5 March 2019
Ilona Serwicka is Research Fellow in the economics of Brexit at the UK Trade Policy Observatory.
Last week, the United States published a document that set out their negotiating objectives for a trade agreement with the UK, shortly after the publication of virtually identical documents for negotiating with the EU and with Japan. Those in the UK who expected ‘special treatment’ from the US are in for a disappointment, but not a surprise (as UKTPO researchers pointed out in October 2016). In negotiating with major trading partners after Brexit, the UK is likely to be a price taker because of a power imbalance.
The language of the UK-US document is ‘aggressive’: demanding concessions but offering little in return. The document does not mention any specific advantages to the UK and is reminiscent of ‘America First’ rather than based on trade as a win-win activity. The introduction states that:
‘The United States seeks to support higher-paying jobs in the United States and to grow the U.S. economy by improving U.S. opportunities for trade and investment with the UK’,
This is basically a reiteration of President Trump’s inaugural address: ‘we will follow two simple rules: buy American, hire American’.
The framework for negotiating the UK-US trade deal is centred around reducing tariff and non-tariff barriers, but only in ways that benefit the US. Early in the document, we read that one of the negotiating objectives of the US is to:
‘Secure comprehensive duty-free market access for U.S. industrial goods and strengthen disciplines to address non-tariff barriers that constrain U.S. exports’.
It is important to note that the US appears keen to lock the UK into its interpretation of the sanitary and phytosanitary (SPS) and technical barriers to trade (TBT) – something that would be inconsistent with the UK in maintaining frictionless trade with the EU, including keeping the open border between the Northern Ireland and the Republic of Ireland. Calls by the US ‘to remove expeditiously unwarranted barriers that block the export of U.S. food and agricultural products’ reminds us of earlier challenges by the US that the EU ban on imports of ‘chlorinated chicken’ or ‘hormone-injected beef’ is WTO-illegal and not based on scientific evidence. Now the US explicitly calls for ‘the adoption of international standards and (…) the obligation to base SPS measures on science’. UKTPO Fellows have previously written that ‘the US has for a long time been highly critical of EU SPS rules, and getting the UK to move away from the EU system would be a very high priority for the US’. And while the EU may have been able to resist US pressure, after Brexit, the UK may find it more difficult given its very weak negotiating position: the UK economy is some seven times smaller than that of the US and is manifestly in a hurry.
On investment, the US objective in negotiation of the UK-US trade deal is to:
‘reduce or eliminate barriers to U.S. investment in all sectors in the UK’’.
Similarly, on government procurement, the US wishes to:
‘increase opportunities for U.S. firms to sell U.S. products and services to the UK’,
while simultaneously restricting access for the UK (for example, through keeping domestic preferential purchasing programs at state and local government levels).
The US document also attempts to regulate the UK’s relationship with third countries! For example, it would constrain the UK’s ability to sign a trade deal with China by creating a mechanism to:
‘take appropriate action if the UK negotiates a free trade agreement with a non-market country’.
To preserve its commercial partnerships with Israel, the US states that one of its objectives is to:
‘discourage actions that directly or indirectly prejudice or otherwise discourage commercial activity solely between the United States and Israel’.
Although the negotiating objectives state that:
‘Our aim in negotiations with the UK is to address both tariff and non-tariff barriers and to achieve fairer and deeper trade’,
the definition of ‘fairer and deeper trade’ that it offers is an entirely American-focused and may not appear that fair or deep from the UK perspective. In the words of my colleague Peter Holmes, the current document is shorthand for ‘do things the American way’.
There may be ‘two faces of Trump’: who claims that protection will restore US prosperity but also suggests that the UK and the US can trade more after Brexit. But with the US opening position so full of one-sided demands, the negotiations are going to be very bloody. David Henig, Director of Trade Policy at the European Centre for International Political Economy (ECIPE), said that it would be ‘a sign of terrible weakness to negotiate on this basis’. But since procrastination is the hallmark of the UK’s current approach to trade, perhaps the silver lining is that it can’t happen yet. Real negotiations will have to wait until we have agreed with the EU and settled our position in the multilateral trading system.
