US FTA With UK Seen as Likely Still Years Away

Despite the enthusiasm for a free trade agreement with the United Kingdom after it voted to leave the EU, a formal FTA between the U.S. and UK would be at least two years off, witnesses said during a Feb. 1 joint hearing of the House Foreign Affairs Trade and Europe subcommittees (here). While there are some differing estimates on the time frames, it's clear an FTA could only come after the UK formally exits the EU, a process expected to begin in March that will take a minimum of two years, according to Daniel Hamilton, executive director of the Center for Transatlantic Relations at the Johns Hopkins University School of Advanced International Studies. Hamilton said (here) there's much that could slow a deal with the US and a more likely estimate would be at least eight years. British Prime Minister Theresa May recently said the UK would start preliminary FTA discussions with the U.S. (see 1701270048).

The UK will have two years to negotiate its exit from the EU, though the negotiations could be extended as needed, Hamilton said. While the UK technically could then pursue a deal with U.S. immediately after leaving the EU, the UK would probably seek out an agreement first with its biggest trading partner, the EU, he said. Hamilton estimated that deal would take six years. Also necessary following the UK's exit will be to provide commitments to the World Trade Organization, which is necessary to set tariff levels, among other things, Hamilton said.

Approval at the WTO will require unanimous consent among the WTO members, leaving the potential for interference from rivals, such as China or even the EU, Hamilton said. Hamilton expects WTO approval to ultimately be given, but it remains another factor involved, he said. Europe Subcommittee Chairman Dana Rohrabacher, R-Calif., said he has some concern over the potential for China to be able to hold up UK agreements through the WTO.

Also potentially slowing things down is the UK's inexperience in recent trade agreements. "When the withdrawal process does begin, the UK's limited resources in this area will be strained, as it has relied on the European Commission to negotiate trade deals for decades now," said Simon Lester, a Cato Institute trade policy analyst. "The UK will have to hire hundreds of trade experts and set up trade institutions from scratch, as well as decide on its own framework for trade agreements. This could slow down its efforts to negotiate new trade agreements."

Nile Gardiner, director of The Heritage Foundation's Margaret Thatcher Center for Freedom, was more optimistic about the speed for reaching such a deal. He said the U.S. and UK could begin informally negotiating, making much of the FTA ready to put in place immediately after the UK leaves the EU. "President Trump should instruct the U.S. Trade Representative and the White House National Trade Council to fast-track the pursuit of a U.S.-U.K. trade pact," Gardiner recommended (here). "The free trade deal should be implemented within 90 days after Britain leaves the EU, which is expected to be by the end of March 2019."

The witnesses and lawmakers all seemed largely supportive of an eventual agreement between the countries. "We now have the opportunity to negotiate a deal that not only should represent a gold standard when it comes to trade deals but also deepen our alliance even further," said Trade Subcommittee Chairman Ted Poe, R-Texas. Subcommittee ranking member William Keating, D-Mass., noted there's some danger of the U.S. potentially snubbing other EU countries, which will still account for 80 percent of European trade with the U.S. after the UK leaves, by pursuing additional benefits for the UK. Rep. Brad Sherman, D-Calif, showed some general concern that duty-free trade with the UK would increase the U.S. trade deficit, which he described as the largest in "the history of mammalian life."

A deal with the UK outside the EU will allow the U.S. to avoid the EU's "Common Agricultural Policy," and its ban on most genetically modified organisms, which is a major roadblock in the Transatlantic Trade and Investment Partnership. Bilateral discussions, such as with the UK, offer both positives and negatives compared to the multilateral discussions of TTIP, Cato's Lester said. Rep. Darrell Issa, R-Calif., asked about harmonization of intellectual property protections around the world, which have so far "failed." Such harmonization is tougher on a bilateral basis because it's done "one on one," as opposed to with many countries, which can lead to many agreements that say "slightly different things," Lester said. At the same time, the U.S. could push harder on such an issue since it has more leverage, he said. Issa noted that in the UK, terrestrial radio plays result in royalties for the artists, while not in the U.S., and asked whether that could be something "on the table" for possible alignment between the countries. "Everything is on the table" and such alignment could also be used as a "precedent" for discussions with other countries, Lester said.