16 January 2017

Donald Trump has promised that a UK–US trade deal will be ‘done quickly and done properly’ after Brexit. Oliver Ilott warns a deal would have to overcome four uncomfortable truths.

Donald Trump has said that he wants a UK–US trade deal to be signature ready’ by March 2019. Trade deals have been negotiated in less – the North American Free Trade Agreement (NAFTA) took less than two years to negotiate (although it then took two years to get signed off). On average it takes one and half years to negotiate a deal with the US, although it takes more than three years to implement the deal once it has been agreed. But if Theresa May is looking for a quick and dirty’ trade deal with the US, she’ll encounter at least four uncomfortable truths.

1. The areas where there is most to gain are also the most politically sensitive 

Trade deals remove tariffs – the costs levied on imported goods to protect domestic producers. A trade deal between the US and UK may attempt to remove tariffs in areas where they are high. These are almost all in agriculture.

On the US side, there are 22 import duty rates above 100%, all on agricultural products. This makes some agricultural goods produced outside the US very expensive for US customers, and limits the amount of trade UK farmers do with the US. It will be the same story for the UK if it adopts the same tariffs that the EU currently levies on all non-member states, where the highest duties are all for agricultural products, including:

  • whey and modified whey (635%)
  • prepared or preserved poultry (289% and 143%)
  • prepared or preserved mushrooms (184% and 160%)
  • live poultry (156%)

If Theresa May wants to trade away farmers’ protections in a trade deal with the US, she will encounter significant opposition. Agriculture is protected in both countries because it is politically sensitive: farmers are a powerful lobby. High EU tariffs protect UK farmers from competition with cheap imports (whilst raising prices for consumers).

2. Regulations may also be a tricky subject

Trade deals aren’t just about tariffs. Different regulations in different countries can be an impediment to trade, and trade deals often seek to remove these barriers.

The US Trade Representative (USTR) publishes an annual report detailing the barriers to trade that it would like to remove, including in the EU.  Assuming the UK replicates EU customs and regulations in the short term, this report doubles as a hit-list of issues that the US might tackle in a UK–US trade deal. For example, the US objects to the EU’s ban on disinfecting chicken with chlorine. It also wants to remove the EU regulation stating that for a product to be termed “whiskey” it has to be aged for three years (clearly a sensitive issue in Scotland).  

More widespread political concern might be caused by the US trying to persuade the UK to drop the EU’s ban on beef treated with any of six ‘growth promotant’ hormones. The US has consistently argued that this ban has no scientific grounding and simply acts as a protectionist barrier. It challenged the EU regulation at the WTO, won, and imposed trade sanctions on the EU for a decade from 1998. Removing this regulation in the UK to secure a trade deal with the US might anger environmentalists and farmers.

In a specific UK deal, the US might also object to elements of Theresa May’s industrial strategy (particularly if it heralds more state support for UK industry); the USTR report cites the UK’s decision to plough £1bn into Rolls-Royce for the development of aircraft engines as a barrier to trade. All of these regulatory issues are politically sensitive. Managing those sensitivities to secure a deal takes time and a huge amount of political capital.

3. A deal with the US will shape other trade negotiations

In our interview with trade negotiators from Canada, the US and the EU, a consistent message has been that trade deals should not be viewed in isolation.  Other countries would watch a US–UK trade deal carefully to see what it revealed about concessions that the UK was prepared to offer, using this precedent when drawing up their own demands for a UK free trade agreement. That means that the Government cannot afford to negotiate on the assumption that the UK–US deal would be a one-off, in which it was acceptable to give greater concessions in order to secure a faster deal.

4. Whitehall is still assembling its ‘deal-making-machine’ – the USTR has decades of experience

Negotiating and implementing deals eats up government capacity. The new Department for International Trade is still in its set-up phase – its new Permanent Secretary won’t start until March. And the complexity of modern trade deals tends to mean that negotiation is a ‘whole of government’ effort – negotiations that covered food regulations, for example, would almost inevitably draw on the resources and expertise at Defra, which is staffing up its own trade team. For the moment, the UK is still assembling the capacity required to actually do a US trade deal. 

Further information

In Spring 2017 the Institute for Government will be publishing a paper setting out how the Government can build trade negotiation capacity.

Comments

Interesting post. Clearly some sound points. But they are all meaningless to Brexit zealots

Those zealots see glorious freedom in leaving the Single Market. Equally they want a complete break with the Customs Union (any pretence they want to keep some elements is just a negotiating ploy). They view the EU as the evil empire (it's always WW2 in their heads - the plucky little Brits against the fiendish hun) and want nothing to do with it.

Brexiteers are free market zealots - they see the WTO as the least worst option.

For instance, if you say German cars will incur a 10% tariff, they are cock-a-hoop. To them this is simply a tax on German workers and rich people buying German cars. A tax they can spend maintaining subsidies to their chosen few (land owners mainly).

People who say such policies might hurt the masses, particularly society's poorest, miss an important point. The zealots don't care a jot for the masses - they only care for themselves and their kind. They see the poor as feckless and lazy scavengers, always pleading for handouts from those 'talented' few who have money.

The zealots are only interested in two things - power and profit. They only add a third - flag-wrapped, blood soaked patriotism - to keep the mob happy (and to recruit troops when they need them). Moreover, the zealots are in love with the USA (or their idea of the USA as a bastion for disciples of Ayn Rand).

They see nothing wrong with hormone-pumped beef or chlorine washed chicken or a lack of comprehensive health care. They are happy with the notion of the UK as the 51st state (so long as they can keep the Queen - they are rather fond of pomp and inherited wealth). To all the valid points you made, they would reply: "So what - we're alright."

Why are these 'uncomfortable' truths?

Surely they're just issues to be overcome... no more or less than any other issues. That's why we have things called 'negotiations'. We've been negotiating things since Ug and Og agreed an equitable exchange rate for Sabretooth skins to dinosaur eggs.

If everyone puts on their 'grown up head' and stops behaving like 6-year-olds in the school playground a lot can actually be sorted very quickly.

And whatever happens... the sun will still come up tomorrow morning... so to all the doomsayers out there, rather than crying about how difficult everything will be, how about we all start looking for solutions rather than problems?

When can UK start negotiating FTAs? In principle, as long as UK is part of EU it cannot sign and work out any FTA deal. Does activating Article 50 change this principle?

Thank you for a great and easily accessible article about an immense challenge ahead for UK. It will be a quick deal (give in) or a good deal (considered), but it won't be both.

If Brexiteers worry about losing British sovereignty to the EU, just wait and see what that will feel like when we sign a trade deal with the USA – secret courts where US corporations can sue councils, our government, employers, companies that are seen to reduce corporate profits – so goodbye to the power to decide our own food standards, environmental standards, run a national healthcare and broadcasting (both the NHS and BBC will be sued and will be opened-up to US private take-overs). We will, indeed, be the 52nd state of the USA – just what all those who voted Brexit dreamed of when they voted to "take back control." By the time they realise their mistake, it will be too late. Theresa May will go down as the Prime Minister who flogged the UK off to USA corporate power. And all the MP's who were too cowardly or concerned about their future careers rather than their conscience, will find that Parliament is irrelevant in the new world of corporate power. UK – RIP! The days of EU membership will be looked back on as a golden age of freedom and prosperity.

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