EU Rules Haunt U.S.-UK Trade

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Posted by Philip Thompson on Friday, July 31st, 2020, 12:00 AM PERMALINK

As the UK’s Independence Day quickly approaches, government officials have been planning for the first time in 47 years an independent trade policy for the UK. 

A major component of the new trade regime will be to achieve mutually beneficial terms of trade that invite competition where the UK has comparative advantage and avoids lopsided protections that restricted trade and always benefitted the EU more than the UK. 

Already the UK has signed trade deals with 21 countries that will take effect immediately after the transition period on January 1, 2021. Where a preferential trade agreement is not achieved, goods entering the UK will be met with a new tariff regime. The UK Global Tariff (UKGT) eliminates tariffs less than 2% and reduces complexity of 6,000 tariff lines.  On the whole, 50 percent of lines will be duty-free, a marked improvement over EU where only 28 percent of lines are duty-free.  

To ensure the smoothest transition the UK is still negotiating agreements with its largest trade partners: the U.S., the EU, Japan, Australia, New Zealand, India and several others. 

The ideal agreement with the U.S. would not only eliminate protective tariffs on previously protected industries, but allow businesses, professionals, students, data, and finances to move freely between the countries that already enjoy a special relationship. In effect, a closer, more comprehensive, agreement with the U.S. could replace the UK’s expected losses to certain EU markets, a punishment for seeking independence.  

It is not hard to imagine that once independent, the UK could move from the 8th on the Trade Barrier Index to competing with Singapore for 1st, a badge indicating it utilizes the fewest trade barriers to restrict trade. 

Yet, special interests in the UK are working hard to replicate some of the most restrictive EU trade protections. These barriers, such as animal welfare standards that restrict imports of chicken cleaned with chlorine from the U.S. ensure UK consumers pay a premium to receive 90 percent of their poultry imports from EU producers such as the Netherlands and Poland. 

Leaving the EU and keeping these non-tariff measures in place, not only continues the carve out to EU producers, but serves as an additional negotiating burden. Under the new UKGT tariff regime imports of frozen chicken breasts would be subject to a 6 percent tariff that wasn’t there before, unless the UK concedes on something else in an EU deal to eliminate it.  

Instead of adopting a Singapore style trade regime the UK would be adopting failed Indonesian import substitution. There, similar excessive import controls force rice prices above a designated ceiling to two times the world price, contributing to unaffordability, malnourishment, and stunted growth.  

Besides being tasked with eliminating “Non-tariff barriers that discriminate against U.S. agricultural goods,” which make up 2 percent of U.S. goods exports. The USTR must also focus on eliminating the UKs threat to levy digital service taxes, ensure the UK adopts digital rules that prevent data localization or restrict data flows, ensure the UK adopt rules on state-owned enterprises, and increase market access for telecom and financial services competition, among other objectives.  Together these effect the economy, national security, and society on a much broader scale than chicken breasts.  

Time is running out. Both chief trade negotiators, Robert Lighthizer and Liz Truss, have expressed doubt a comprehensive deal will be struck and in place before the end of the year.  Certainly, there are barriers the U.S. can remove, but as long as EU rules continue to be carried over it is hard to prioritize what would otherwise be low-hanging-fruit: intellectual property, goods trade, and financial services.  

Photo Credit: Pierre Blaché from Pexels

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