UK-US trade relations: Government Response to the Committee’s Second Report

Fourth Special Report

The International Trade Committee published its Second Report of Session 2017–19, UK-US Trade Relations, on 1 May 2018 (HC 481). The response from the Government, and an accompanying letter from the Secretary of State, were received on 10 July 2018 and are appended below.

Appendix 1: Letter from the Secretary of State for International Trade to the Chair of the Committee

I would like to thank the Committee for its report published 1 May 2018 on UK-US Trade Relations. Your work plays an important part in providing proper scrutiny and debate. I know that my former ministerial colleague Greg Hands welcomed the opportunity to provide evidence back in March and I am grateful now for the opportunity to respond to your recommendations.

The Government has made no decision over whether to enter into negotiations with the United States. But it is right that we should prepare for the possibility of beginning negotiations with our largest single trading partner, accounting for a fifth of all UK exports, as part of the Government’s preparations for when we leave the European Union. We established a UK-US Trade and Investment Working Group with that aim in mind, through which we are also working with the US on the critical task of ensuring certainty and continuity for business as we leave the EU and - as your report suggests - looking at where we can deepen our commercial ties even while we remain a Member State.

I have been encouraged by the level of engagement from the US, and our three working groups to date have been extremely constructive and helpful. I have also been struck by the considerable support and enthusiasm for closer UK/US links that I have heard from members of Congress.

Nonetheless, you will be aware that, since Greg Hands’ appearance before you, the US have applied tariffs on steel and aluminium imports from the EU. The Government has made clear its disappointment and, as a close security ally of the US, we strongly reject any claim that UK products harm US national security. We will continue to use the strength of our relationship with the US to safeguard the UK’s interests and press for a permanent EU exemption to the tariffs . We will also continue to work closely with the EU and the US to find a constructive resolution and to tackle the global challenge of steel overcapacity; in the meantime, we support the EU’s imposition of countermeasures.

Let me also assure you that we are following the recently-announced “Section 232” investigation into the auto sector closely. As with steel, I reject any suggestion that the UK car industry poses a threat to US national security.

I enclose a formal response to the conclusions and recommendations made in the Committee’s report, and I welcome continued engagement with you.

10 July 2018

Appendix 2: Government Response

In the International Trade Committee’s Second Report of Session 2017–19 on UK-US Trade Relations, the Committee published nineteen conclusions and recommendations in total. This paper will discuss the Department’s response to the specific recommendations set out below. Recommendations made by the Committee are indicated in bold italicised text.

Sequencing and Priorities - Recommendations

(Paragraph 3): Before embarking on a formal trade negotiation with the US, the Government should publish a trade policy strategy which articulates its vision for the UK as an independent trading nation and outlines the UK’s immediate and future trade priorities at the bilateral, plurilateral and multilateral levels, and in order to ensure clarity on the UK’s trading environment it would be preferable for Parliament to resolve the 2018 EU (Withdrawal) Bill and Trade Bill as soon as possible.

(Paragraph 4): The Government should set out in its trade strategy what key objectives, interests and priorities it has before entering into trade negotiations, including on a UK-US FTA. It must also be clear about the sectoral and regional implications of pursuing particular trade policy objectives.

The Government’s vision is for a UK that trades its way to prosperity, stability and security. The Department for International Trade published a paper titled, ‘Preparing for our future UK trade policy’ in October 2017, which sets out: our emerging approach to establishing an independent Trade Policy as we exit the European Union; how trade can benefit producers and consumers in all regions across the UK; and, the key principles that will shape our future trading framework and key elements of our approach.

Following nearly 8,000 responses, the Government published its response to the feedback on the Trade White Paper in January 2018. This set out how the Government intended to develop its independent trade policy through supporting a rules-based global trading environment, boosting our trade relationships, supporting developing countries, ensuring a level playing field and delivering trade that is transparent and inclusive.

The Government agrees that it would be optimal for the EU Withdrawal Bill and Trade Bills to conclude their Parliamentary passages as soon as possible, in a form which achieves their objectives of continuity and legal certainty. As the Committee will be aware, the EU Withdrawal Bill received Royal Assent on 26 June and the Trade Bill completed Public Bill Committee stage on 1 February 2018 and will be returning for Report in the near future.