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I fully agree with this analysis – except that I don’t see the US stance as being specificaly related to Mr Trump. Under successive US Presients, the objective of USTR has been to “break down barriers to US exports”, an objective that the US has pursued whilst also seeking to preserve (and in some cases create) barriers to imports into the US. Indeed, the outcome of the Uruguay Round was sold to the US Congress as a means of breaking down barriers to US expports. It was only when it became apparent that the same mechanism, i.e. the WTO Disputes Settlement Understanding (DSU), could be used by other WTO members as a means of trying to break down US import barriers that US hostility to the WTO grew to the pint where it has led to the US current policy of neutralising the DSU by blocking all appointments to its Appellate Body. Any US/UK Trade Agreement would contain a Disptute Settlement system – but good luck to the UK if it tried to use it! Congress is every bit as jealouse of its “sovreignty” as the UK Parliament. But Congress has more clout.
The US motives are so crudely laid out!
eg:
Exclude sub-federal coverage (state and local governments) from the commitments being
negotiated. Keep in place domestic preferential purchasing programs such as:
Preference programs for small businesses, women and minority owned businesses (which
includes Native Americans), service-disabled veterans, and distressed areas;
“Buy America” requirements on Federal assistance to state and local projects, transportation
services, food assistance, and farm support; and
Key Department of Defense procurement.
Secure for U.S. investors in the UK important rights consistent with U.S. legal principles
and practice, while ensuring that UK investors in the United States are not accorded greater
substantive rights than domestic investors.
On the other hand, the UK is being treated the same as the EU and Japan. So, no particular issue is there? All ends up the same, no matter whom is negotiating.
No, because the EU is a significantly large trading group to be able to reject these terms without featuring the consequences and does not have a powerful and dominant group of MPs who
see liberalisation and a deterioration in food, welfare and public service provision as desirable options.
I’ve read a couple of transcripts from the USTR.gov about the situation. There are some interesting things in the with some of the witnesses stating plenty of opportunity for the US/UK, but also major concern for US businesses operating in the UK.
I’m yet to see such a transcript from the UK perspective, so I can’t comment.
I think your analysis is erring on the very pessimistic. They want to break down the taxation, creating opportunities on both sides of the Atlantic. Personally, I’m very positive at the moment. It’s just the politicians…
[…] is no question that this is an “America first” deal. The US’s negotiating objectives leave no doubt on this. Neither do the suite of US lobbyists invited to submit their priorities […]
whats the matter with everyone if we don’t like it we don’t sign unlike the EU where we have no option but to accept any of their terms while in a vassal state
Chris,
While in the EU, the UK decides what the negotiating position should be along with the other member states of the EU, before negotiations begin. Any deal subsequently negotiated must be approved by every member state’s national parliament (including ours) before it applies to any member. We very definitely do not have to “accept any of their terms while in a vassal state”. In fact we have a powerful voice in the negotiation and a right to refuse the outcome.
If we try to negotiate with the US from outside the EU, the UK will be in a much weaker position before any negotiation begins, because the size of the market we would be able offer access to (ie. the number of potential customers and amount of wealth within our domestic economy) is so much smaller than the the market made up of the EU members.
Also, the other EU countries are currently our largest trading partners by far. If we found ourselves in a situation where we didn’t have a trade deal agreed with the EU, we’d either need to do deals for access to similar sized markets or we’d have to trade with the rest of the world on World Trade Organisation terms, which wouldn’t be good for us in any significant trading relationship. Countries try to negotiate different trade deals because they can be more advantageous to them than WTO terms. We, having lost access to our biggest market, would be in much greater need of a deal than any of the countries we’d be trying to negotiate with, eg. the USA, and a country which is desperate for a deal isn’t likely to do well in negotiations.
The USA would press its advantage, and we’d either have no deal, or we’d have to make concessions like allowing US drug companies to sell drugs to the NHS on worse terms than the NHS currently negotiates. At the moment, because the NHS spends about £16 billion each year on drugs (about 11.5% of total NHS spending), it negotiates very good prices for them, and has an agreement with the drug companies that limits price increases. US drug companies want to stop that. They want a trade deal to force the NHS to pay the same much higher prices as US private healthcare providers. That could increase annual NHS spending on drugs to more than £40 billion per year (almost 30% of total NHS spending). Imagine the effect that would have on services that are already struggling to keep up because they’re underfunded and understaffed?
All of the staunch stuff we hear from member of the current Conservative government about the NHS not being for sale in a deal with the US is just weasel words, because it’s not necessary to sell the NHS in order to give US businesses the ability to profiteer from it and make the service much worse for everyone who uses it.
I think I’ll stop now, as there’s every chance that nobody’s read this at all, let alone read this far…