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Friday, May 24, 2013

Would an 'independent' UK get a better US trade deal than the EU?

Could the UK sucessfully negotiate a trade deal with the US?
Yesterday MEPs voted on a resolution to back defensive measures to exclude cultural and some agricultural products, such as genetically modified foods from a proposed free trade deal with the US (TTIP).

Understandably US farmers have already taken exception to what they see as EU protectionism. This raises concerns that the potential gain from an EU/US trade deal may be watered down, delayed or even blocked all together by vested interests on both sides of the Atlantic.

As a member of the EU the UK's foreign trade is governed by the EU's common commercial policy and so has to be done via an EU deal. After the EU the US is the UK's most important trading partner. Some involved in the UK-EU debate - particularly Outers - suggest that if the UK left the EU it could negotiate a deal with the US on better terms than it could potentially gain via the EU. But is that the case? Here are some of the factors that could be important.
UK exports to the US in £bn (ONS 2011) are big...

A mismatch in negotiating power. Although the UK exports a lot to the US, as a % of it's total exports, the US sends only 4% to the UK. So although a trade deal should be mutually beneficial, reaching a solution would be disproportionately in the UK's interests. Therefore, there would be an imbalance of negotiating power. For this the EU's weight could help on issues where the UK's interests are aligned with it.

Would the US want to go through the hassle? Given this asymmetry, and the relative small market the UK is for the US, one question is if the US would go through all the political hurdles -  approval in Congress, taking on the unions etc. Indeed, talk to people in Washington and there's some scepticism about this. (However, the US has signed agreements with 23 states, some very small, so perhaps it is more a matter of the terms you would get?)
But US exports to UK (US BEA 2011) are small...

Fewer protectionist hold ups.
At the same time, the US and the UK are more compatible economies than are the US and EU. The UK negotiating on its own account would not be hindered by protectionist issues emanating largely from France and MEPs, that could hold up US agreement or require concessions, such as the protection of agriculture, genetically modified foods or geographical indicators. However the UK is still unlikely to wish to see the US allowed to subsidise its agricultural exports, so tough negotiations would still be required.

Access for financial services could be a tough negotiation. The UK negotiating with the US on financial services would come up against a powerful US lobby attempting to protect its banks from what is New York's main rival - London. However, the UK negotiating on its own would arguably have a better chance to strike a deal on 'reciprocity' with US funds, a more generous arrangement than that which currently exists under regulations such as the AIFM Directive or UCITS. Additionally the UK would not bear the burden of having risky eurozone banks getting in on the deal. In recent negotiations with Singapore the US gained a better deal than the EU on financial services, partly because while Singapore was happy with UK banks it was wary of giving access to all eurozone banks (a big untold story in all of this).

If the idea is that an 'independent' UK can automatically join some gigantic Transatlantic free trade zone, in place of its current EU membership, there will be plenty of hurdles and a good deal is by no means guaranteed. Added to that there's also the small matter of negotiating an equivalent free trade deal with the EU....

15 comments:

Anonymous said...

If we were to leave the EU and join EFTA, would EFTA's trade deal with Canada effectively give the UK access to the US market through Canada and NAFTA?

Ray said...

Too much talk as if departure from the EU and these so called detrimental effects are going to happen overnight. It will take time to completely pull out of the Union, during which time relatively nothing will change. No contracts will be cancelled, no suppliers will be changed unless it is in the "cut off my nose to spite my face" type and they will be very small and far between. Even at only 4% the US will still want to keep those clients and a wise businessman would looking to replace some of our European suppliers with American, we could even become a base for supplies to the EU for the US. So stop all the nightmare talk, it will not happen, we will have other things to do as well as worry about the US, there will be new arrangements to be made with the Commonwealth, and the rest of the world. Time for us to come back into our own as one of the most productive, innovative, and wealthy countries in the world.

Travis Zly said...

Why is the US trying to force GM food on Europe? Monsanto has produced food cultivars that are resistant to the toxic effects of organo-phosphates like Glyphosate (Roundup) so farmers can spray the herbicide on crops as well as weeds. It is alleged that Glyphosate is bio-degradable and that small concentrations are not toxic to humans. However, humans who mix Glyphosate to spray on crops do not have Chemistry degrees and often mix the wrong concentrations (speaking from experience here). American farmers are interested in yields. If a few million Europeans suffer symptoms of Glyphosate toxicity such as liver damage, neural degeneration, interruption of testosterone metabolism, then according to the American view, that is collateral damage. It's the trade volumes that count in any treaty, not the health of consumers.

Rik said...

@Travis Zly

You know perfectly well the answer. The US thinks the stuff is safe (whether by lobby or otherwise).
Anyway your 'evidence' is simply as or even more dodgy than that of Monsanto (mainly you feel personally more comfortable with it).

Try to make an as objective as possible summary of the situation:
-GM basically might be a gamechanger (higher yields, less toxic stuff);
-however at this stage still a MIGHT, it still needs a lot of research;
-we clearly donot have the whole picture, not by far;
-and with all this sort of things, things likely will go wrong.
-Most European (and a lot of American) consumers clearly donot like it.

Which brings up another point of freetrade. Let start with the idea of freetrade is simply necessary in the modern world. Your country would simply become uncompettitive in the somewhat longer run.
However as with all things in life there are negatives attached to it. And this is clearly one.

