It cautions that the temptation to achieve a quick trade deal with the world’s largest economy will be high, but the complexities of the regulatory environment and US’s federal system will need careful navigation.
A deal with the US is central to the Government’s post-Brexit trade strategy, and has been confirmed as its first priority for new free trade agreements after Brexit. Any trade deal with the US could have a transformative effect on the UK economy, for better or worse.
Publishing the report, Committee Chair Angus MacNeil commented:
“The Government has been extolling the virtues of a potential deal with the US, and this wooing has been met with positive sounds from Washington. As the UK’s largest single-country trade partner, it is easy to understand why the Government wants to promote freer trade with the US, and it is undeniable that some sectors of the UK economy could benefit from reduced regulatory barriers and improved market access in the US.
“But it would be a catastrophic error to rush into negotiations with the US without a comprehensive trade strategy. The economic benefits of a US deal are presently unproven. The Government appears to be engaged in an exercise in doublethink: on the one hand telling us that new trade deals will be the pot of gold at the end of the Brexit rainbow, while simultaneously saying it’s too soon to offer a realistic estimate of the possible contents or benefits a deal with its highest-priority target.”
“Even in ideal circumstances, trade-offs will have to be made to get a comprehensive US deal. Without a trade strategy, we have no idea what these may be. Will the Government, in their rush to secure the future of the UK services sector, sacrifice UK agriculture or manufacturing? What does the Government intend to do to help industries if they are negatively affected by this bargain?
“It was clear in our inquiry that questions about trade with the EU and with the US cannot be answered in isolation. Will the UK align its regulations with the US, and risk erecting impenetrable trade barriers with our other global partners, particularly the EU? If there is a clash between the regulatory regimes of the EU and the US, which does the Government plan to prioritise? These issues need to be worked out, not just before negotiating a deal with the US, but also before we finalise our future trading relationship with the EU.”
Establishing the UK’s global trade strategy
Prior to embarking on trade negotiations with the US, the Government must publish a trade policy strategy which articulates its vision for how the UK will operate as an independent trading nation. The trade policy should set out the UK’s key objectives, interests and priorities, and address the sectoral and regional implications of pursuing particular trade policy objectives.
Political parties should also take steps to try to achieve a level of political consensus on the direction of travel of trade policy. Trade agreements can take years to negotiate and this might help avoid changes of government causing radical changes in trade policy, potentially writing off years of negotiation.
Demonstrating the impact on the UK economy
The Government has indicated undertaking only limited modelling of the potential effects of a UK-US agreement. While there may be some limits to the accuracy of such modelling, the Government’s explanation that the agreement’s content is not yet known and therefore cannot be modelled is not satisfactory.
Given how central new free trade agreements are to the UK's Brexit strategy, the Government must make the economic case for a UK-US agreement by undertaking detailed work modelling the potential effects of a UK-US agreement on the economy. It must also produce a comprehensive economic impact assessment that considers in detail the effects of an agreement, broken down by economic sector, region and nation.
While there may be situations in which the Government should not publish certain information to protect its negotiating position, it must also be recognised that the benefits of trade agreements, including with the US, are unlikely to be felt equally. Government should identify who is most and least likely to benefit from proposed agreements in its negotiation mandate.
The Government should also ensure there is no ambiguity in its position on the protection of UK public services in a UK-US trade deal, and in all future trade negotiations. Universal access to NHS healthcare is an accepted fact of life in the UK and must not be compromised by a UK-US agreement. Such a move could readily lead to the kind of widespread opposition seen during negotiations of the EU-US Transatlantic Trade and Investment Partnership.
Regulation and alignment
The reduction of non-tariff barriers is a key ‘win’ in modern trade agreements, and little of the potential benefits of a UK-US agreement will be reached without reducing these barriers. However, the UK will approach negotiations with the US from the starting point of regulatory alignment with the EU.
The UK will have to make fundamental decisions about what regulatory direction it wants to head in after Brexit. Decisions about the level of regulatory alignment the UK has with the EU and the US must not be considered in siloes, but with full regard to the impacts of any decision on the UK’s trading relationships with other partners around the world.
To assist in this task, the Government should establish a cross-departmental working group on trade and regulation that informs all of its trade negotiations. The Government should also be clear about the relative weight it intends to give the interests of different UK sectors Equally, they must consider the interests of consumers and ensure that consumers are represented in consultations on a future UK-US trade agreement.
Regardless of the Government’s future approach to regulation, we welcome its commitment not to lower existing product safety, environmental and animal welfare standards in a UK-US agreement.
Understanding the landscape
The UK is a services-dominated economy, with services contributing approximately 80% of UK GDP and 44% of UK exports. As the Government touts its future role as a champion of liberalised trade in services, it must recognise that the US will present unique challenges.
A deal with the Federal Government does not necessarily guarantee market access for UK service providers at the state or even local level. Without senior sub-federal participation in the US negotiating team it is unlikely that UK services exports benefits will be achieved.
It is crucial therefore that state-level representatives are included on the UK-US Trade and Investment Working Group. Securing sub-federal US participation should also be a key objective for the Government for any UK-US trade negotiation framework.