Is a Future U.S.-UK trade deal stuck in a Catch 22?
It seems the aspirations of the pro-Brexit camp have been put in a rather uncomfortable place, which may restrict the degree to which the UK can take advantage of its upcoming independence from the European Union.
As many will recall, much of the impetus behind the Brexit movement was to break Britain free from the shackles of EU regulatory policies and the multilateral system of negotiating agreements through Brussels, rather than London. The “Vote Leave” movement felt the UK would be better off negotiating trade deals on its own, emphasizing the value of a bilateral UK-U.S. trade deal.
No Backstop, No Deal
Yet, precisely how successful negotiations between London and Washington might be has become a very open question. During a recent visit to Washington by Irish Deputy Prime Minister, Simon Coveney, members of U.S. Congress stressed unequivocally that any Brexit deal between the UK and EU must include an open border between Northern Ireland and the Irish Republic. The members of Congress – which include Richard Neal, a Democrat who chairs the House Ways & Means Committee that will oversee any future U.S.-UK deal – believe a hard Brexit that establishes a hard border would jeopardize the peace process set out in the Good Friday Agreement of 1998 and, therefore, would be unacceptable. House Democrat Brendan Boyle, a member of the Friends of Ireland caucus, even went so far as to introduce a resolution in the House to oppose any reestablishment of a hard border.
Britain’s parliament recently rejected a proposed Brexit plan that would have included a backstop to maintain a soft Irish border in the event the UK and EU were unable to come to an agreement on the terms of trade in the post-Brexit transition period. British Prime Minister Theresa May is now in discussions with EU officials to receive assurances in writing that the backstop would be only a temporary measure, so that she may ease the concerns of pro-Brexiters who see the backstop as a mechanism to bind UK customs policy and processes with those of Brussels.
Soft Border Could Also Sour Deal
Even in the event the UK and EU come to mutually agreeable terms on Britain’s exit from the EU that satisfies the British parliament, the possibility of Washington and London finding common ground on a trade deal is far from a foregone conclusion.
In spite of the tensions caused by Brexit, the EU will remain the UK’s largest trading partner and London’s first priority will be to secure favorable terms of trade with Brussels. Such terms are likely to demand adherence to the EU’s elevated regulatory standards for health and safety, particularly as it pertains to food items. If the recent feedback from U.S. industry groups on the negotiating objectives of a U.S.-UK agreement are any indication, adherence to these regulations will likely be a point of contention, as U.S. producers believe the EU’s current regulations are too onerous and restrict the degree to which U.S. producers can sell their products in the EU.
EU regulations are also likely to creep into areas such as data privacy. If the UK agrees to adhere to the EU’s recently implemented General Data Protection Rules (GDPR), this may become a stumbling block in negotiations as data privacy in the U.S. is not regulated in the same manner.
The upcoming decision by the U.S. Department of Commerce as to whether or not to apply Section 232 tariffs on European automobiles will likely also have an influence over negotiations. As noted in a recent Harvard working paper that examines the prospects for U.S.-UK trade, the EU will want to ensure the UK does not serve as a backdoor for entry into the EU of tariffed U.S. goods. This will be particularly true for automobiles and auto parts in the event the EU is forced to reciprocate possible U.S. Section 232 tariffs on EU autos.
Is a U.S.-UK trade deal doomed?
The aforementioned challenges certainly present a less-than-optimistic vision for what trade across the Pond might look like. But it’s in both nations’ interests to see a deal through. The U.S. is an important export market for the UK, representing half of the UK’s non-EU exports. The UK is a critical international financial and service center to which many U.S. companies would like to secure access, and a trade deal with the UK would likely make the path to securing a U.S.-EU deal much smoother.
But the challenges noted above are very real and the outcome of Brexit will have a profound influence over how the parties negotiate a future trade deal. A soft Brexit, while far more complex from a negotiation standpoint, may provide greater opportunity for negotiation than a hard Brexit that not only shuts out the EU but also runs the risk of compromising the integrity of a critical peace accord the U.S. helped to broker.
Either way, the process is likely to be slow and the conclusion a long time coming.
Mike Wilder is vice president of Managed Services at trade services firm Livingston International. He has 30 years of experience in trade compliance and consulting, and specializes in the auto sector. He can be reached at email@example.com.
Gavin Everson is a London-based senior director in Livingston’s Global Trade Management division. He has more than 30 years of experience in customs, trade and logistics management. He can be reached at firstname.lastname@example.org.