4 March 2020

Getting Ready for the U.S.-UK Trade Negotiations

Originally published by Cato Institute.

The UK government just released its trade negotiating objectives for talks with the United States. You can read them here (starts on p. 9), and the corresponding U.S. objectives, released in February 2019, are here.

These documents are interesting and informative, but I caution everyone not to take them too seriously or literally. The UK and EU have recently put out negotiating mandates for their own talks, and politicians and the media have been caught up in op‐​ed and Twitter wars about how each side is behaving unfairly and meanly. I don’t think this is very productive. Releasing these negotiating documents can be useful for transparency, but experience tells us that they are not as definitive as some people are treating them.

For example, the U.S. negotiating objectives in the NAFTA renegotiation said: “Eliminate the Chapter 19 dispute settlement mechanism.” And yet that mechanism remained unchanged in the renegotiated NAFTA (the USMCA), because negotiating is about making compromises.

The U.S.-UK talks are likely to start soon (and the two sides have been talking informally for a while), but progress may be slow. One problem is that the UK’s new relationship with the EU will be an important consideration for U.S. businesses looking to sell in the UK, and the contours of that relationship may not be known until the end of the year (or even later).

Another problem is that we are entering election season here in the U.S. and we may be completely distracted by that soon. Completion of the talks may have to wait until after the 2020 elections (and the success of the talks will be affected by who wins the presidential election and what the makeup of Congress is).

If the Trump administration is looking for smaller trade deals with the UK, it can probably find trade restrictions on particular products to address (end the haggis ban!). But a comprehensive trade agreement could take some time.

Once they get into the talks, here are ten issues to watch (in no particular order, and not an exhaustive list):

– How close will the two sides come to bringing all tariffs on U.S.-UK trade to zero? How many “sensitive” products will they exclude from tariff reduction? For example, U.S. truck tariffs are 25% and UK passenger vehicle tariffs are 10%. It would be nice to see those tariffs removed.

– How restrictive will the “rules of origin” be? Only products that qualify as being of U.S. or UK origin will benefit from reduced tariffs, so the rules that decide product origin are important.

– How much progress will there be on addressing regulatory trade barriers? The aforementioned haggis ban and the famous European restrictions on U.S. (hormone‐​treated) beef and (chlorine‐​washed) chicken will all be up for discussion.

– The U.S. tends to be interested in trading partners’ regulatory process (e.g., does the government do “notice and comment” for draft regulations, as we do in the U.S.). Will the UK be willing to agree to U.S. requests to follow the U.S. model?

– What kind of rules will the U.S. and UK have on intellectual property protection? This is a politically sensitive area where the Trump administration pulled back on some of its early proposals in the NAFTA renegotiation in response to House Democrats’ demands. Provisions related to pharmaceuticals may be particularly sensitive in the U.S.-UK talks because of implications for the NHS.

– Will they try to make it easier for Brits to work in America and Americans to work in the UK through trade in services provisions on movement of natural persons?

– Another important area of services talks will be financial services, where the UK is likely to have some demands. Will the Trump administration be willing to liberalize here?

– Will the U.S. be willing to negotiate on government procurement? The Trump administration seems inclined to push for more Buy America procurement provisions these days and prospects for liberalization here do not seem promising.

– Will the controversial investor‐​state dispute settlement (ISDS) provisions make an appearance? In the USMCA, the Trump administration agreed to phase them out for U.S.-Canada investment, and to scale them back in relation to U.S.-Mexico investment.

– What kind of governance provisions will they settle on? For example, will the Trump administration demand a sunset clause like the one in the USMCA (under which the agreement expires in 16 years unless the parties affirmatively agree to extend it), and how will the UK react?

Simon Lester

​Simon Lester is an associate director of Cato’s Herbert A. Stiefel Center for Trade Policy Studies.