International Trade Snapshot: The UK & US ‘Future of Atlantic Trade’ Dialogues – A New Dawn for Trade in the Special Relationship?

Why now?

Despite regular courtship from UK Trade Secretaries, the UK’s enthusiasm for a free trade agreement has not been reciprocated in the US. The Biden Administration – which has made no secret of its scepticism of past approaches to trade – has made clear its support for the Good Friday agreement and interest in seeing the UK and EU work to find a durable and peaceful solution to trade concerns raised by Brexit. This, among other issues, is seemingly preventing political support for a UK-US FTA.

Yet one of the consequences of war in Ukraine has been the rediscovery of common cause between western allies. Amid an ever-increasing web of sanctions on Russia and rising inflation and energy prices, political leaders recognise businesses in the UK and US are under extreme pressures to source new inputs and commercial opportunities.

This changed situation has enabled the latest talks to bear some fruit, with a headline announcement on tariffs[1]. The US partially lifted steel and aluminium tariffs imposed by the Trump Administration. In return, the UK lifted tariffs placed on more than $500 million of US goods, most notably whiskey, jeans, and motorcycles. However, considering these tariffs had already been lifted on equivalent EU exports, this is an obvious ‘quick win’ for both sides. The harder part is yet to come.

Priorities for the Dialogues

The priorities set out in the Joint Statement[2] issued following the talks largely reflect the ‘worker-centred trade policy’ which is continuing to take shape in the second year of the Biden Administration. Protections for workers are directly cited as an ambition for the talks, as well as using trade to advance the green agenda and to support the interests of historically underrepresented groups. Enhancing digital trade is another priority, an area which clearly aligns with the interests of both US and UK, especially in financial services. Ensuring ‘safeguards’ for stakeholders is also referenced, indicating again the primacy of non-commercial objectives. As such, the U.S.-U.K. statement represents a significant departure from the economic horse-trading which underpins most trade talks. And Ambassador Tai was also quick to dismiss the possibility of these talks leading to the restart of negotiations on a full FTA.

Nevertheless, irrespective of the priorities set out on paper, commercial opportunities must be realised for these dialogues to be seen as a success. The pressure on political leaders to have ‘announceables’ after such international meetings cannot be avoided. Political reality makes outcomes which can be sold as commercial, and policy wins at home essential. The firms best served by these talks will be those whose products or services align with US domestic priorities.

The View from the UK

Reaction from business leaders and the media has been positive, with some even calling for these dialogues to restart talks on the FTA. Even if that’s not an option in the short term, these kinds of talks are still an opportunity which should not be overlooked. For years the UK Government has run a successful programme with non-FTA partner countries to lift trade barriers. For example, Japan’s decision in 2019 to lift a 23-year-long ban on British beef followed a sustained campaign by UK diplomats.

Many of the barriers faced by exporters and investors in the US are also at the state level, which are usually an area where negotiating and enforcing FTA rules can be highly complex and often slow progress. Ultimately political will among sub-federal leaders could see these addressed, hence the charm offensive from Trade Minister Penny Mordaunt on the biggest and most economically significant US states such as California. While tariffs will remain a national prerogative, states have the power to make decisions locally to address non-tariff, behind-the-border barriers, especially for services.

Sector-specific bilateral ‘mini deals’ could also be struck. The UK’s recent Digital Economy Agreement with Singapore[3] could serve as a model for a similar deal to govern transatlantic data flows. Similarly, common rules could be struck on the recognition of professional qualifications.

A final observation is that the UK is likely to become increasingly anti-China on trade. Language on ‘third party market-distorting practices’ reflects the US’ established antipathy to China, who they have considered a ‘non-market economy’ for years. The lifting of tariffs on steel also came with an auditable requirement that companies able to benefit from tariff-free access are not owned or controlled by a Chinese entity.

The View from the US

Resolving the U.S.-U.K. steel and aluminium tariffs is another example of how the Biden Administration continues to re-engage with allies to resolve significant trade disputes while also promoting a worker centered trade agenda. The agreement comes on the heels of a U.S. agreement with Japan to partially lift 25 percent tariffs on certain Japanese-origin steel imports[4], and months after a similar arrangement with the European Union where the U.S. agreed to lift its tariffs on steel and aluminium in exchange for a lifting of retaliatory tariffs on products from the United States[5].  The agreement puts forward a tariff-rate quota approach that allows “historically-based sustainable volumes of U.K. steel and aluminium products to enter the U.S. market without the application of Section 232 tariffs.”[6] The agreement also includes a novel oversight mechanism, where any U.K. steel company owned by a Chinese entity must undertake an audit of their financial records to assess influence from the People’s Republic of China government, and the results of those audits must be shared with the United States[7]. This oversight mechanism exemplifies how the U.S. and the U.K. will work together to counter long held concerns about global excess capacity and focus their efforts on countering China’s influence in this market.

In the U.S.-U.K. joint statement announcing the agreement, both parties reasserted their desire to address non-market excess capacity so as to preserve each of their critical steel and aluminium domestic industries[8]. And while the announcement did not include reference to the US and EU’s ongoing discussions to achieve the decarbonisation of the global steel and aluminium industries in the fight against climate change, it did not close the door on future talks in this area.

The agreement included the lifting of U.K. retaliatory tariffs on over $500 million worth of U.S. exports to the U.K., welcome news to U.S. exporters in the agriculture, consumer goods, and alcoholic beverage industries. Further, the agreement was welcomed by both business and labor groups alike[9], with supporters noting the arrangement will help with the problems of global excess steel capacity while taking a step forward on increasing metals prices and shortages in those markets.

Conclusion

With the second round of the Dialogues taking place in London in April, it is clear there is real momentum behind these talks. As such, now is the time for firms on both sides of the Atlantic to set out how their asks make transatlantic trade easier. UK and US firms will play a key role in keeping politicians engaged on this agenda and delivering meaningful improvements to the international trade environment.

In an age of unprecedented disruption to supply chains and everyday business operations across the world, it is more important than ever to have a coherent international trade strategy. Alongside preparing for geopolitical and economic shocks, firms need to be prepared to engage in such trade talks and understand what they should be asking for to improve their bottom line.

FTI Consulting’s International Trade Practice is uniquely well placed to help our clients meet the challenges and seize the opportunities of global trade. From engaging with new trade deals to mitigating supply chain risks and alleviating unfair tariffs, our experts can support you to define the right strategy to respond to a changing international trade environment.

References

[1] https://www.commerce.gov/sites/default/files/2022-03/UK232-Joint-Statement.pdf

[2] https://www.gov.uk/government/news/joint-statement-on-usuk-dialogues-on-future-of-atlantic-trade

[3] https://www.gov.uk/government/news/uk-and-singapore-sign-new-innovative-digital-trade-deal

[4] https://www.commerce.gov/sites/default/files/2022-02/US-Statement-on-Japan-232.pdf

[5] https://www.commerce.gov/news/fact-sheets/2021/10/fact-sheet-us-eu-arrangements-global-steel-and-aluminum-excess-capacity

[6] https://www.commerce.gov/news/press-releases/2022/03/raimondo-tai-statements-232-tariff-agreement-united-kingdom

[7] Id

[8] https://www.commerce.gov/sites/default/files/2022-03/UK232-Joint-Statement.pdf

[9] https://www.commerce.gov/news/press-releases/2022/03/what-they-are-saying-american-businesses-industry-and-labor-groups