LONDON — Joe Biden inherits a formidable in-tray from Donald Trump — but on trade talks with Britain, plenty of work has already been done.
Documents related to the latest round of U.S.-U.K. trade talks seen by POLITICO confirm that some chapters of the deal were close to being agreed by both sides under the Trump administration, but significant differences remain in some key areas.
As a crucial April deadline looms, the documents from both sides of the talks show some sections related to small and medium-sized businesses, investment and digital services were close to completion.
But there were some substantial outstanding points, particularly on the issues of pharmaceutical regulation, textiles and other goods standards along with some thorny points on intellectual property.
Seasoned negotiators with experience of dealing with the U.S. said that while there had been clear and meaningful progress, it’s often the final few clauses in a handful of chapters that can derail the course of a free trade agreement. “Inches apart can be miles from bringing it home,” one said.
The Brexit factor
The state of U.S.-U.K. negotiations is in the spotlight as a deal needs to be agreed and put before the U.S. Congress by April. If not, it will lose the protection of a piece of U.S. legislation known as the Trade Promotion Authority. This legal mechanism allows for deals to be fast-tracked through Congress, while still allowing lawmakers to vote “yes” or “no” to its passage.
Officials on both sides regard this as a vital deadline, giving the best chance of a comprehensive deal and avoiding any agreement getting snarled in political rows. Yet an agreement faces numerous hurdles including Brexit, its effects on the Northern Irish border, and the impending change in U.S. government.
A lack of clarity on Brexit also meant that some areas simply couldn’t be agreed until the terms of any EU-U.K. deal were certain. “It will be difficult to establish greater clarity on these points prior to the end of the transition period,” was a common refrain, one readout noted.
This led to criticisms on the U.S. side that the U.K. negotiating team was still stuck in a holding pattern of “we’ll get back to you on that,” on some important points.
“The deal is quite well advanced and we’re in a good position to seal what would be the single biggest bilateral trade deal for either country,” a spokesperson for the U.K. Department for International Trade said.
The Office of the U.S. Trade Representative (USTR) did not respond to a request for comment ahead of publication.
Negotiations were complicated not only by the U.S. election and Brexit, but also the coronavirus pandemic. Sensitivities around pharmaceuticals, long a touchy subject in trade talks between the U.S. and U.K. because of the mighty drug-buying power of Britain’s National Health Service, were ramped up in the latest round of talks. These areas had to be sidelined as matters touching on national security as work to develop vaccines got underway.
Nevertheless, the readouts and draft text of a deal suggest new ground was broken in talks. Indeed, so confident was the U.K. trade department that a deal covering SMEs might be secured at pace, that it even started the process of asking business organizations to welcome the deal back in October.
There were tentative signs too of something more radical: a working group to discuss U.S.-U.K. labor mobility, headed up by U.S. Secretary of State Mike Pompeo. While this would have been separate from a trade deal, it would have complemented it by easing transatlantic travel for business people. Its future is unclear given the imminent change in U.S. administration. Matters touching on immigration are not usually considered alongside trade talks by the U.S. because they are handled by the State Department, rather than USTR.
Observers of the U.S.-U.K. talks are keen to stress the hard yards still to be done.
One former U.S. official familiar with plans to engage with the U.K. after Biden’s January inauguration said the new administration is expected to take a more gradual and cautious approach to trade overall when compared to the Trump regime. This, they warned, will require a more patient approach from the U.K. government.
The U.K. should focus on having retaliatory tariffs on products like Scotch whisky lifted first, then a “meaty” investment and data treaty ahead of the U.N. climate conference, COP26, they said.
That might be the right approach going forward, two U.K. officials said, given the change in presidency and leadership at USTR. Rather than pursuing a full comprehensive FTA, the U.K. should bid for an investment deal, they said.
Instead of a deal that would cover tariffs on all trade, a requirement of multilateral trade law, such an agreement would essentially be a bilateral data and technology-focused investment treaty, with a green tinge.
It would be a triumph to secure an FTA within two years, the same former U.S. official said. Yet even that might only be achieved if an accord is struck on the taxation of digital services at the Organisation for Economic Co-operation and Development (OECD), which the U.S. side has repeatedly told the U.K. team is their “preferred forum” for modern trade disputes, according to one negotiation readout.
Broad trade deal or narrow treaty, however, there’s considerable appetite for a strengthening of trade ties among businesses on both sides of the Atlantic.
“The transatlantic business community’s excitement at the prospect for a transatlantic trade deal is unbroken,” said Emanuel Adam, executive director of BritishAmerican Business in London. “At the same time, businesses are fully appreciative of the changes that affect the prospect of a deal in the near term. What is most important is a better trading relationship for these two partners.”
The Department for International Trade said in a statement: “The president-elect’s administration may place new emphasis on issues such as the environment and labour standards. There is a clear opportunity for the UK and U.S. to work together on shared priorities, including the climate crisis.”
Broader efforts to smooth the course of a deal are also underway.
Last week, the U.K. said it would drop reciprocal tariffs it imposed on U.S. goods as a member of the EU in the long-running Airbus/Boeing dispute. These levies were the result of a World Trade Organization ruling on Boeing subsidies. The USTR’s initial response did little but agree that the U.K. was right to remove the tariffs in January as it had no legal basis to levy them.
However, there are some developments in the offing that could mean, even if a trade deal isn’t forthcoming early in the new year, U.K. Trade Secretary Liz Truss may have something to celebrate.
A reprieve for Scotch whisky from U.S. duties is expected next week, according to two officials familiar with the matter. Such a shift would be welcomed by the drinks industry, which has shouldered some of the worst economic impacts from the tariff battle. U.S. imports of Scotch whisky have faced a 25 percent tariff, and sales to the country have fallen 30 percent in the past year.
This would be a boon for the COVID-struck hospitality sector in the U.S., which also happens to be the sector that issued most of the responses to the USTR review of Airbus measures. It would also ease the path to a trade deal, be it a comprehensive FTA or, as some contend is more likely, a more modest green-focused investment treaty.
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