will seek to “secure provisions committing the UK to criminalize government corruption,” to include requiring the world’s oldest parliamentary democracy to establish “codes of conduct and the development of other tools to promote high ethical standards among public officials.” One assumes the Trump administration and the US Congress will agree to reciprocal obligations.

Among areas that are especially sensitive in the United Kingdom, the USTR objectives include the reasonable goal that sanitary and phytosanitary (SPS) measures be “science-based” and built upon WTO rights and obligations. While controversial, this should not discourage the British government and public unduly. Firstly, the language is standard, and does not go beyond that of the WTO SPS agreement – to which the UK is already a signatory. Whether or not the UK will honor its international obligations in this area once she leaves the European Union, is a question that needs to be faced with or without this FTA. And secondly, while there is no direct mention of GMOs and other sensitive issues, the objectives do include establishing “that each Party can set for itself the level of protection it believes to be appropriate to protect food safety and plant and animal health in a manner consistent with its international obligations.”

On its last page the USTR document puts the UK on notice that it will seek language to discourage actions to boycott, divest from, or sanction Israel; and to ensure that the UK avoids manipulating exchange rates to gain an unfair competitive advantage.

In sum, while the USTR’s negotiating objectives for a US-UK trade agreement open the door for expanded commercial relations between these two great trading nations, significant if predictable exceptions to free trade foreshadow an eventual agreement that will fall short of the ideal.

Daniel Griswold

Daniel Griswold is a senior research fellow and co-director of the Trade and Immigration Project at the Mercatus Center at George Mason University in Arlington, VA. He is author of the recent Mercatus study, “Leading the Way with a US-UK Free Trade Agreement,” and a contributor to the IFT/Cato project.