2Sequencing and Priorities
Background
4.Pursuit of new trade agreements with the UK’s trading partners around the world is a major plank of the Government’s Brexit strategy.3 The Government has begun identifying potential future FTA partners, but has said it will not negotiate new FTAs before leaving the EU,4 although the draft text of the EU-UK Withdrawal Agreement provides the UK can “negotiate, sign and ratify international agreements” during the transition period “provided those agreements do not enter into force or apply during the transition period, unless so authorised by the [EU].”5
5.Reaching new agreements will depend on, among other things, the political will of the parties involved. Shanker Singham told us that, “[f]or any trade deal you need political will”.6 He added that “for a trade deal to be quick … the heads of state on both sides [have] to really want to do the deal and to drive their negotiators to get a deal.”7 The Australian Ambassador to the UK, His Excellency Alexander Downer, reiterated this position when discussing the Australia-US FTA. He said that:
… all free trade negotiations depend on one thing. They don’t really depend on resolving difficult technical questions as much as they do on political will. If the political leadership really wants a free trade agreement, it will happen quite easily.8
6.The Department for International Trade has been clear that the US is a priority for a new FTA. In June 2017, the Secretary of State for International Trade, Rt Hon Dr Liam Fox MP, told reporters in the US that leaving the EU “offers an unprecedented opportunity to reshape our independent trading ambitions and build on the already strong trading relationship with … the US.”9 In July 2017, the US Trade Representative and Dr Fox established a UK-US Trade and Investment Working Group—one of 14 such groups10— which is responsible for providing commercial continuity after Brexit, and for “laying the groundwork for a potential future [FTA]”.11
7.We were further told that the US Administration possesses the same will as the Government with respect to a UK-US FTA. TheCityUK said “[t]here is currently political will on both sides to achieve a wide-ranging UK-US trade deal.”12 Mr Singham said that there was “an identity of interest between the US and the UK” and “a great appetite in the Trump Administration … to have an agreement that enables us to deal with distortions in other markets.”13 In March 2018, the Minister further told us that the UK and US share, “right the way across the board, a desire …to seek such an agreement”14 and that both President Trump and Prime Minister May had “expressed a clear political will to see a UK-US trade agreement” in January 2017.15
8.However, despite the “positive mood music from President Trump”, some witnesses told us that reaching a UK-US agreement “will be complex, tough and probably take much longer than expected”.16 TechUK told us that “the current approach of the US to free trade does not appear to be the best environment for concluding a mutually beneficial comprehensive trade deal”.17 We heard that President Trump’s approach to trade was imbued with “a more protectionist sentiment” which has “caught fire in the United States”.18 This sentiment was said to be evidenced by “[President] Trump’s personal obsession with bilateral trade balances”,19 the US’s “populist … ‘America first’ doctrine”20 which “manifests itself in the Buy America rules”,21 the US’s proposal for automotive rules of origin in North Amercan Free Trade Agreement (NAFTA),22 and the US’s proposed sanctions on steel and aluminium for national security reasons. While saying that the US trade policy in this respect was “quite a nuanced thing”, Shanker Singham told us that the UK was “not going to get a change in Buy America”23 which has a longstanding legislative basis used at federal, state and city levels and which the “US administration has repeatedly affirmed support for”.24 The City of London added that “[t]here is no indication that ‘America First’ will usher in a US retreat from the global rule-making process.”25 In respect of the steel sanctions, the Minister also told us that the Government was being “extremely active in making clear our extreme disappointment with what the President appears to be proposing” with respect to steel and aluminium tariffs.26 As of March 2018, it was reported that EU states would be temporarily exempt from the tariffs until 1 May 2018.27
Trade Policy Strategy
9.At present, UK trade policy is governed by the EU’s ‘Trade for All 2015’ strategy. The EU’s strategy identifies several strategic priorities, including:
- furthering the liberalisation of trade in services, with a particular focus on digital trade, e-commerce, and regulatory fragmentation;
- increasing transparency in the EU’s trade and investment policies and agreement making processes;
- pursuing trade and investment policy based on values; and
- strengthening the EU’s presence in Asia and the Pacific, including by setting ambitious objectives with China, and requesting a mandate for FTA negotiations with Australia and New Zealand.28
