Both the United Kingdom and the United States want to start free trade talks as soon as possible once Britain is out of the European Union. But the scope and outcome of any such trade negotiation depends on the future UK-EU relationship, while both British and US business interest for a quick deal is limited.
US trade negotiators are in London this week for a fourth session of a bilateral working group on trade. The meeting is precedes a visit by President Donald Trump to Britain. Woody Johnson, the US ambassador to the UK, said Trump “would love to do a bilateral trade deal and he is really ready to step up on that the minute we get the go-ahead to do it. He will get it done fast, because I know it is a major priority for him”.
At the same time, there are clear challenges in getting this project off the ground. On Monday, Johnson said after the UK government’s Chequers meeting last Friday during which the government pledged to stay aligned with the EU on goods and agriculture standards that a free trade agreement was “totally up in the air”.
The working group has mainly been a talking shop. Sources close to the process have said that the UK’s non-committal attitude is frustrating US negotiators, who would like to see an outline of a deal soon.
Speed vs quality
Experienced US trade officials know that a deal with post-Brexit Britain might not materialise so quickly. “We value quality over speed,” a US negotiator said, adding that his government wants “to move forward expeditiously”.
The aim is to formally launch negotiations next April, once the UK is allowed to do so as non-EU member. London will be bound until March by the bloc’s ‘duty of sincere cooperation’ and may not negotiate trade agreements with third countries. The US negotiator also repeated several times: “We are not negotiating.”
Moving quickly on a trade accord with the US would involve carving out a large palette of sensitive sectors or regulatory areas. Sources close to the process say the two sides are toying with the idea of a relatively unambitious agreement, focused on only a subset of the types of issues included in contemporary FTAs. These cover a wide range of regulatory and market access areas beyond tariffs.
The US-UK working group so far has worked on various tracks. The first is ensuring trade continuity with the UK after Brexit and that there be “no new barriers to trade during the [planned] transition period”. This means rolling over as many bilateral agreements relating to trade between the EU and the UK as possible – for example, mutual recognition agreements in electronics or pharma, or the EU-US aviation agreement. That task in itself is challenging. For example, Britain does not yet have fully equipped regulators to work with.
US and British diplomats are also exploring how to boost trade outside a formal free trade agreement negotiation. The group has set up an ‘SME dialogue’ to identify how UK small businesses can better participate in transatlantic value chains. The two sides are also discussing cooperation on intellectual property.
There are clear signs that the US would want to conclude deals with Britain in areas where Washington has so far failed to sway Brussels – for example, during the now-stalled transatlantic negotiations between 2013 and 2016. Top priorities for Washington include intellectual property protection, services trade, free data flows and agriculture trade obstacles.
The US would like to see Britain move away from some of the EU’s famous barriers to US exports, be they tariffs or quotas on various farm goods, the EU’s hormone-treated beef ban or its reluctance about genetically modified foods.
The UK, however, seems to be moving in the direction of wanting to stay aligned with the EU on such matters, not least to try to avoid a hard border in Ireland – but also because of public opinion and the farming sector’s worry that it could lose the far more important EU export market as a result. This shift is clearly what prompted the Johnson’s “up in the air” remarks on Monday.
“We have an interesting challenge,” the US negotiator said, when asked how he saw the prospects for a post-Brexit UK-US deal.
So much hinges on the final shape of the UK-EU relationship going forward. For instance, it is still unclear whether Britain would remain in a customs union with the EU. If so, a deal on tariffs would not be possible. The negotiator said UK-US trade discussions focus on “laying the ground on what could be a final outcome – while not knowing where this will end”.
How much of a loss the absence of a US-UK free trade deal would actually be to American businesses is also unclear.
In a report on the future UK-EU relationship released this week, AmChamEU, the lobby group representing US companies invested in Europe, said its members’ “preferred outcome is that the UK remain a member of a customs union with the EU and/or within the single market post-Brexit”. Several AmCham members have also told Borderlex they do not see a US-UK accord as a priority.
The British business sector also tends to be concerned about talk of a quick FTA with the UK, knowing how difficult it is to obtain concessions from the US in areas of major interest, such as government procurement or better access to financial markets regulated at the sub-federal, ie. state level, such as insurance.
British business associations have also expressed frustration that they are not being systematically consulted in the framework of the UK-US working group – or any other of the 14 working groups on trade run by the government.