Tariffs are Trumps
As International Trade Secretary Liz Truss visited the US, Tiffany Burrows runs through what was on her agenda to discuss with her American counterparts.
The UK and the US have been conducting the third round of negotiations for a free trade agreement (FTA), and the first in-person negotiations were held earlier this week in Washington DC. The two teams meet against a backdrop of US tariffs being levied in late 2019 as part of the ongoing Airbus/Boeing dispute, and there is no doubt that talking about tariffs was high on the agenda.
It's important to recognise that the UK-US trade negotiations talks are not taking place in a vacuum. The US team will be keeping an eye on the progress of the UK-EU negotiations, and the UK is closely following Washington’s tariff decisions on EU products. Politico reports today that the US will “decide whether to extend, maintain or simply amend its list of retaliatory duties imposed against the EU” at the WTO next week in regards to Airbus/Boeing. Ahead of her visit, International Trade Secretary Liz Truss said that the “US talk a good game on free trade and low tariffs, the reality is that many of our great British products are being kept unfairly out of their market”. What is Truss referring to?
Food and drink
In October 2019, the US imposed 25% tariffs on alcohol, including Scotch whisky, made in France, Germany, Spain and the UK and is considering further measures, including on gin. Reacting, Truss said that she would be “be pressing hard to get these punitive taxes removed, and stressing that additional tariffs on great British products, like gin, is totally unacceptable”. The Trade Secretary was reported to be presenting a bottle of gin to her US counterpart, which not only epitomises the issue but also British humour.
To hammer the point home north of the border, new Scottish Conservatives leader Douglas Ross and North Carolina Republican Congressman George Holding penned a joint piece in the Press and Journal yesterday comparing the impact of this trade dispute to the impact of coronavirus on the whisky industry in terms of job losses and decreasing exports; something that will undoubtedly resonate with both countries seeking to mitigate economic damage from COVID-19.
Possibly the biggest area of disagreement is around agriculture. It will be surprise no one reading that the US and the UK have disagreements over access for US farmers (chlorinated chicken anyone?). The UK has notoriously high food standards and therefore creates a barrier to US exports where the produce doesn’t meet these standards.
In mid-June, US Trade Representative Robert Lighthizer described the UK’s food standards to the Ways and Means Committee in Congress as “thinly veiled protectionism”. He also emphasised that the approach that should be taken by both sides should be “fair access based on science…we shouldn’t confuse science with consumer preference”.
In the same session, Lighthizer made it clear that agricultural access is a red line: “But on the areas of American agriculture, the United States, this administration is not going to compromise, right. We either have fair access to agriculture, or we won't have a deal with either one of them.” Whilst this could simply be seen as a sensible answer given its audience – Congress sets US agricultural policy, not the President – it is an area in Washington that has general consensus.
In the UK, farmers are worried that they will not be able to compete with their US counterparts because of the high animal welfare standards on the UK’s statute book. The Financial Times highlights the crux of the problem in an article on pig farming. One interviewed farmer said: “The media has latched on to ‘chlorinated chicken’ and ‘hormone beef’, but the real issue is welfare standards. Without protection, we’ll be sitting ducks.” This particular farmer’s sentiments are shared, and have been voiced, by some Conservatives in Parliament, such as Lord Randall, the very recent former Number 10 Special Adviser on the Environment. The amendment to the Agriculture Bill which sought “to ensure that UK standards regarding food safety, the environment and animal welfare cannot be undermined by imports produced to lower standards” was defeated in July.
Any discussion of the UK-US trade negotiations cannot pass without the mention of the NHS, and more specifically, the price of pharmaceuticals. The Department for International Trade (DIT) was unequivocal in its outline approach to these negotiations: “The price the NHS pays for drugs will not be on the table. The services the NHS provides will not be on the table. The NHS is not, and never will be, for sale to the private sector, whether overseas or domestic.” This red line however may be something that causes issues moving forward. The British Medical Journal published a report on how UK drug prices could change in a UK-US FTA. It highlighted that “provisions affecting prices of originator pharmaceuticals—those protected by patent—are common in trade agreements”. Reducing drug prices for Americans is also a priority stateside, with the Council of Economic Advisers, which advises the President, referring to goals of “reducing American prices and stimulating innovation are consistent, but can be achieved through a combined strategy that corrects government policies that hinder price-competition at home, while at the same time limiting free-riding abroad.”
Whilst negotiations necessitate concessions, given the revered status of the NHS as a British institution, it seems politically untenable to backtrack on the government commitment to protect it. Stranger things have happened.
A different but still contentious area of disagreement between the two sides centres around digital services, specifically the UK’s recently introduced digital tax. The tax, which levies a two percent tax on “the revenues of search engines, social media services and online marketplaces which derive value from UK users” – Google, Facebook, and Amazon, three of the US’ largest companies. US Trade Rep did not mince his words on the matter: “I'm not a loophole guy but I don't want a tax system that unfairly treats American companies…The US will put in place tariffs if these countries move forward unilaterally, discriminating against these companies.” The BBC reported that the US launched an investigation into the digital services taxes, including those in the UK which could result in retaliatory tariffs.
It is also worth noting that the US by its very nature is not an homogenous entity, and individual states will have different priorities and sectors they need to protect and promote when it comes to a trade agreement with the UK. The UK also has its constituent parts to think of. In its outline approach, it states that “an ambitious FTA with the US could deliver a significant and sustained long term boost to every part of the UK”, citing particular benefits to Northern Ireland, Wales, Scotland and English regions including the North, East, and the Midlands. Striking the balance between the protection of these regional industries and promoting the benefits to the wider economy will be a difficult feat. It is inevitable that something has got to give but what that something is – farming, spirits, digital taxes or pharma – is still unclear.