On March 2, 2020, the United Kingdom published its objectives in trade negotiations with the United States. The document states that the UK “will be a champion of free trade and will seek Free Trade Agreements (FTAs) with like-minded democracies”.
The document also says that an FTA with the US, which is a “developed, high-wage economy with high standards” and is Britain’s “top source of investment and the top destination for UK investment”, represents significant opportunities throughout the economy, from agriculture to professional services.
According to the UK government’s data, the UK-US total trade was valued at £220.9 billion (around US$ 280 billion) in the last year, including 19.8% of all British exports. The government’s analysis shows that a UK-US FTA could increase trade between both countries by £15.3 billion (around US$ 19 billion) in the long run, in comparison to 2018, and increase UK workers’ wages by £1.8 billion (around US$ 2.2 billion).
In February last year, in its “Summary of Specific Negotiating Objectives”, the Office of the United States Trade Representative (USTR) pointed out that, “as the first and fifth biggest global economies, the U.S. economic relationship with the UK is one of the largest and most complex in the world”, and that the “aim in negotiations with the UK is to address both tariff and non-tariff barriers and to achieve fairer and deeper trade”.
The UK’s negotiating objective is to agree with the U.S. on an “ambitious and comprehensive” FTA, which “will ensure high standards and protections for consumers and workers, and will not compromise on our high environmental protection, animal welfare and food standards.”
The adherence of the UK to the EU regulatory standards after the transition period that ends on December 31st , 2020, will be the main battlefield in the UK’s trade negotiations with the European Union, which are formally starting on March 2nd, 2020.
The EU’s negotiating directives released on February 25th, 2020, state that the only way to establish a free trade with no tariffs or other quantitative restrictions across all sectors would be ensuring a level playing field, with the UK using the EU standards as a reference point, in the areas of State aid, competition, state-owned enterprises, social and employment standards, environmental standards, climate change, relevant tax matters and other regulatory measures and practices in these areas.
At the same time, in the document “The Future Relationship with the EU”, the UK government defines that the relationship with the EU should be “based on friendly cooperation between sovereign equals, with both parties respecting one another’s legal autonomy and right to manage their own resources as they see fit.”
With regard to the food standards, for example, the UK “will continue to pursue a risk-based approach to disease management and surveillance, based on scientific evidence” and “should encourage the use of relevant international standards, guidelines and recommendations of the International Plant Protection Convention (IPPC), the World Organization for Animal Health (OIE) and Codex Alimentarius, and encourage cooperation in these international fora”.
Both UK’s negotiations will be tough. But the price of not having a free trade area with the EU will be higher. Almost have of British exports go to the EU. With no deal, theses exports will be subject to tariffs negotiated at the World Trade Organization, starting from January 2021.
In a recent article, the Wall Street Journal wrote that “the negotiations will boil down to a simple trade-off: how much economic pain the two sides will accept to protect their respective sovereignty. Such is the deep level of integration between the two economies, this decision is fraught with political complexity… Foreign direct investment into the U.K. has fallen since the 2016 referendum. The failure to secure a zero-tariffs deal could cut British exports by 14%—and even under a standard trade deal, U.K. exports to the bloc could fall 9%, according to a new study by the United Nations.”