The EU is one of many trading blocs or countries which have an overarching trade policy strategy, such as Canada,29 India,30 New Zealand,31 Norway (as regards the EU),32 and the US.33
10.The purpose of a trade strategy is for the Government to set out “what [its] priorities are in terms of offensive interest by sector, but also market priorities”.34 In the absence of an overarching trade policy, it has been argued that governments can fall into the habit of pursuing “agreements for agreements’ sake” following trends in other countries.35 Dr Maria García, Bath University, told us that “[e]ntering into FTA negotiations with no clear sense of domestic policies and preferences is a major mistake, especially when dealing with US negotiators.”36 Nick von Westenholz, National Farmers Union, also expressed some concern that “in its enthusiasm to demonstrate its ability to do trade deals … the UK may rush into a trade deal with the US”. For him, this could “carry with it a very large risk that we do not carry out due diligence and ensure that our interests are properly represented in those negotiations as well.”37
11.The Department is yet to publish an overarching trade policy strategy. In October 2017, it released a Trade White Paper which outlined some basic principles that will shape the UK’s future trading framework, and the Department’s approach to developing its trade policy.38 In November 2017, the Secretary of State told us that “across the whole of Government, clearly our priority is the European Union agreement”.39 However, the Department’s priorities are “getting our schedules under technical rectification at Geneva and the EU FTAs, and only then will we look at new FTAs”.40
A UK-US FTA as part of a wider trade strategy
12.For the remainder of this chapter, we consider two strategic issues the Government needs to address when approaching a UK-US FTA. These are the sequencing of FTAs and the trade-offs the UK is willing to make in negotiating FTAs.
Sequencing of Trade Agreements
13.As part of an overarching trade policy strategy, countries usually consider the order in which agreements will be negotiated. For Hosuk Lee-Makiyama, Centre for International Political Economy, “sequencing is basically the main component of a trade strategy … [the] order you move the pieces and which pieces you sacrifice determines whether you are a good chess-player or not”.41 The issue of sequencing may be relevant for a UK-US FTA in two respects: (i) how a US FTA should be sequenced with the UK’s new FTA with the EU, and (ii) where it should fall in the order of non-EU countries with which the UK negotiates FTAs. As noted above, the Government has said its priority is an agreement with the EU and, with respect to new FTAs, Dr Fox told us that “it looks like Australia and New Zealand would be our priorities after the United States.”42
14.Witnesses differed as to whether a UK-US FTA should be negotiated before, concurrently with, or after an agreement with the EU. For Mr Lee-Makiyama, an EU and a WTO commitment “would have at least to be crystallised first”, or the “modality of negotiation with Europe” agreed, before the UK could consider negotiating other FTAs.43 Samuel Lowe, then of Friends of the Earth, told us that the US could “drive a wedge between [the UK] and the EU from a regulatory perspective” unless the EU and US agreements were sequenced correctly. Mr Lowe contended that he would “certainly not have [a UK-US FTA] anywhere near the front of [the UK’s] queue”, and that the better approach was to “focus on the EU; focus on replicating the existing agreements we already have”.44
15.By contrast, Shanker Singham, then of the Legatum Institute, told us that sequencing the EU agreement first risked “saying to the rest of the world that … [we] are going to be regulatorily locked into the EU arrangements” and may cause other countries to “lose interest” and “pull back from the UK”. In his view, the better approach was to “move all of this forward at the same time. The EU has a track record of being more responsive on agreements when it sees that there are other options out there.”45
16.The question also arose of the priority the US should be given when deciding the order in which to approach FTAs with non-EU countries. In considering the UK’s priorities for new FTAs, Mr Lee-Makiyama told the Treasury Committee that one option was to “negotiate with a weaker part, a smaller [country], almost like a practice round, because it has a similar industrial structure, and you are more likely to get a better bid out of the smaller country”.46 Citing the EU as an example, he added:
This is the reason why Europe negotiated first with Korea, then with Japan, and will negotiate eventually with China. You go to the guy who will give you the best offer, and then you take the same bid to the bigger guy and say, “I want the same from you.47
However, Dr Fox told us in November 2017 that there are a number of reasons why the “UK [is] a prime choice for the US in a future FTA”, including the similarity of the “types of economies in terms of relation of goods to services” and the fact that the UK “do[es] not threaten US manufacturing jobs, which is therefore not a political impediment to the President”.48
