As the curve of COVID-19 cases flattens in parts of the US and Europe, government officials are exploring ways to restart their economies. Looking further ahead, doing so will likely include resuming the stalled transatlantic talks aimed at securing new trade agreements. In the aftermath of the 2008-2009 financial crisis, governments kept the global economy broadly open, which helped offset some of the shortcomings of domestic fiscal and monetary policy. It remains unclear, however, how new trade agreements may be influenced post-COVID, especially as countries enact new protectionist policies aimed at limiting exports of key medical products and pharmaceutical inputs and consider shifting supply chains closer to home. Below, we explore the status of US-UK and US-EU trade talks, as well as the UK-EU trade talks, amid these emerging discussions of reopening markets in a new post-COVID world.
US-UK Trade Talks
Reports emerged on Thursday, 9 April, that the Office of the US Trade Representative (USTR) might begin talks on a potential trade deal in the “near future” with the United Kingdom. Formal talks could have started the week of 23 March, but have been delayed indefinitely as both countries work to combat the spread of COVID-19. Apart from the Trump Administration’s tariffs on steel and aluminum, the United States and UK are more aligned generally on trade policies – namely opening markets and reducing tariffs. As such, talks are expected to be easier than the US talks with the EU.
Nevertheless, prior to COVID-19 stalling the talks, UK Prime Minister Boris Johnson promised in early March to “drive a hard bargain” as he defined the country’s negotiating objectives for a post-Brexit bilateral trade deal with the United States. USTR released the United States’ negotiating objectives in February 2019, amid strong support from the US Congress to move forward quickly with a trade deal, post-Brexit.
Crawford Falconer, formerly New Zealand’s chief negotiator and Ambassador to the World Trade Organization, is set to lead the UK negotiations with US Ambassador Robert Lighthizer and his team. The British Government anticipates a trade deal with the United States will benefit manufacturers of ceramics, cars and food and drink, as well as service professionals (architects and lawyers). The UK Government also set a red line for the bilateral trade negotiations, stating any agreement with the United States must uphold Britain’s high standards on food safety and animal welfare, which remains a challenge for US chlorinated chicken.
US-EU Trade Talks
US-EU trade negotiations were stalled before 2020, largely because the EU and Britain were focused on the UK’s exit from the EU and the transition of the new Commission. Talks were to resume in the first quarter of this year, but the pandemic has similarly delayed furthering negotiations. The US and EU have agreed on a more narrow set of negotiation topics – such as elimination of tariffs for industrial goods and conformity assessment (as noted in the EU mandates) – largely due to the EU’s reluctance to address some of its policies protecting domestic products.
The Trump Administration (through its published trade objectives) and US Congress have pushed for the EU to include agriculture in the trade talks, but the bloc has so far declined to do so. The EU has a number of policies favoring geographical indicators and other restrictions related to food products. This includes some EU member countries[1] partially or fully banning the cultivation and sale of GMO crops and strict labeling requirements where food that is imported contains more than 0.9% of GMOs. Not surprisingly, US chlorinated chicken remains a challenge in the EU-US trade discussions.
Further complicating the talks, the Trump Administration continues to leverage its threats of Section 301-related auto tariffs, its continued application of Section 232 steel and aluminum tariffs and World Trade Organization (WTO)-approved retaliatory tariffs related to the longstanding dispute over large civil aircraft subsidies. In March, Washington state’s legislature cleared a bill that would eliminate a tax break for Boeing that had been ruled an illegal subsidy by the WTO; Governor Jay Inslee (Democrat) signed the bill into law on 25 March. The state law had been the subject of a 15-year legal dispute between the United States (Boeing) and the European Union (Airbus), but it remains to be seen whether the WTO will find the United States in compliance with its obligations in that case. Moreover, the United States has voiced dissatisfaction with various European digital services tax proposals (e.g., France, Italy and UK) as unfairly targeting American technology companies.
UK-EU Trade Talks
Britain’s period of transition out of the European Union (EU) ends on 31 December. The UK, like the United States, is also seeking to reach a trade agreement with the EU; the UK’s goal of sealing a deal by the end of the year. Britain released its trade objectives for EU talks on 27 February; in early March, the UK began formal talks with the EU. The EU also released its draft text of the Agreement on the New Partnership with the UK on the 18 March. As of Wednesday, 15 April, both parties confirmed negotiations continue via videoconferencing and announced additional dates have been set for further weeklong rounds of talks the weeks of 20 April, 11 May, and 1 June. A joint statement reflected both sides intend “to make real, tangible progress” by June.
The UK’s overarching goal is sustaining sovereignty over its laws and independence from the bloc, as it seeks to define a relationship akin to existing Free Trade Agreements between the EU and other third country partners, such as Canada and Japan. This would mean a significant reduction in customs duties and other measures in order to achieve reciprocal trade in goods. Britain’s key negotiating objective centers on trade in goods, including cross-border trade in services and investments. The UK has also been clear it has no intention of achieving regulatory harmonization with the EU or aligning its national laws with those of the EU-27, likely to avoid any potential challenges before the European Court of Justice and therefore preserve UK jurisdiction on such matters. The EU, however, has been equally clear in its preference that the European Court of Justice retain jurisdiction over trade disputes for preliminary rulings where the bloc’s law is at issue or if any final trade deal reached between the parties is governed by EU law.
Notably, Britain’s relationship with the EU-27 is currently frozen under the Brexit Withdrawal Agreement, which essentially means that from a trade perspective nothing changes until 31 December. In exiting, the UK Government enacted a law that precludes the possible extension of the transition period. As a result, come 31 December, if a trade deal is not reached, Britain will revert to its pre-EU WTO trade obligations. Amid the pandemic crisis, it remains unclear whether Prime Minister Johnson will suggest a change in UK law that would allow for an extension of the transition period, in order to provide sufficient time to conclude a trade agreement with the EU. For such a change to be effective, both the UK and the EU would have to approve such an extension by 1 July 2020.
We have offices in Washington DC, Brussels, and London, and continue to track closely the transatlantic trade negotiations. Please reach out to us if you have any trade-related issues of particular concern, especially as these negotiations progress in 2020. Here is an appendix including a timeline of the negotiations.
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[1] Several Member States have chosen to either partially or fully ban the cultivation and sale of GMO crops. Import and sale of GMOs for human or animal consumption must be labeled, depending on the percentage of approved GMOs contained within the food.
