The Post-Brexit Trade Deal
The Post-Brexit Trade Deal
On Jan. 23, 2020 Brexit became official — the U.K. pulled out of the European Union. While some cheered, others feared that the U.K. had placed itself in a disadvantaged position in regards to international trade…
The naysayers had a point — Downing Street was now in a place where all of its trade deals would need to be renegotiated, for better or for worse.
One of the terms of the U.K.’s EU pullout included a year’s grace period in which it would still fall under the auspices of existing EU trade deals. This will give the U.K. time to get new independent trade deals in place going forward.
But the clock is ticking and the disruption surrounding coronavirus shutdowns have cost precious weeks in this process.
Former President Barack Obama famously warned that the U.K. would have to go to “the back of the queue” when it came to trade deals with the U.S. Further, he stated, “I think it’s fair to say that maybe some point down the line there might be a U.K.-U.S. trade agreement, but it’s not going to happen any time soon because our focus is in negotiating with a big bloc, the European Union, to get a trade agreement done”.
In President Obama’s view, it was easier and more efficient for the U.S. to negotiate with the EU as a whole instead of engaging in smaller piecemeal trade agreements, a statement that pleased proponents of remaining in the EU.
Then-President-elect Donald Trump spoke more supportively of Brexit and vowed of a trade deal: “We’re gonna work very hard to get it done quickly and done properly. Good for both sides.”
But Brexit faced hiccups along the way and the process turned out to be more prolonged than first envisioned. It is only as we are well into President Trump’s fourth year that the trade talks between the U.S. and U.K. have begun in earnest. Spring of 2020 finds U.K. trade negotiators busy on multiple fronts, including the EU and Japan.
According to The Guardian, U.S.-U.K. trade accounts for only 16% of all U.K. international trade. “So Britain,” Guardian writer Seán Clarke opines, “has more to lose from the failure of the EU talks than it has to gain from the success of the U.S. talks.”
In recent years, trade between the two nations has focused more on services than products, thus evading tariffs and customs procedures that affect goods. Instead, mutual recognition of standards and qualifications of those providing these services, such as legal and financial services, is important to keep this sector of trade moving forward.
Thus far, progress on the new trade deal between the U.K. and EU has been described as scant, with each side feeling that the other needs to give more ground.
“We made very little progress toward agreement on the most significant outstanding issues between us,” U.K. chief negotiator David Frost explained coming off the third weeklong round of talks.
Meanwhile, U.K.-U.S. trade talks were anticipated more optimistically, with the U.K. expecting U.S. trade to give its economy a modest boost over the coming years. Going into the talks, the U.K.’s wish list included lower import taxes, or tariffs, on U.K. exports and increased trade in services.
Negotiations between the two nations began via teleconference in early May between the U.K. International Trade Secretary Liz Truss and U.S. Trade Representative Robert Lighthizer. This round of talks has been slated to go for two weeks.
“We want to strike an ambitious deal that opens up new opportunities for our businesses, brings in more investment and creates better jobs for people across the whole of the country,” Truss said.
Both parties stress the importance of a stepped-up pace to negotiations to aid both nations in their post-coronavirus recovery efforts.
“Total two-way trade between the two countries amounts to $269 billion a year. The U.S. generally runs a trade surplus with the U.K., generating a nearly $19 billion surplus in 2018. Airplanes and precious metals were the top export items from the U.S. to the U.K., while vehicles and machinery led the way on the products shipped to the U.S.,” notes Vandana Rambaran in a report for Fox News.
Tariffs are expected to be a high-priority focus of the U.S., since its tariffs are generally lower than those in the U.K., and there is a prioritized push for the U.K. to respond in kind. For example, U.S. tariffs on imported cars are 2.5%, while U.K. tariffs are 10%.
Another area of incongruity is in the realm of environmental and food standards, with the U.K. standards reflecting those of the EU. Some critics point out that increased trade with the U.S. will lower U.K. standards to unacceptable levels, though U.K. Prime Minister Boris Johnson promises otherwise.
U.S. negotiators would also like access to the U.K.’s National Health Service (NHS) for U.S.-based health care and pharmaceutical companies, but the U.K. counters that the NHS is “not on the table.”
In many respects, these negotiations are a political football on both sides of the pond, with opinions and hopes coming down to how one feels about Trump or Johnson, Brexit or “remain.” Some go so far as to say that Brexit proponents view this trade deal as a sort of holy grail. Detractors are more likely to characterize it as symbolic over substantive.
Some areas of trade have already been agreed upon and amount to a renewal of trade between the two nations under the terms that existed when the U.K. was in the EU. These agreements include wine, spirits and marine equipment, as well as an agreement of mutual recognition affecting pharmaceutical manufacturing processes, telecommunications equipment and electromagnetic compatibility.
Why is it important? For us, a trade deal can affect the prices of goods, job opportunities and business opportunities. While it may seem insignificant, it can make a significant impact on our lives.
Some of the biggest exports from the U.K. are machinery equipment, vehicles, fuel and pharmaceuticals.
Hopes are high, and negotiations are going forward in a spirit of good faith and long-term friendship and partnership.
We will all be keeping an eye out as to what will be forthcoming in the ensuing weeks.
Dr. Patrick Gentempo