Will the outcome of the negotiations on a new free trade agreement between the United States and the United Kingdom be fundamentally different of the treaties between the United Kingdom and the EU? Does the following extract from an analysis of the partners’ negotiating positions help clarify the persistent fog? Frankly, the fears about the NHS do not seem to be true. Maybe it would be better to fight for a full Brexit instead of blowing smoke?
June 3, 2019
by Shanker Singham and Peter Allgeier
The US objectives also accept the possibility of exceptions from the core disciplines for the UK, to be kept as narrow as possible. This will be of vital importance to UK negotiators who will be required to secure reservations to protect public services, including the NHS. As noted by Liam Fox, “the UK’s public services are protected by specific exceptions and reservations in all EU trade agreements, and as we leave the EU, the UK will continue to ensure that rigorous protections are included in all trade agreements to which it is party.”
HORIZONTAL MATTERS INVESTMENT
The US objectives are silent on the issue of investor state dispute settlement (ISDS) which allows private parties to bring claims against state parties for violations of investment provisions. The UK has not made its position on ISDS clear. In his letter to the International Trade Committee, Liam Fox was at least open to the inclusion of ISDS, but given the political sensitivity of ISDS in the UK as well as in the US, it seems unlikely that the UK would insist up on it as an objective. Investor-State dispute resolution has been a part of the regulation of investment for decades under Bilateral Investment Treaties (BITs). While publics in the EU have resisted them, it should be pointed out that they do provide an avenue for smaller firms to hold governments to account when they expropriate their property or take actions tantamount to expropriation. Large firms can simply rely on their governments lobbying on their behalf. The mere possibility of being sued under ISDS does have an effect on a government’s domestic policy choices.
The US has handled this issue in the USMCA by eliminating ISDS with Canada but limiting it in Mexico to certain sectors (oil & gas, power generation, transport services and management of infrastructure). Given that flexibility compared to previous BITs and FTA investment chapters, we do not expect the ISDS issue to be a significant problem with the UK.
The US will be seeking “state of the art rules to ensure that the UK does not impose measures that restrict cross-border data flows and does not require the installation of local computing facilities”. This will be one of the most difficult areas for the UK to agree. Even if the UK leaves the EU without a Withdrawal Agreement or otherwise negotiates a future relationship restoring regulatory autonomy in this area, the attachment to the EU approach to data protection and privacy is strong amongst regulators and larger businesses. This lays down barriers to international transfers of personal data (so vital to financial services, which are specifically mentioned by the US in this context) and the uses of personal data.
The UK has already enacted the EU’s General Data Protection Regulation and as a matter of domestic policy there is no intention to reform or amend it. In aletter to the International Trade Committee, Liam Fox noted that the UK will wish to promote “robust data protection standards and the flow of data internationally” but wishes to “discuss with the US how best to ensure that the current protections afforded to UK citizens can be maintained post exit”, referring to continuing the EU’s Privacy Shield arrangement for data transfers between the UK and the US, which has now been confirmed.
There is deep concern among US firms about the EU’s approach to data protection. The US has long set great store on data flow – it is currently one of its most important trade objectives. If there is to be a global solution to the data issue, it can only come from a global set of disciplines based on adequacy as the US will never accept the EU approach. This will be one of the more difficult areas of the tripartite negotiation between the UK, US, and EU, all elements of which will be moving broadly simultaneously. The UK must be able to move away from the strict territorial requirements of the EU’s data protection regime, but build on and extend the EU’s Privacy Shield arrangement with the US. It should also work to eliminate barriers to the flow of non-personal data. These efforts would deliver huge benefits in services trade and e-commerce.
The discussion of data flow does not take place in a vacuum. The UK also seeks to be part of the new WTO working group on e-commerce, and if it is to play any serious part in this group, it will have to diverge from EU data protection rules and instead seek an adequacy type arrangement both for itself and on a global basis.
