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Elephants in the Room
Trump and Johnson Can Quickly Strike a Trade Deal—If They Avoid the Pitfalls
The U.S. and Britain both want a trade agreement post-Brexit. China and chickens could get in the way.
Three-and-a-half tumultuous years after Britain’s referendum to leave the European Union, Brexit formally took place at the end of January. Fresh off a resounding election victory, Prime Minister Boris Johnson and his post-Brexit government will make expanding trade a top priority, reordering trade arrangements not just with the EU, but with countries around the world. In the coming months, the United Kingdom will begin negotiating a free trade agreement (FTA) with its most important trading partner other than the EU: the United States. Quickly reaching an accord is possible, but only if the two sides are willing to acknowledge political realities.
A U.S.-U.K. FTA makes sense for both countries. It would join the world’s largest and fifth-largest economies. Both countries are high-wage, modern, developed economies. Both have strong finance sectors that could benefit from more liberalized trade in services. Both would benefit from liberalized yet high-standard rules covering digital trade and e-commerce, the new frontier of trade in the 21st century. Reducing as many tariffs as quickly as possible and facilitating uninhibited investment must be a top priority.
The U.K. Department of International Trade’s negotiating objectives, released in early March, note the United States as Britain’s largest bilateral trade and investment partner. The department estimates that “U.K.-U.S. total trade was valued at £220.9 billion,” or about $284 billion, last year. The United States accounts for nearly 20 percent of Britain’s total exports and 11 percent of its imports. An FTA between the two countries, the department estimates, could boost trade by more than £15 billion (about $19 billion) and increase total U.K. wages by £1.8 billion (about $2.3 billion). Not only would both sides benefit economically, but a quick deal with the U.K. would also give Washington leverage in any renewed negotiations with the EU, which were unwisely abandoned at the end of 2016, in the aftermath of the Brexit referendum and President Donald Trump’s election.
There is clearly enthusiasm on both sides to reach a deal quickly. Elizabeth Truss, the U.K.’s international trade secretary, recently penned a column in the Wall Street Journal laying out the economic merits of a deal. Meanwhile, a bipartisan group of senators recently wrote a letter to the U.S. trade representative, Robert Lighthizer, urging the administration to make a post-Brexit FTA between the two countries a priority.
Nevertheless, negotiations will be fraught with peril. Extremely sensitive issues will need to be reckoned with or avoided. Transatlantic enthusiasm must be tempered by cold political realities.
First is the issue of Chinese telecommunications giant Huawei. Citing security concerns with Huawei’s connection to the Chinese government, the Trump administration, bolstered by a large bipartisan group of senators, has urged the U.K. to abandon plans to utilize Huawei component parts in building its 5G network infrastructure—going so far as to threaten to withhold certain intelligence if the British move forward. Johnson recently canceled a planned trip to Washington after tensions over this issue erupted during a phone call with Trump. Until resolved, it will overhang all negotiations between the two sides.
Equally fraught are issues surrounding health care. The Trump administration will likely be pressing the U.K. to tighten its intellectual-property protections for pharmaceuticals, which would benefit U.S. drug companies but raise prices for Britain‘s National Health Service (NHS). This is a nonstarter for several reasons. First, as the U.K.’s Department of International Trade made clear in its negotiating principles, “The price the NHS pays for drugs will not be on the table.” That is an unequivocal statement. The issue of drug prices—and the potential impact of an FTA with the United States—also played a prominent role in the British election campaign last year, with Labour candidate Jeremy Corbyn using it to batter Johnson. The subject is clearly sensitive.
Second, Democrats in the U.S. Congress also won‘t support strict pharmaceutical intellectual-proerty protections in an FTA with Britain—or with any country, for that matter. Arguing that tighter intellectual-property protections on pharmaceuticals risk making health care even more expensive for Americans, Democrats successfully fought similar provisions during the recent ratification process for the United States-Mexico-Canada Agreement. Getting an agreement approved by the Democrat-controlled House of Representatives will require compromises, and this is one of their top demands.
On policy grounds, stricter intellectual-property standards don’t make sense, either. Both the United States and Britain already have fairly strong protections for intellectual-property holders. Both parties are members of the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which establishes a baseline for protecting and enforcing intellectual-property rights. A basic requirement to respect each other’s laws and enforce their own would be sufficient for an FTA. There is no need for any so-called “TRIPS-plus” rules.
Finally there is the issue of food safety—or what trade specialists call “sanitary and phytosanitary standards”. Most of the controversy revolves around U.S. chicken exports.
In 1997, the EU banned the use of chlorine and other disinfectants in cleaning meat at the end of the food production process, a common practice for certain meats in the United States. As a result, U.S. chicken exports to the U.K. are virtually nonexistent. Now that the U.K. is outside the purview of EU law, the U.S. chicken lobby will surely push to expand exports. For his part, Lighthizer recently waved away concerns about chlorinated chicken by saying, “Science-based standards, and then consumer preference—that’s what’s going to sort out this problem, and the United States and the U.K. are not going to go separate ways based on chicken.” Regardless of the ban‘s merits and Britain’s new status outside EU law, the issue of chlorinated chicken is so controversial in the U.K. that any effort to weaken the ban would significantly slow or possibly derail the talks. The U.S. trade representative should avoid the subject if it wants to quickly conclude an FTA.
Finally there is the issue of Trump’s ill-advised steel and aluminum tariffs, levied under the dubious guise of “national security.” Johnson’s government is asking the United States to remove the steel and aluminum tariffs. Simply put, steel and aluminum imported from the U.K. does not in any way threaten U.S. national security. A recent study by economists Kadee Russ and Lydia Cox found that there are “75,000 fewer jobs in manufacturing attributable” to the steel and aluminum tariffs, “not counting additional losses among U.S. exporters facing tariffs other countries levied in retaliation.” It is well past time to lift the tariffs for all countries, but especially for imports from a long-standing ally like the United Kingdom.
A high-quality FTA between the United States and Britain would have many benefits for both sides, and could reaffirm the special relationship that has long existed between the two transatlantic powers. But trade negotiators should beware of the pitfalls—and tread carefully.