UK-US trade deal

READING TIME 15 mins
UK-US trade deal

About UK-US trade

Post-Brexit, senior figures in the UK government from the Prime Minister to the Foreign Secretary have repeatedly called for a swift UK-US trade deal. Those calls have been reciprocated within the Trump Administration, and informal trade talks were held during Theresa May’s visit to Donald Trump in January 2017 to scope out the terms of an agreement. Trump reportedly believes a deal can be struck within 90 days to nine months. While EU law prevents the UK from concluding a deal with the US before it leaves the EU, the UK can engage in negotiations so long as these do not result in legal commitments. Thus a UK-US deal could come to pass as early as 2019.

So what's the problem?

Potential economic benefits from a UK-US deal would be relatively modest, there are grave concerns about the damage such a deal could do to the UK’s quality of life – from food to health to the environment – the UK’s public institutions and its standing in the world. This page will be updated as the negotiating positions begin to crystalise, but the early signs are not good. 

The US makes no secret of the fact that it views European health and environmental standards as ‘trade barriers’. This goes beyond the EU measures restricting chlorine washed chicken and hormone reared beef that the US has tried to dismantle through the World Trade Organisation and during TTIP negotiations. Indeed, the US Trade Representative’s (USTR) 2016 Report on Foreign Trade Barriers lists, among others, EU regulations on chemical safety (the REACH regulation), nutritional labelling, hormones in food, GMOs, milk quality and meat safety as measures it views in whole or in part as trade restrictions that it would like to ‘tear down’.  

This is part of broader US opposition to Europe’s precautionary principle approach to protecting health and the environment. This agenda would be front and centre of any UK-US deal, and would dramatically increase the exposure of UK consumers to health risks in the food they eat.  According to the former US Agriculture Secretary, such ‘issues’ will be easier for the US to resolve with the UK than the EU.

In depth

Though specific details are yet to emerge on proposed liberalisation measures for a UK-US deal, if TTIP negotiations are any guide, the US is likely to push for greater access for its companies to UK contracts for public service delivery and a clause which seeks to ratchet and lock-in privatisation levels in public services. It is concerning in this regard that Theresa May has pointedly refused to rule out US firms getting greater access to NHS service delivery as part of a UK-US deal. But the risk extends beyond the NHS, to sectors such as education, transport and prison services, opening the door to large US companies with a track record wreaking havoc with the quality and cost of public services in the US.   

In light of the US’ rejection of the EU’s Investment Court System as part of TTIP negotiations, and the fact that the UK has enthusiastically pushed investor protections in its own Bilateral Investment Treaties, one can confidently predict that a UK-US deal would include a fully fledged investor state dispute settlement (ISDS) mechanism, which would allow corporations to sue governments in private tribunals where corporate lawyers act as judges. This would expose future regulatory measures in the UK (and the US) that increase rights and standards, but threaten corporate profits, to multi-billion dollar lawsuits. 

Asymmetry of negotiating clout

One feature of trade diplomacy is that large regulatory powers tend to seek trade agreements with smaller powers in order to have a ‘model’ trade agreement which they can then use as a benchmark to negotiate deals with equivalent powers. Thus the EU will use its agreement with Canada (CETA) as a template for trade negotiations with the US and Japan, and the US referred to its trade agreement with South Korea in the TPP negotiations, and hoped to create a model in the TPP for its negotiations with the EU.

However, the UK is unlikely to conclude an ‘ideal’ trade model with the US that represents its offensive and defensive interests. The US economy is six times the size of the UK’s; 13% of the UK’s exports are to the US, whereas only 3% of US exports are to the UK; and the US has among the best developed trade negotiating capacity in the world, since 2000 having concluded 12 bilateral trade agreements, one multilateral agreement, and engaged in protracted negotiations over the TPP and TTIP, whereas the UK is building its trade capacity for the first time in forty years, and that will be stretched by Brexit negotiations. At the same time, the US is likely to use a UK-US deal as leverage for a more advantageous US-EU deal, which means the US will fiercely assert its interests.  And US trade policy is not currently doveish on this front, with the its recently published Trade Policy Agenda for 2017 calling for “a more aggressive approach” to trade, and the use of “all possible leverage to encourage other countries to give U.S. producers fair, reciprocal access to their markets”.

US trade policy makers

Donald Trump has built his business reputation on a winner takes all approach to negotiations, and built his political platform on an ‘America First’ approach to trade that has characterised trade partners like China as ‘raping’ the US. Unsurprisingly, his picks to head up the US’ trade team have all displayed aggressive approach to international trade.  

Commerce Secretary Wilbur Ross has notoriously referred to Brexit as a god-given opportunity to “take advantage of the inevitable relocations that will occur during the period of confusion”. With Peter Navarro, Director of the National Trade Council, Ross authored the Trump ‘Trade Doctrine’ – which likens VAT in other countries to a ‘backdoor tariff’ that blocks American exports.

Peter Navarro is possibly the most hawkish member of the Trump Administration trade team, with a long track record of blistering attacks on key US trade partners like China and Germany.

US Trade Representative Robert Lighthizer, former trade deputy under Reagen and trade lawyer and lobbyist for US exporters, is a specialist in using US trade policy to craft muscular responses to trade partners deemed to have violated agreements. Ross and Lighthizer both have a background in US Steel, something which has informed their protectionist outlooks and fixation on the trade balance, something which does not bode well for the UK’s struggling steel industry.

Former Exxon-Mobil CEO Rex Tillerson, now US Secretary of State, is likely to be a supporter of strong ISDS provisions, given that under his tenure Exxon was a prolific user of ISDS, launching multimillion and billion dollar claims against four countries.

Though lacking an official position on trade, white nationalist Steve Bannon’s influence on the development of ‘innovative’ bilateral agreements is likely to push his vision of “economic nationalism, and the deconstruction of the administrative state”.

Bolstering corporate power on both sides of the Atlantic

Notwithstanding the above, it would be inaccurate to bill pending negotiations as ‘the US versus the UK’. The lens of classic international relations in which US national interests vie with UK interests offers an incomplete picture of the real effect of ‘new generation’ trade agreements that, by curtailing the freedom of governments to regulate business, enact a transfer of power that is less horizontal (i.e. between countries) than vertical (i.e. from government to the private sector). As such, US citizens would have much to fear from a deal that handed ISDS powers to large polluters like BP drilling off the US coast, or a deal that sought to unpick US financial regulations to forward the interests of the UK financial industry.  

Corporate lobby groups like the newly formed, Washington-based US-UK Business Council and the British-American Business Council are already mobilising to influence the direction of trade talks. 

Trade at what cost?

Last but not least, rushing into a deal with the Trump Administration could be both morally and diplomatically compromising for the UK. It is worth recalling that, as President, Trump has used his executive power to roll back healthcare, exclude entire populations from entering the US, expedite mass deportations and dismantle environmental protections,  while using his platform to demonise races, religions, the court system, the press, and even prominent members of his own party. In addition to the racism, sexism and science denial, Trump has also proved erratic and unreliable, lashing out at traditional allies and stoking global tensions.

This raises the moral question of whether the UK should proceed with a deal that would provide President Trump with international cover while likely bolstering his domestic standing. But it also raises the diplomatic question of whether the UK risks drawing closer to an unreliable Trump Administration while alienating its more traditional allies both inside and outside the US that are strongly opposed to Trump’s programme. 

Further information