Jul 26, 2019

Boris Johnson's Ascent to PM Brings Brexit, US-UK Trade Deal Closer to Reality

Daniel Griswold Senior Research Fellow

With his tousled hair, populist flair, and the blessing of the queen, Boris Johnson moved into 10 Downing Street this week as the United Kingdom’s new prime minister. His ascent, besides providing more colorful images for TV, will bring both Brexit and a future US-UK free trade agreement closer to reality.

Johnson has championed Brexit, the UK’s exit from the European Union that was approved narrowly by British voters in a referendum in June 2016. Johnson has committed his government to leave the EU by the October 31 deadline, even if it means “crashing out” without an agreement with the EU on exit terms.

Putting aside the short-term consequences of a hard Brexit, the UK’s exit from the EU’s customs union will free the UK government to sign its own trade agreements with other nations, including the United States. Based on his public statements, Johnson is eager to begin that process.

In his first speech as PM on Wednesday and his first statement to the House of Commons on Thursday, Johnson did not mention a US-UK agreement specifically, but said, “And yes, let's start now on those free trade deals--because it is free trade that has done more than anything else to lift billions out of poverty.”

The US and UK governments have already started talks on the outline of an agreement. Earlier in July, the US-UK Trade and Investment Working Group held its sixth meeting to discuss a range of issues, including trade in agriculture and services. Earlier this year, the Trump administration’s Office of the US Trade Representative released its summary of negotiating objectives for a US-UK agreement.

A post-Brexit trade agreement should be a priority for both nations. The UK is a key US commercial partner. As the world’s fifth largest economy, the UK is the number one source and destination of US foreign direct investment, the number one partner in services trade, the number three source of international visitors, and the number five market for US goods exports, behind only Canada, Mexico, China, and Japan. For the UK, the US is by far its largest commercial partner outside of Europe.

The opportunities are great for deep trade and investment liberalization between these two leading commercial nations. In a Mercatus policy paper last fall and comments at a USTR hearing in January, I outlined the key free-trade objectives that negotiators should pursue:

  • Immediate elimination of all duties on agricultural and manufactured goods. While duties are generally low on manufactured goods under the current EU customs union, most agricultural duties remain high. Exit from the EU would allow the US and UK to drop all duties to zero on two-way trade, including duties on automobiles.
  • Reducing non-tariff barriers.  The EU has often abused sanitary and phytosanitary standards, such as unscientific restrictions on genetically modified organisms (GMOs), to protect its domestic producers rather than public health. A new agreement should ensure that such rules are no longer abused as disguised trade barriers.
  • Liberalization of services trade. London and New York are arguably the world’s two leading financial centers. An free trade agreement should create mutual recognition of financial services standards in the two nations to facilitate trade in banking, insurance, and accounting.
  • Freer movement of labor. Either in the agreement itself or in a side agreement, freer movement of labor should be allowed between the US and UK. Laws should be reformed to allow mutual recognition of occupational licensing.

One of the more politically-sensitive issues in the negotiations will be food standards, including GMOs. Residents of the UK may not be as hardened in their opposition to GMOs as other Europeans, but they may also not be as accepting as American consumers.

It bodes well that Prime Minister Johnson rejected the anti-GMO bias prevalent in the EU. In his speech on Wednesday, he declared, “Let's start now to liberate the UK's extraordinary bioscience sector from anti-genetic modification rules, and let's develop the blight-resistant crops that will feed the world.”

Another potential complication will be the fate of the border between Northern Ireland and the Republic of Ireland. Prominent US lawmakers such as Rep. Richard Neal (D-MA), chairman of the House Ways and Means Committee, are keenly interested in seeing that the currently “frictionless” border between the two regions is maintained even after Brexit. Johnson has pledged to maintain the status quo even after Brexit, but any perceived failure could arouse opposition from US lawmakers with Irish-American constituencies.

Whatever one’s opinion of Brexit, Britain’s new leader is determined to implement the will of the nation’s voters as expressed by the 2016 referendum. If he succeeds, a US-UK free trade agreement should be one of the top items on his agenda.  

Photo credit: Getty Images / AFP Contributor / Contributor

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