17.Finally, in the context of sequencing we were told about the various ‘levels’ of trade policy. Mr Singham said that, in considering the UK’s independent trade policy, the Government should consider “what you can do unilaterally [ … ] then there are the bilateral deals [ … ] [and the] range of things you can do plurilaterally”.49 In respect of the bilateral and plurilateral levels of trade policy, it was suggested that the UK could investigate joining the Trans-Pacific Partnership (TPP) or the NAFTA. However, we were told that joining NAFTA was “a bit of a pipe dream” and that it would be better for the UK to “revisit the issue of NAFTA accession” once it had greater clarity around the future of TPP.50 Dr García further called for “[i]deas about joining NAFTA [to] be abandoned” owing to issues relating to timing, the approach of the current US Administration to the negotiations and the limited provisions in NAFTA on digital trade.51
Trade-offs
18.A number of witnesses to our inquiry argued that the Government, as part of its trade strategy, would need to decide what trade-offs it was and was not willing to make when agreeing FTAs. Gary Campkin of the TheCityUK told us that “[t]rade agreements are by their very nature a series of compromises and trade-offs”.52 The purpose of trade negotiations is to “come to a point where there is mutual advantage for both sides”.53 In considering the mutual advantage from trade agreements, we were told that “negotiating an agreement that is good for the UK as a whole has to be a key goal”.54 However, we heard that “[t]he impact of free trade is asymmetric”,55 and “the negative impacts [can be] felt quite hard by a small number of people”.56 Trade can also involve “structural change” which can have “disruptive impacts for some regions and workers, if new competition proves too intense”.57 In such circumstances, we were told the Government should “make sure that there are flanking measures to assist those industries that may have to go through some sort of transition period or some adjustment.”58
19.Similarly, Shanker Singham said that achieving a comprehensive UK-US agreement “will involve a lot of compromises across a lot of different areas”.59 One of the potential trade-offs identified was an ‘agriculture for services’ trade-off. In a paper on a potential UK-US FTA, the Legatum Institute argued that the “potential payments are large” for an agreement “providing access on agricultural products to the US allows for agreement in other areas that are more important for UK trade, such as financial services”.60 However, witnesses from the agriculture sector expressed concerns about the potential impact of such a trade-off (see below at Agriculture).
20.In less than a year the UK will begin negotiating free trade agreements. The basis of these negotiations must be a clear, evidence-based and comprehensive trade strategy, which is open to scrutiny. There will be intense political pressure on the Government to strike free trade agreements before the next election to prove the success of its Brexit strategy, and an agreement with the US will be a tempting prize. The Government must not make agreements for agreements’ sake, and should ensure that it is selecting negotiating partners as a result of an overarching trade strategy that is formulated in consultation with Parliament, business and civil society. This does not mean that the US is not the right place to start.
21.A trade agreement with the US has the potential to have a transformative effect, for better or worse, on the UK economy. If it is the first nation with which the UK pursues a free trade agreement, we would expect the Government to be clear on how this fits in with its overarching strategy, and that it has considered and rejected for sound reasons possible alternatives.
22.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.
23.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. Given that trade agreements can take years to negotiate, it is vital that the UK political parties attempt to form some level of political consensus on the direction of travel of trade policy to ensure that changes of government do not result in years of wasted effort at the negotiating table. The extent to which the Government should detail its negotiating mandate in advance and the effect that may have on that negotiation should be the subject of further inquiry including, but not limited to, taking evidence from successful examples of the communication of the political economy of trade, such as New Zealand.
3 Department for International Trade, Preparing for our future UK trade policy, Cm 9470, October 2017, p 10
4 Oral evidence taken before the International Trade Committee on 1 November 2017, HC (2017–19) 436-ii, Q 141 [Dr Liam Fox]
5 Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, Article 124
6 Q 18
7 Q 43
8 Q 336
9 “Brexit: Liam Fox arrives in Washington for US-UK trade talks”, Verdict, 24 July 2017
10 The other working groups are with Canada, Mexico, the Andean Community, Israel, Turkey, Norway, India, China, Korea, Japan, Vietnam, Singapore, Australia and New Zealand (see Q 383).