The US seeks strong protections for intellectual property rights in its agreements with all its trading partners, and it is duly included here as an objective. While it can be expected that the UK may have broadly similar objectives, given the UK’s interests in pharmaceuticals and technology sectors. The economic literature supports the notion that intellectual property protection is a critical part of economic development. It is a part of the panoply of property rights protection, and the UK and US’s economic interests are relatively aligned on these issues. At the same time, it is important that intellectual property rights are not drawn so broadly as to curtail innovation and the activities of new entrants.
The US objective of preventing “the improper use of the UK’s system for protecting or recognising geographical indications (GIs), including any failure to ensure transparency and procedural fairness, or adequately protect generic terms for common use” will likely come into conflict with the UK’s commitment to protect EU GIs in the draft Withdrawal Agreement and intention in the Political Declaration to continue with “appropriate protection” for GIs. This will be a difficult negotiation as it is a crucial part of the US’s negotiating objectives. US agricultural interests see the vast number of EU GIs as a protectionist tool, and an incorrect application of intellectual property protection. The number of UK specific GIs is relatively small, and some are protected by international agreements to which both the US and UK are parties (such as Scotch Whisky, for example) so if it were possible to renegotiate the UK’s commitment on GIs in the Withdrawal Agreement, UK businesses would not be materially prejudiced.
The EU position on GIs is inconsistent with US negotiating objectives. This will make an EU-US FTA very difficult to negotiate.
GOOD REGULATORY PRACTICE
The objective here is to facilitate market access and promote greater compatibility between US and UK regulations. This has been a persistent problem that has thus far proved to be unsolvable in trade talks between the US and the EU. What constitutes good regulatory practice is left at a high level and includes, for example, transparency, promoting the use of impact assessments and similar methods, and providing opportunities to comment on the development of regulations that includes both trade and competitive effects, and due process. The UK already operates practices that would meet many of these requirements, and provisions covering these matters are common in FTAs, including the EU’s. This objective is a sound one, and one where the parties would be well placed to make significant progress in achieving greater regulatory compatibility, but only if the UK is not bound to EU regulations, which would mean it would not be able to make commitments in respect of regulation that it has no real role in promulgating.
ENVIRONMENT, LABOUR AND ANTI-CORRUPTION
The objectives in these areas are not especially controversial given the approach trade agreements have adopted in recent years. Both the UK and US maintain high standards in both these areas, and negotiation of this chapter should not present major difficulties. Both sides will likely need to include protections in these areas to reassure domestic interest groups and legislatures that the FTA does not start a ‘race to the bottom’.
There is nothing especially surprising in the US’s negotiating objectives. Even in the areas which have attracted the most media coverage, the objectives are as expected and do not materially go beyond what the UK can expect from other trading partners, such as the CPTPP countries. The US does not have adoption of its systems and regulations as an objective, but would require the UK to comply with WTO rules and regulate in ways that are consistent with sound science. This will raise issues in the negotiations between the UK and the EU, as the more goods that the UK allows into its territory that are not compliant with EU rules, the more border checks will be required to ensure that only compliant products are exported from the UK to the EU. This is a particular problem for the border between Northern Ireland and the Republic of Ireland where the parties have agreed that they will not operate physical infrastructure or related checks and controls (as per the Joint Report and draft Withdrawal Agreement). This makes the work of the alternative arrangements joint group as agreed between the UK and EU even more important. There is no question that managing a UK-US and UK-EU negotiation at the same time will be a challenging task, not least because of the legal default underpinning the UK-EU negotiations comprising a customs union under the backstop. Many of the EU and US’s trading partners have found ways of agreeing with both but not from within a customs union or the single market. What the UK has forgotten after more than forty years of its trade policy being subsumed within the Common Commercial Policy is that trade policy is a dynamic process with an ever-changing battlefield. Ultimately it is at the intersection of politics, economics and law – and politics usually wins.