The Long and Difficult Road to a U.S.-U.K. Trade Deal
20 May 2018 - 12:29AM
Dow Jones News
By Stephen Fidler
The British government has said it wants to leave the European
Union's customs union so it can pursue trade deals elsewhere in the
world. Of those, the biggest prize would be an agreement with the
U.S., the U.K.'s biggest national trading partner.
Politicians on both sides of the Atlantic, including President
Donald Trump, have spoken enthusiastically about a U.S.-U.K.
free-trade deal.
But a recent report suggests that such a deal wouldn't be quick
or easy. Any agreement of substance would be enormously politically
sensitive in the U.K., posing London with a strategic choice of
whether to align the British economy closer to the U.S. or keep it
closely tied to the EU.
The U.S. market is important to the U.K. Some 60% of U.K.
exports go to the EU and the countries with which the EU has
free-trade deals. Of the rest, the U.S. buys almost half. The U.S.
is so significant that the benefits to the U.K. from signing non-EU
trade deals around the world hang importantly on securing an
agreement with the U.S.
The report by researchers at Harvard University and King's
College London led by Ed Balls, a former British Labour government
minister, and Peter Sands, a former chief executive of Standard
Chartered Bank, points out that any deal will be a long time
coming.
It takes on average 45 months for the U.S. to negotiate
bilateral trade agreements. But negotiations can't start in earnest
until the U.K. has settled its post-Brexit relationship with the
EU. That might not happen for a couple of years or more.
No U.S.-U.K. accord can be implemented until the U.K. unlatches
itself from the EU's customs union, which sets the country's tariff
schedule. That development might be years away if the U.K.
government attaches itself to the customs union well beyond 2020 as
British officials say is now under consideration.
The report by Messrs. Balls and Sands points out a "power
imbalance" in the relationship. The U.S. economy is more than five
times the size of the U.K.'s and U.S. trade negotiators are far
more experienced, given the U.K.'s own trade negotiations have been
outsourced to the EU for four decades.
The U.K. also needs a deal more than the U.S., not least to
reinforce the narrative that Brexit gives the country new economic
opportunities and wasn't about the U.K. turning inward.
Average tariffs are already low -- but the U.K. has more to give
in negotiations and not so much to gain: U.K. tariffs, currently
set by the EU, are higher than U.S. tariffs on average. The U.S.
will likely target cuts in tariffs where they remain relatively
high, including on cars and agriculture, both of which could have
big impact on the U.K. industries.
In nontariff negotiations, the likely British "asks" are tough.
Opening up the U.S. financial-services market, for example, was
impossible for the weightier EU in now moribund trade negotiations
with the Obama administration.
Moreover, dealing with the U.S. is complicated: The federal
government negotiates but, even if it is inclined to make
concessions, it often can't corral its states, Congress and
independent regulatory agencies.
Meantime, the U.S. will want to open up the British economy to
U.S. farm products by relaxing regulations on labeling, food
safety, genetically modified organisms. That raises the nightmare
of British farmers: that they will be held to a higher standard of
food safety and environmental protection while cheap produce floods
in from American farmers. Among other things, too, Washington is
also likely to want to give U.S. health-care providers access to
the British market.
Trade agreements no longer fly under the political radar as they
did in the past -- as demonstrated by widespread political
opposition to the prospective U.S.-EU agreement.
On questions of food standards and the perceived undermining of
the state-run National Health Service, any agreement with the U.S.
is likely to encounter noisy organized opposition.
One reason is for the political sensitivity around trade
agreements is that for them to have an impact, they have to go
beyond tariffs and tackle nontariff barriers to trade, including
aligning product and services regulations and standards. That
raises the politically charged question about which country will
set those regulations and standards.
In a trade accord between the U.S. and the U.K., there would be
only one answer: the U.S.
That will raise a tricky question for politicians in London.
Will they be willing align rules and standards with the U.S. to get
a meaningful trade deal or will they prefer to remain aligned with
the EU so as to minimize disruption of current trading
patterns?
For many in the U.K., membership of the EU demanded excessive
sacrifices of sovereignty. For probably a different group, ceding
influence to the U.S. over important areas of the British economy
would be unthinkable. A U.S.-U.K. trade deal therefore shouldn't be
taken for granted.
(END) Dow Jones Newswires
May 19, 2018 10:14 ET (14:14 GMT)
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