Give the US and UK Something to Celebrate: A New Free Trade Deal

In his whirlwind visit to Europe, President Trump first told The Sun newspaper that British Prime Minister Theresa May’s compromise on Brexit “killed” the possibility of the U.S.-U.K. free trade agreement. Then, when he stood next to the prime minister the next day, he said, “a great bilateral trade agreement” was possible after all.

 If the United Kingdom does exit the European Union under the softer terms set out in the U.K. government’s white paper last week, a free trade agreement (FTA) with the United States would not only be possible but a positive step forward for the two nations and their “special relationship.”

The U.K. is on track to officially exit the EU in March 2019. During a 21-month implementation period after that, the U.S. and the U.K. cannegotiate, sign, and ratify an agreement that could go into effect as early as Jan. 1, 2021, when the U.K. plans to exit the EU’s common external customs area. 

For the U.K., an agreement with the United States would offer an opportunity to throw off any remaining EU tariffs and to deepen its ties to the world’s largest economy. For the United States, an agreement would open doors further to the world’s fifth largest economy, its closest ally in Europe, and its top foreign investment partner in terms of U.S. employment. 

The U.S.-U.K. relationship is not only special in terms of history, language, and culture but commercially as well. While the U.K. ranks seventh in the world in terms of its two-way goods trade with the United States, it ranks no. 1 in services trade. U.K. residents are especially good customers for such U.S. service exports as air freight transport, financial services, movies and television programming, accounting and legal services. Outside of North America, Britain is the top source of foreign tourists to the United States and the top destination for American tourists traveling overseas.

The U.S.-U.K. commercial relationship is the deepest in foreign-direct investment. Majority-owned U.K. affiliates in the United States employed 1.14 million American workers in 2015, according to the most recent numbers, more than any other country. In the United Kingdom, U.S. majority-owned affiliates employed 1.415 million workers in 2015 and accounted for 27 percent of all the FDI stock in the U.K., more than any other single country.

The biggest opportunity for expanding trade will be for both nations to repeal all remaining tariff barriers on trade in goods and to remove all unnecessary regulations hampering the movement of goods, services, investment capital, and people.

High on the agenda of negotiators should be immediate elimination of all duties on motor vehicles. U.S. passenger car exports to the U.K. now face the EU duty of 10 percent and light trucks face a duty of 22 percent. U.K. exports of passenger cars to the U.S. are hit with a 2.5 percent duty and exported light trucks a 25 percent duty. A duty-free zone could allow a deeper integration of the U.S.-U.K. auto sectors, promoting more exports of U.S. cars and more choices for U.S. consumers.

Also high on the agenda should be eliminating all remaining duties on agricultural products. The EU’s common external tariff schedule averages 11 percent on imported farm products. The EU’s “Meursing table” imposes especially high barriers on U.S. dairy exports. In turn, the U.S. should eliminate all barriers to such U.K. farm products as beef, veal, lamb, mutton, cheese, and butter. The agreement should seek the mutual recognition of food safety standards. Each nation should be free to regulate products to protect public health and safety, but any such regulations should be based on sound science, not the protection of special interests. 

A U.S.-U.K. FTA should also guarantee the free flow of data, the freedom to locate servers abroad, and the complete liberalization of content for television, movies, and audiovisual services. Concerns over Internet privacy should be addressed in less burdensome ways than the EU’s draconian General Data Protection Regulation.

Other opportunities for a U.S.-U.K. FTA include deeper integration of financial services, especially when the two nations include the world’s two most important financial centers, New York and London. An ambitious agreement would also curb or eliminate restrictions in inter-coastal shipping, domestic airline cabotage, and media ownership. Both nations should commit themselves to open, competitive government procurement.

With tensions and tariffs rising between the United States and its major trading partners, an agreement with a post-Brexit United Kingdom would be a welcome change in the direction of free trade. It would offer a great opportunity for Congress and the Trump administration to work together along with a key U.S. ally to promote more trade, economic freedom, and prosperity.

Photo credit: Pablo Martinez Monsivais/AP/Shutterstock