The Government is committed to considering all options available to the UK in light of our exit from the European Union. At this stage, it should be stressed that UK officials are taking forward discussions with their US counterparts in order to prepare for the possibility of launching negotiations on a potential Free Trade Agreement (FTA) with the US when the UK leaves the EU; the Government has not made a decision on whether to do so, and it remains too early to say what would be the content of any such negotiation.

Nonetheless, it is clear the US is an important trade and investment partner as our largest single export market, accounting for around a fifth (18.2%) of all UK exports, worth around £100bn in 2016 (ONS). Our exit from the European Union offers an unprecedented opportunity to reshape our independent trading ambitions and build on the already strong trading relationship with the US. Our economic prosperity is enhanced by the depth of our trade, financial, cultural and investment links with the United States. We are pleased that the Committee notes that a trade agreement with the US could provide opportunities for the UK economy, businesses, workers and consumers.

Potential economic benefits of UK-US Trade Agreement - Recommendations

(Paragraph 5): A UK-US FTA has the potential to have a positive effect on economic growth. However, given how central new free trade agreements are to the UK’s Brexit strategy, and that an agreement with the US is top of the list, the Government should undertake detailed work modelling the potential effects of a UK-US agreement on the economy.

(Paragraph 6): The Government should be clear and well-informed about the potential economic effects (positive or negative) of a UK-US FTA. Before pursuing a US trade agreement, the Department should conduct a comprehensive economic impact assessment. The assessment should go beyond an econometric study of the potential impacts, and consider in detail the effects of an agreement, broken down by sector as well as by each of the regions and devolved administrations of the UK. The Government should also be clear about the assumptions regarding reductions in non-tariff barriers which underpin the impact assessment. It should also take account of any effect of a trade agreement between the UK and the US on trade between the UK and its other trading partners It should also take account of any effect of a trade agreement between the UK and the US on trade between the UK and its other trading partners.

(Paragraph 7): We accept that there will be some occasions when the Government should not publish certain information to protect the UK’s negotiating position, but the Government should set out its position in its negotiating mandate, including identifying who is most and least likely to benefit from the proposed agreement.

We are committed to a transparent and inclusive trade policy. This is especially important as we seek continuity in existing trading arrangements, as businesses need to be assured that there will not be any disruption to existing preferential terms.

The Government must strike an appropriate balance here. There is value in being as transparent as possible to benefit from insights from businesses and civil society, but we must also respect the privacy of aspects of the negotiations whilst we are still in discussions with our partner countries. We cannot publicly pre-empt the outcomes of discussions before these have been finalised. Further, our partner countries may expect a degree of confidentiality and we must be able to respect that.

The Government is developing its analytical capability to examine the economic impacts of trade policy options. This includes a range of economic modelling techniques, including tools to estimate distributional effects of trade agreements. These tools are used extensively among other international trade organisations.

The Government is considering what analysis it will publish throughout the process of negotiations and will update the Committee accordingly as this happens.

Regulatory Cooperation - Recommendations

(Paragraph 10): The Government should consider establishing a cross-departmental working group on trade and regulation which informs all of its trade negotiations, including with the EU. The Committee will consider this issue further in its future work.

(Paragraph 11): The rate at which technology and tech businesses are developing far surpasses the capacity to predict future regulatory issues. It is critical therefore that any UK-US FTA is a living agreement. We support the inclusion of a structured arrangement for future dialogue between UK and US regulators, while recognising that such a dialogue should not have a chilling effect on future public interest regulation. In considering the form of the cooperation mechanism, the Government should have regard to the proposed future cooperation mechanism in TTIP and its potential benefits and risks.

The Government agrees that the reduction of non-tariff-barriers is important to realising the full economic potential of trade agreements.However, inappropriate regulatory barriers can be reduced or removed through a variety of means, for example cooperation between regulators, mutual recognition of conformity assessment or recognition that both parties adhere to international standards, which do not require significant changes to domestic regulation. Therefore, it should be possible to remove regulatory barriers in similar areas with multiple trade partners.

The Government has already created a Cabinet sub-committee, the EU Exit and Trade Committee which considers existing negotiations with the EU and dialogues with other trade partners. Official level meetings are in place to prepare for these discussions and these arrangements will be in place for input into future trade negotiations with other trade partners.

