The US is the UK’s largest single-country trade partner, with the US-UK trade relationship being valued at over £160 billion. The UK and US are also each other’s largest contributors of foreign direct investment, having around $1 trillion invested in each other’s economies. The Department for International Trade (DIT) has identified a trade deal with the US as its first priority for new trade agreements after Brexit. DIT has also established a UK-US Trade and Investment Working Group responsible for providing commercial continuity after Brexit, and for laying the groundwork for a potential future trade agreement.
Pursuing a trade agreement with the US after Brexit could have a transformative effect on the UK economy, for better or worse. Economic modelling of the effects of the Transatlantic Trade and Investment Partnership (TTIP) suggested that an ambitious agreement could raise UK GDP by 0.14–0.35%, and increase the size of the EU economy around €120 billion (or 0.48% of GDP). However, recent modelling by the Treasury found that a US deal could provide a benefit to UK GDP of 0.2% in the long-term, within a range of 0.1 to 0.3%, although we heard that the economic benefits of trade agreements can exceed government estimates. Trade agreements, by their nature, also involve trade-offs. The Government should be clear, before entering into any trade negotiations, about the relative weight it intends to give the interests of different sectors within the UK economy. The negotiations of trade agreements must be approached in a considered, purposeful sequence. The benefits of an agreement must also be carefully understood through detailed modelling, having regard to the likely removal of non-tariff barriers achievable in the agreement. Before commencing trade negotiations with the US, the Government should publish a clear, evidence-based and comprehensive trade strategy which sets out its key objectives, interests and priorities for future trade agreements. The Government must not make agreements for agreements’ sake. It should also undertake detailed modelling work and conduct a comprehensive economic impact assessment of a potential UK-US trade deal, outlining the sectoral and regional impacts.
Foremost among the issues the Government should consider before approaching the negotiating table with the US is how it will approach regulatory cooperation in a UK-US agreement. The big ‘win’ in modern trade agreements is the reduction of non-tariff barriers, primarily attributable to differences in regulatory regimes. The UK, as an EU member state, and the US have very different approaches to regulation, standardisation and conformity assessment. The EU’s regulatory model is highly centralised, and uses a precautionary approach whereas the US tends to adopt a more de-centralised, risk-based (otherwise known as science-based) approach to regulation.
The UK’s future approach to regulatory matters in a UK-US agreement will require careful evaluation and is not a decision which can be taken in isolation. The Government has a variety of options available to it, ranging from full alignment with the US’s regulatory model to remaining aligned with the EU. Any increase in regulatory co-operation is likely to have economic benefits. However, pursuing a comprehensive FTA with the US, including on regulatory matters, could also give rise to regulatory barriers with the UK’s other major trading partners, depending on the approach taken. We heard that this risk existed for the automotive, agriculture and chemicals sectors, although all also saw opportunities in the US. The Government should be clear, before entering into any trade negotiations, about the relative weight it intends to give the interests of different sectors within the UK economy. Policies on the level of regulatory alignment the UK has with the EU and the US must not be considered in siloes, but with full consideration of the impacts of any decision on the trading relationship and trade levels with each respective jurisdiction or bloc. The Government should also consider establishing a cross-departmental working group on trade and regulation which informs all the UK’s trade negotiations, including with the EU. Irrespective of the Government’s future approach to regulatory cooperation, we welcome its assurances that it will not lower existing product safety, environmental and animal welfare standards in a UK-US agreement.
The Government has further indicated that it will seek to be a champion of trade in services in the future. With services contributing approximately 80% of UK GDP and 44% of UK exports, it is evident that increased market access for UK service providers could be a key win from a UK-US agreement. However, as with trade in goods, UK-US trade in services encounters a number of regulatory barriers. Particularly in respect of financial services, the US has been reticent to roll back its legislative response to the global financial crisis to permit greater access for EU service providers. Sub-federal US services regulation also presents a unique hurdle to a UK-US trade agreement. These difficulties give rise to concerns that the Government will not seek reciprocal market access for UK service providers relative to US providers, with the Minister committing only to seeking maximum market access. The UK may also encounter challenges, particularly with respect to state-level regulation, to including government procurement in a UK-US agreement. However, procurement is likely to be a key offensive interest for the UK and the Government should consider its inclusion in any agreement. Before negotiating any UK-US agreement, 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. Such options must include state-level campaigns on market access issues; a Washington-only approach will not suffice. The Government should also ensure that state-level representatives are included on the UK-US Trade and Investment Working Group, or, if necessary, create separate, state-level working groups. While there may be some practical difficulties in doing so, securing sub-federal US participation should be a key objective for any FTA negotiation framework.
As a sub-issue relating to trade in services, the movement and protection of data will become increasingly important in future UK trade deals, including with the US. Once the UK leaves the EU, it will no longer be covered by either the EU’s existing General Data Protection Regulation (GDPR) or the EU-US Privacy Shield Arrangement. The Government should consider mirroring the GDPR and seeking an adequacy agreement with the EU. Prior to negotiating an agreement with the US, the Government should also consider replicating the EU-US Privacy Shield Arrangement in a new bilateral UK-US arrangement.
There are lessons to be learnt from the stalled TTIP negotiations before pursuing a UK-US agreement. One of the primary concerns regarding TTIP was the perceived lack of transparency in the scoping, negotiation and eventual ratification processes. The Government’s future approach to transparency in trade negotiations requires elaboration. It would be a retrograde step if the trade negotiations undertaken by the UK independently were less transparent than those undertaken by the EU. The Government should also reflect on the other core concerns which emerged during the TTIP negotiations; namely, investor-state dispute settlement (ISDS) and the potential impact of the agreement on public services, specifically the NHS. The Government should identify the purpose of an ISDS mechanism in a UK-US agreement in circumstances where both the US and UK have sophisticated, independent domestic judicial systems. The US is also likely to pursue services liberalisation and enhanced intellectual property rights protection in any agreement which could, in some forms, permit US firms to tender to provide UK public services. The universal access to healthcare guaranteed by the NHS must not be compromised as part of any UK-US deal. The Government should also ensure that the NHS’s pharmaceutical purchasing model is not adversely affected.
Published: 1 May 2018