Why Britain faces an uphill battle in striking a US trade deal

  • In World
  • 2021-09-22 15:44:08Z
  • By The Telegraph

Concrete symbols of the benefits of Brexit do not come bigger than a trade deal with the US.

The idea of a new low-tax agreement across the Atlantic has taken on totemic status. From Barack Obama warning that the UK would be "at the back of the queue" to Donald Trump's advisers pleading the opposite, the ebb and flow of Washington's support for the idea has dominated London's hopes and fears for the future of the special relationship for more than five years.

Yet little progress has been made and Boris Johnson's latest overtures to the White House have come to nothing.

Joe Biden was decidedly cool on the idea, offering a bare minimum of polite encouragement to his guest. "We're going to talk about trade a little bit today," the President said, making clear where his priorities lie.

The Prime Minister acknowledged that the great prize of a US deal is not within his grasp. "The Biden administration is not doing free trade deals around the world right now but I've got absolutely every confidence that a great deal is there to be done," Johnson said in Washington DC.

So what happens next? One idea floated by top government sources is that the UK could join USMCA, the US-Mexico-Canada deal that Donald Trump engineered when he wanted to change the rules of Nafta that had governed North American trade since the mid-1990s.

It is not entirely without precedent: Britain has applied to join CPTPP, the trade group of countries around the Pacific.

But within 24 hours there was an apparent u-turn - Johnson's spokesman said a straight UK-US deal "remains a priority" with "no plans to go beyond that".

Amid the shambles, what will the Government consider when it comes to the pros and cons of a group agreement?

Britain already has deals with Mexico and Canada and could have a second one soon as they are members of CPTPP. As a result, says Sam Lowe, trade specialist at the Centre for European Reform, joining USMCA would give Britain three deals with the two countries.

As a result it is clear the purpose of joining the bloc is to cut trade obstacles with the US.

Lowe expects the boost to GDP would be similar to that of a direct trade deal, estimated at 0.16pc of GDP in the long-run, equivalent to about £3.5bn a year.

The theory may be that joining a pre-existing bloc that has already hammered out the rules may be quicker than agreeing an entirely new deal.

Analysts at Citibank say: "Since the election of President Biden, negotiations have stalled and unease remains within both the White House and among congressional Democrats over the future of the Good Friday agreement in particular. Entry to the USMCA could be one way of reducing the need for protracted bilateral talks."

Doing so would not necessarily be easy or costless, however. USMCA has no accession provision. It was drawn up as a replacement to Nafta and not as a wider trade deal for an expanding bloc of nations.

This is not an insurmountable hurdle, says Lowe, noting that if the three member nations want to bring in Britain then they can add a new term to the agreement.

It would require some action from Mexico and Canada who stand to gain little when they already have trade deals with Britain. Such a move also needs some enthusiasm from the US, the lack of which has created this situation in the first place.

"With strong US buy-in also essential in driving progress, entry into the USMCA is still likely to require the UK government to make significant concessions on agri-food and assuage US concerns regarding the implementation of the Northern Irish Protocol," says Citi. "In this sense, it may offer a shorter but unlikely easier passage to greater UK market access to the US."

Those agri-food conditions could be key - the dreaded chlorinated chicken that has come to represent all of Britain's fears, real or imagined, over large-scale farming, hygiene and welfare standards.

Angus MacNeil, the SNP MP who chairs the international trade committee, says Washington may lose interest rapidly if Britain is awkward about key US demands.

If the UK says "health and food standards are not for sale, usually there is very little interest the Americans have after that," he says. "There are other things the Biden administration can spend administrative energy on that would give them greater GDP gains than a trade deal with the UK."

At the same time agreeing to US food standards could have implications for Britain's trade with the EU, he warns, which economists already fear will be crimped by Brexit.

Food is not the only contentious point in USMCA. Lowe says: "Especially for cars, the provisions are really bad. They were designed by Donald Trump so they require a huge amount of local content to qualify for tariff-free trade, and they also have supplementary provisions around how much workers should be paid, how much domestic steel should be used. You look at them and it is not obvious the UK would qualify for tariff-free trade."

So a trade-off could exist between attempting to get a quicker deal in the form of joining the bloc, and getting a deal which matches Britain's requirements with a deal directly with the US.

Depending on the urgency of the talks a bilateral deal might take four years to complete. Joining USMCA could be quicker, but only if the countries wanted it to happen, and there is little indication they do.

David Henig, UK director at European Centre For International Political Economy, says the UK's idea shows intent more than anything else. "It is more of a signal to the US, we still want a deal when you are ready, than a realistic prospect," he says.

Britain may be preparing to wait for the next President to see where we end up in the queue - assuming the Prime Minister is still available to strike a deal that far in the future.


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