22 July 2017

BCC's Adam Marshall: Rushing into a trade deal with the US would harm the UK

[...]a surprisingly large number of politicians and commentators seem to believe that, rather than pursuing quick wins that tackle some of the practical issues faced in UK-US trade, a comprehensive FTA with the US should be an early goal for post-Brexit Britain.

The prime minister herself seemed to embrace the idea of a comprehensive FTA on her first trip to Washington to meet President Donald Trump – and the topic clearly came up again at the recent G20 meeting, where Trump spoke of a “big” and “powerful” deal between the two countries, to be negotiated rapidly. Yet I am distinctly uneasy about this prospect, and so, too, are many I speak to in business across the UK. While a comprehensive UK-US free trade deal could be a long-term aspiration, it’s not at the front of the queue for businesses – for whom other, more immediate priorities take precedence. It is a stark fact that the US has many of the world’s toughest and most seasoned trade negotiators, whereas the UK has ceded its policy and knowhow to the European commission for decades. The office of the US trade representative pulls together the very best private-sector talent to negotiate bilateral and multilateral deals on behalf of the country. The embryonic UK Department for International Trade appears to have embraced the more conventional Whitehall approach, staffing up primarily with civil servants plus a smattering of global experts. If talks began on a US-UK deal over the coming months, I know which of the two I’d put my money on to get the upper hand in a complex and lengthy negotiation.

Some of that complexity comes from the fact that FTAs need to cover a broad sweep of issues to be compliant with WTO rules. That would see UK negotiators having to go head to head with US counterparts across a huge range of issues while, in all likelihood, still ironing out a long-term deal between the UK and the EU. Given that both home-grown and many US-owned companies in Britain have repeatedly said the eventual UK-EU deal is paramount, and needs to be in place first, the notion that a US deal could be negotiated in short order seems far-fetched. In any UK-US negotiation, the American side would also start with the advantage of market size. With a population five times larger than the UK’s, US companies have either been operating at a continental scale without trade barriers for many decades or have been born more recently into a giant home market of 330m. Their experience and, in some sectors, sheer size gives them an in-built advantage – and gives US negotiators another important edge.

In many cases, US firms also start with significantly lower regulatory costs and requirements than their UK counterparts. US negotiators know this and would seek to “bake” these advantages into any deal. While issues such as mutual recognition of product standards and regulatory equivalence are highly technical, there is a huge risk that UK-based firms would continue to face higher up-front costs and regulatory requirements after any agreement, leaving them at an instant disadvantage to US competitors that would suddenly have wider scope to compete in and buy up chunks of the UK market.

Mergers and acquisitions are positive and healthy, particularly where they leave long-lasting economic value for the communities they affect; another consequence of a US-UK agreement could be predatory purchasing of UK firms by bigger, cash-rich US competitors. We have seen cases where UK firms were hollowed out and asset-stripped by overseas buyers. Indeed, in more limited circumstances, UK firms have done the same in the US and other markets. But the truth is that under a US-UK deal, this less-welcome variant of mergers and acquisitions activity would probably be to the UK’s long-term disadvantage.

Finally, there are political considerations. Our government’s “global Britain” vision and Donald Trump’s America first approach are not natural bedfellows, regardless of the strength of the special relationship. It seems difficult to imagine that the Trump administration would make any concessions, even to a close ally such as Britain, that undermined US jobs or investment. [...]

Full article on The Guardian

Related article on IEA: US edging towards the front of the queue for a trade deal with the UK

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