11 Department for International Trade, “U.S.-UK Trade and Investment Working Group Statement”, 15 November 2017
13 Q 14
14 Q 358. See also TheCityUK (TER0023) (“There is currently political will on both sides to achieve a wide-ranging UK-US trade deal.”)
15 Q 355
18 Q 348 [His Excellency Alexander Downer]
19 Q 186 [Dr Peter Holmes]
21 Q 14 [Shanker Singham]
22 Q 228 [Mike Hawes] (“For the US, for NAFTA, they require about 65% North American content. Donald Trump has made noises that he would like to see the originating content rise to over 80%, with the US originating content at over 50%. In other words, he is trying to solidify that.”)
23 Q 15
26 Q 369
27 “Trump temporarily excludes EU, six other allies from steel tariffs”, Reuters, 23 March 2018
28 EU Trade for All website; European Commission, Trade for all: Towards a more responsible trade and investment policy, October 2015.
29 Global Affairs Canada, Global Markets Action Plan: The Blueprint for Creating Jobs and Opportunities for Canadians Through Trade
30 Government of India, Foreign Trade Policy: 1 April 2015—31 March 2020
31 New Zealand Foreign Affairs and Trade, Trade Agenda 2030: Securing our place in the world
32 Government of Norway, Norway in Europe - the Government’s work programme for cooperation with the EU 2017, February 2017
33 Office of the United States Trade Representative, 2017 Trade Policy Agenda and 2016AnnualReport of the President of the United States on the Trade Agreements Program, March 2017
34 Oral evidence taken before the International Trade Committee on 3 April 2017, HC (2015–17) 978-ii, Q 53 [Allie Renison]. See also Confederation of British Industry (TER0028).
35 Australian Productivity Commission, Bilateral and Regional Trade Agreements, Productivity Commission Research Report, November 2010, p 303; Institute for Government, Taking back control of trade policy, May 2017, p 30.
37 Q 89
38 Department for International Trade, Preparing for our future UK trade policy, Cm 9470, October 2017
39 Oral evidence taken before the International Trade Committee on 1 November 2017, HC (2017–19) 436-ii, Q 148 [Dr Liam Fox]
40 Oral evidence taken before the International Trade Committee on 1 November 2017, HC (2017–19) 436-ii, Q 148 [Dr Liam Fox]
41 Oral evidence taken before the Treasury Committee on 13 July 2016, HC (2015–17) 483, Q230 [Hosuk Lee-Makiyama]
42 Oral evidence taken before the International Trade Committee on 1 November 2017, HC (2017–19) 436-ii, Q 105 [Dr Liam Fox]. For a discussion of the options for the UK to ‘rollover’ existing EU FTAs with third countries, see our first report: International Trade Committee, First Report of Session 2017–19, Continuing application of EU trade agreements after Brexit, HC 520.
43 Oral evidence taken before the Treasury Committee on 13 July 2016, HC (2015–17) 483, Q 230 [Hosuk Lee-Makiyama]
44 Qq 9, 26. See also Q 64 [Samuel Lowe] (“In the case of the US right now no deal would be better than a bad deal.”)
45 Q 22
46 Oral evidence taken before the Treasury Committee on 13 July 2016, HC (2015–17) 483, Q 230 [Hosuk Lee-Makiyama]
47 Q 230
48 Oral evidence taken before the International Trade Committee on 1 November 2017, HC (2017–19) 436-ii, Q 116 [Dr Liam Fox]
49 Q 22 [Shanker Singham]
50 Q 71 [Samuel Lowe, Shanker Singham]
52 Q 129
53 Q 129 [Gary Campkin]
54 Q 134 [Gary Campkin]
55 Q 169 [Julian Jessop]
56 Q 169 [Julian Jessop]. See also Q 131 [Gary Campkin] (“There will be circumstances where some sectors may not get everything that they want, but that is … the basis of a negotiation.”)
57 European Commission, Trade for all: Towards a more responsible trade and investment policy, October 2015, p 17
58 Q 132 [Gary Campkin]
59 Q 63
60 Legatum Institute, Developing a True Transatlantic Partnership—a High Standard Trade Agreement to Propel the Global Economy, June 2017, para 19.6
Published: 1 May 2018