Cross-Whitehall working groups, led by the Department for International Trade, have been established to inform UK international trade policy across the range of policy areas covered in trade agreements.

The Committee also suggests facilitating an on-going dialogue between regulators. The Government agrees that this idea is worth further consideration, though is mindful of the independence of many regulatory bodies and agencies, both in the UK and partner countries. We will need to reflect that when considering how any such dialogue should be pursued, including whether such mechanisms would be into any future Free Trade Agreement. We note, in this context, that the UK and US agreed in April 2018 to continue their already strong collaborative partnership on financial regulatory issues through the formation of a UK-US Financial Regulatory Working Group (see: https://www.gov.uk/government/news/us-uk-trade-and-investment-working-group-statement), with a view to the further promotion of: financial stability; investor protection; fair, orderly, and efficient markets; and, capital formation on both sides of the Atlantic. As the linked press release sets out, the Working Group will be used as a platform for furthering financial regulatory cooperation, with the general operational objective to improve transparency, reduce uncertainty, identify potential cross-border implementation issues, work towards avoiding regulatory arbitrage and towards compatibility, as appropriate, of each other’s national laws and regulations.

In exploring further areas for co-operation, the Government will look to international best practice.

Trade in Goods Case Studies – Recommendations

(Paragraph 12): The Government should be clear, before entering into any FTA negotiations, about the relative weight it intends to give the interests of different sectors within the UK economy. These considerations should be addressed in an impact assessment.

(Paragraph 13): The Government should ensure that the effect of a UK-US trade agreement on consumers is considered separately to a sectoral impact assessment. The Government needs to ensure that consumers are represented in consultations on a future UK-US trade agreement, and in particular, put mechanisms in place to ensure that the voices of lower-income consumers are heard.

As noted before, the Government is considering what analysis it will publish throughout the process of negotiations and will update the Committee accordingly on the outcome of this decision.

DIT has consulted widely, with a range of stakeholders, including consumers and consumer organisations since the EU Referendum and will continue to do so. Any trade deal must be in the interests of UK consumers, producers and businesses. It must uphold high levels of labour, health, food and environmental standards.

The Secretary of State has announced his intention to set up a new ‘Trade Policy Strategic Advisory Group’. We are currently working through plans for this group, including how it should fit into the wider stakeholder engagement architecture. In terms of representation we will seek to include individuals capable of taking views from across business communities, civil society, consumer groups and academia from across the UK, including the devolved administrations. The government recognises the importance of stakeholder input, particularly from consumers, and this will continue to shape our emerging trade policy.

Trade in Services - Recommendations

(Paragraph 15): The Government should explore options for addressing the complexities of federal, state and local restrictions on the provision of services and awarding of procurement contracts. The Government should ensure that it campaigns at the state-level for greater market access which can be enshrined in a UK-US FTA. A Washington-only approach will not suffice. That approach needs to begin immediately by ensuring that state-level representatives are included on the UK-US Trade and Investment Working Group, or, if necessary, that separate, state-level working groups are created. Taking account of the practical difficulties, without senior sub-federal participation in the US negotiating team it is unlikely that UK services exports benefits will be achieved. Securing sub-federal US participation should therefore be a key objective for any FTA negotiation framework. At the working group level, the UK should be exploring what it could do before Brexit to promote trade in services. The Government should invest in support for exporters in bidding for procurement contracts at the federal and state level.

(Paragraph 16): Data flows and protecting personal data are of paramount importance to trade in services. To maximise the capacity for UK service providers to export in the immediate future, the Government should consider mirroring the EU’s existing General Data Protection Regulation and seeking an adequacy agreement with the EU. Doing so will ensure UK service providers can move data between the UK and EU. Prior to negotiating an FTA, the Government should also consider seeking to replicate the EU-US Privacy Shield Arrangement in a new bilateral UK-US arrangement. (Paragraph 108)

The Committee is right to note the federal nature of Government in the US and the impact this has on services regulation and procurement. To that end, time with the Working Group has been specifically dedicated to exploring in detail the US’ split of federal versus state responsibilities in areas relevant to trade, as well as setting out the UK’s devolution arrangements. This will continue at future working groups.

