Updated: May 9
A cheeky commentary
We are happy
The announcement on 5 May 2020 from UK International Trade Secretary Liz Truss made significant headlines in the United Kingdom. It was a time for happiness and joy in the U.K. Department of International Trade: "I am happy to formally open negotiations that will hopefully lead to a free trade agreement between the United States and the United Kingdom", she announced. A couple of months before, she had produced a document of almost 200 pages explaining why this FTA was so important and strategic (A summary + document download is here).
Ah... maybe not so much
Not so much over the pond. It looked more like most observers shrugged their shoulders when U.S. trade representative Robert Lighthizer announced the official start of the U.K. and U.S. negotiations for an "ambitious" post-Brexit U.S. U.K. free trade agreement.
But you may forgive the United States. I can understand. The U.S. is otherwise occupied at the moment.
When U.S. trade representative Robert Lighthizer spoke, I was a little disappointed. Enthusiasm and excitement sound different. I vividly remember the pride I felt when he announced that the successor of NAFTA, the United States-Mexico-Canada Agreement (USMCA), would be ready to enter into force on 1 July 2020 (even though I am neither American nor Canadian [well a tiny bit] or Mexican).
More golden than USMCA?
He said in March that "USMCA is the gold standard by which all future trade agreements will be judged, and citizens of all three countries will benefit for years to come."
Surely, in the U.K., we can expect a similar golden standard of this USUK FTA, right? Maybe more golden than the USMCA perhaps?
So, I began to wonder:
Why does a country of 330 million consumers care about 67 million consumers?
Given that the U.S. is already the largest export market for the U.K. outside the E.U., what more capacity and trade can there be once the tariffs come down?
What does the U.S. gain from this deal?
What does the U.K. want?
· And are both sides' view of what success looks like compatible with each other?
· What does the E.U. have to do with it?
I want to understand this, so let's take a first look at what is being said.
Here are seven reasons why the US wants the UK, so badly:
The start makes U.S. President Donald Trump. He explains in his own words why it is of strategic importance for the U.S. and the U.K. to have a trade deal – and pronto.
1. The bond
In the words of President Trump: "The bond between our nations was forever sealed in that 'Great Crusade.' As we honor our shared victory and heritage, we affirm the common values that will unite us long into the future: freedom, sovereignty, self-determination, the rule of law, and reverence for the rights given to us by Almighty God."
Right! That's undoubtedly a big driver then.
2. It's the economy, stupid.
Robert Lighthizer says that the U.S. is interested in using this FTA to lay the foundations for more robust, more resilient economies: "There is almost $270 billion in two-way trade, we are each other's largest source of foreign investment, and we each employ about a million citizens of the other country. This I would suggest is a strong start".
Okay, so economic performance is a great reason then for starting trade negotiations.
But wait, the United States had an $807 billion in total (two ways) goods trade with European Union countries during 2018 – that is about four times as much as with the U.K. Goods exports totalled $319 billion; goods imports totalled $488 billion according to the USTR. The U.S. goods trade deficit with European Union countries was $169 billion in 2018.
Yet, there are no in-depth and comprehensive negotiations for an FTA with the E.U. though. Instead, the E.U. and the U.S. are mainly at loggerheads, including at the WTO in various significant aircraft disputes.
How much does the economy really matter?
Robert Lighthizer says that the U.S. is seeking "strong and diverse supply chains with trusted trade partners to support our economies". The U.S. entrusts the U.K. to diversify its supply chain.
(Insert here the list of goods that the U.K. produces that the U.S. does not already have or cares enough about to pay a premium (adding transportation costs, etc.)).
4. America First – in a subtle way though
Robert Lighthizer says that successful economies require a "healthy manufacturing base and workers and farmers that are thriving".
Healthy manufacturing bases with workers and, in particular, thriving farmers are rarely the result of accepting more U.S. imports from the U.K. Quite the opposite.
5. Bring on the U.K.'s "expensive" imports
The trade representative believes for America "depending purely on cheap imports for strategic products can make us vulnerable in times of crisis" (if there is no crisis, cheap imports are okay?).
Does this mean that he supports the more expensive U.K. products? At least partly? Maybe for a niche market?
6. We need to think about our trade partners
Reasons for launching the trade deal with the U.K. is, furthermore, that "we need to think carefully about our trade policies and how we work with our trading partners". Yes, thinking carefully has rarely let to a disadvantage and disappointment. Maybe it will do the trick this time, too.
7. Hope dies last
The U.S. remains engaged, but still a little reserved, without prejudging any results: "We look forward to getting underway, to hard work, and hopefully a successful outcome that makes workers, farmers, and businessmen in both our countries more prosperous and happier".
Why so sceptical?
Maybe, he had been advised by his negotiating staff that, when speaking about the prospects of a USUK trade deal, the former US President Obama had said in 2016 that "It could be five years from now, ten years from now before we were able to actually get something done."
Oh shoot, it's 2020, now. We are already four years in.
Actually, there are now seven, there are really more than 20
In a 2019 negotiating document, the US summarized its negotiating positions vis-à-vis the Free Trade Agreement with the UK. Sorry to report that the objectives go deeper than seven objectives, In fact, the U.S. wants to cover more than 20 points in this agreement (we summarize the key provisions of importance from a Global Trade and Customs perspective here). They are:
Trade-in Goods (Industrial and Agricultural)
Rules of Origin
Customs and Trade Facilitation
Good Regulatory Practices
Transparency, Publication, and Administrative Measures
Trade in Services, Including Telecommunications and Financial Services
Digital Trade in Goods and Services and Cross-Border Data Flows
Procedural Fairness for Pharmaceuticals and Medical Devices
State-Owned and Controlled Enterprises (SOEs)
Small and Medium-Sized Enterprises (SME):
General Provisions (Exceptions & protection of Israel)
Currency - No manipulation
In every of those, the UK needs to pay very careful attention in the negotiations. The devil is in the detail. Farmers and Consumer groups need to checks the agricultural provisions VERY carefully to ensure the UK continues to eat want it wants and keeps out what it does not want.
We need to take a close look at how the USMCA has turned out as you are likely to see very similar drives to add language from this agreement too.
N.I. must carry out EU customs formalities on the US goods
The EU will be carefully watching. The entry of goods, including food from outside the EU into the EU must be carefully controlled at all border crossings. In the case of Northern Ireland, that border is between Great Britain (GB) and Northern Ireland. US products that enter the GB and are destined for NI must be customs cleared according to EU law. This means also that US food which cannot enter the EU (think chlorinated chicken) cannot enter NI either.
There is a long road ahead. Trade negotiations are tough and difficult. They require win-win on both sides. The EU-US trade agreement took three years to negotiate and many rounds, just for them to fail. There are elections in the US coming up. There are eight months before Brexit really kicks in. COVID-19 is far from being over. Climate change is also not going away. Getting the priorities right on what matters now is not only important, it is essential.
Summary of the US negotiating position under a US-UK Trade Agreement
This is a technical briefing for Customs Managers and Global Trade Professionals that wish to learn more details about the structure of the future agreement, the US government’s approach and the US's negotiating objectives for a US-UK free trade agreement, Read the summary and download the official document
Summary of the UK negotiating position under a UK-US Trade Agreement
This is a technical briefing for Customs Managers and Global Trade Professionals that wish to learn more details about the structure of the future agreement, the UK government’s approach and the UK's negotiating objectives for a UK-US free trade agreement, Read the summary and download the official document
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