The government will make use of the extensive UK footprint across the United States through our Embassy and Consulate network to pursue UK economic and commercial interests. As one of these objectives, the UK Government wants to work with the US to ensure a level playing field on public procurement, ensuring both the US and UK have the ability to compete fairly and win contracts.

The Government agrees that there is much we can do now to strengthen transatlantic trade and investment ties, even before the UK leaves the European Union. By way of examples, we note the agreement to launch the Treasury-Treasury Financial Regulatory Dialogue, the mutual recognition agreement made between the Institute of Chartered Accountants of Scotland (ICAS) and US accountancy bodies NASBA and AICPA to provide a streamlined process for Scottish chartered accountants to work in the US and vice versa, and the launch of the U.S.-UK Small and Medium-sized Enterprise (SME) Dialogue.

On data, the UK’s new Data Protection Bill will further strengthen UK standards, ensuring they are up to date for the modern age, and it will implement the EU’s new data protection framework in our domestic law. Therefore, our data protection laws will be fully aligned with the EU’s at our point of exit. It would be in our shared interest to agree early to mutually recognise each other’s data protection frameworks, as the basis for the continued free flow of data between the EU and the UK from the point of exit until new and more permanent arrangements come into force. Additionally, the UK recognises the need for high data protection standards across the globe.

After our exit from the EU, the UK will remain a global leader on data protection by promoting robust data protection standards and the flow of data internationally. The EU-US Privacy Shield contains protections only available to those within the EU. We will therefore discuss with the US how best to ensure that the current protections afforded to UK citizens can be maintained post exit. We want a smooth and orderly transition to our new arrangements.

Other lessons from TTIP - Recommendations

(Paragraph 18): Before entering into negotiations with the US, the Government should clarify its policy on ISDS. In particular, it should identify the purpose of an ISDS mechanism in circumstances where both the US and UK have sophisticated, independent domestic judicial systems.

(Paragraph 19): The Government should ensure that the universal access to healthcare provided by the NHS is not compromised by a UK-US FTA. The Government should also ensure that the NHS’s pharmaceutical purchasing model is not adversely affected by any intellectual property rights protections and regulatory provisions covering pharmaceuticals.

In the case of any future negotiations, the Government will consider the appropriate design of investment provisions together with the fuller range of other trade and investment issues. The UK will seek to ensure provisions take account of international best practice and reaffirm the right of the government to regulate in the public interest. We would nonetheless note that ISDS tribunals cannot overrule the sovereignty of Parliament, overturn or force any changes to law; they can only award compensation if a foreign investor’s rights under the treaty in question have been breached.

There is no ambiguity in the Government’s position on protecting public services, or on the NHS’s status as a world class service delivered free to every citizen. These are legal rights guaranteed under the NHS Constitution, and no trade agreement has diluted these rights, nor can it ever do so.

Protecting public services including the NHS is of the utmost importance for the UK. The Government will continue to ensure that decisions about public services are made by UK governments, not our trade partners. The UK’s public services are protected by specific exceptions and reservations in all EU trade agreements and, as we leave the EU, the UK will continue to ensure that rigorous protections are included in all trade agreements to which it is party.

The Government has been consistently clear that we are committed to the fundamental principles of the NHS – that it is a universal and free. In this 70th anniversary year of the NHS, our commitment to upholding its fundamental tenets is unwavering. The NHS is not, and never will be, for sale to the private sector, whether overseas or domestic; and no trade agreements will ever alter these fundamental facts.

The Government is committed to developing a trade policy that maximises the net benefit to patients through access to effective medicines which deliver excellent value for money whilst supporting a flourishing life sciences industry in the UK and a financially sustainable NHS.

We recognise that an effective intellectual property system needs to strike a balance between supporting research and innovation in new medicines and technology through the incentives created by patent protection, whilst reflecting wider public interests such as the dissemination and affordability of new innovative medicines during the time they benefit from intellectual property protection.

We will listen carefully to the interests of health professionals and patient groups, as well as the UK pharmaceutical industry when striking this balance. This balance will be reflected in our approach to intellectual property when striking new free trade agreements and in our positions taken within the World Trade Organisation and the World Intellectual Property Organisation.





Published: 10 September 2018