In this situation it will end up likely with clear and proper labelling. Otherwise nearly everything could be brought under an 'exception'. Remember Japanese snow and whale 'research'.
And if it is not really cheaper (important for many people) it will very likely be priced out of the European market in the medium to longer run. If it is as expensive a lot of European consumers will not buy it and producers subsequently will stop making it for the European market as making 2 things is more expensive as making one (on the same volume).

If you however want to be on top of this and pro-active, the issue should have been made clear or otherwise regulated beforehand (before it is approved as proper food).
You need something of a functioning EU-like body to do that. A proper functioning one preferably and only dealing with trade issues would be quite sufficient however.

As said every positive development has almost certain also certain also disadvantages attached to it.
A balance has to be found for that. The US accepts another balance than the Europeans on this.
When you want to have a freetradezone you again need another balance (one between the US and Europe).
Complicated by the fact that the EU who should be doing that is clearly now in a deep crisis and simply doesnot look really able to do that. They simply donot have their eyes on the ball and in several different ways. Mainly being totally unable to speak with one voice.

Rik said...

On financial services.
It can be seen as protection of the 'overlobied' US financial sector.
It can however also be seen as a very good opportunity to kick the rest of the world's competition out of business.

NY and London simply dominate the world in this field. There is competition between the 2 anyway. Most players are present in both these 2 markets anyway.
It is however very likely that a 3rd or even a 3rd and 4th major player will rise. In the timezone and the region with the most people the most money and likely in the near future the most GDP there is no competitor. Simply not a natural thing.

By creating a larger homemarket and stronger players (because of that larger homemarket, but also because of more competition) you will be better able to withstand the new competition that is likely to arise.

Anyway imho NY is quality-wise better than London. In that respect the UK has more to fear than the US. On pure quality London is second. US is very safe but also very overregulated in the eyes of many and people donot like to be confronted with things like Iran boycots even for not arms manufacturers.

Rik said...

On whether or not the US wants to conclude a tradedeal.

-Clear that they prefer a EU deal; however

-seen the other freetrade deals, the one with the UK would be considerably bigger than most of the ones already concluded. And Congress and the administration have made a fuzz about some of these (Korea and Columbia come to mind).

It would be safe to call for any bluff otherwise imho. It is mainly as you state in the conditions. The EU is an equal partner the UK is a partner but a clearly junior one. So the conditions on the issues dealt with will likely be better for the EU. But that is with a big IF, namely the conditions to be dealt with in such an agreement.

However the EU and especially the Latino part also causes a considerable number of extra obstacles (that the UK doesnot). Eg:
-Culture. Will be a much minor issue for the UK (because of the language and the UKs attitude);
-Agriculture. The French in particular simply try with all sorts of stealth measures to protect this sector. For the UK this is less of a problem. Seen from another angle the UK will in an EU set up have to keep buying all sort of expensive agricultural stuff.
-Services. And important sector, but hardly achievable within the EU. Btw this topic has to be arranged before an exit becomes a possibility. Hard to see how some EU countries can have an agreement on one sector with a non-EU country while other EU countries donot participate.
-Military/Arms might be another one. UK is far more likely to get a deal on this than the EU. Nobody wants to end up with French arms when a government there can block exports for other political reasons (usually exactly when you desperately need the stuff). Anyway again the French will make this a no go to protect their own industry as well as for national security reasons.

Furthermore an EU agreement might be top of the list but it is hard to see how an UK agreement could not be implemented much earlier simply because it is so much easier.

So the EU might lead to a better deal, however if this would be enough to compensate for the 'trouble' sectors and likley later starting date, is highly doubtful. My somewhat calculated guess is overall the UK only deal would very likely be the better one. That is as a seperate country with the EU a seperate agreement will be very difficult to achieve and by nature be very limited.

Anonymous said...

Your assertion that the UK will lose out on negotiating weight with the US compared to the EU is based on a false premise: that the EU will be negotiating for anything that the UK actually wants.

We have seen again and again the (perfectly natural) situation where agreements are weighted toward the EU centre and the Federalist goal.

What Germany and France want from the US is not what the UK wants. They are therefore not going to work terribly hard getting it for us. So, even with our 'weakened' position, since we are actually talking about the things that matter, we are in an improved situation.

Edward Spalton said...

Switzerland recently negotiated its own trade deal with China, so disparity in size is no hindrance if each has things which the other wants to buy and sell - which they obviously do in this case.
In any event, the EU/USA deal will take years and, with any luck, we'll be out by then. In any case a deal through EFTA is available if an "off the peg" solution is required

We used to buy US and Canadian wheat before the axe fell on 1 Jan 1973. It would be nice to resume the free trade in food with the USA and Commonwealth countries which we enjoyed before we entered the prison house of "Fortress Europe".

The CBI leadership is becoming more detached from its members since Nigel Lawson's Damascene conversion - rather in the same way as the rift between politicians and people becomes ever wider.

Ray said...

since my first post something else has been posted elsewhere, the head of Ford Europe says it costs nearly 6000 pounds (french keyboard no pound sign) more to produce an average car in Europe because of the EU regulations. So build them in the UK and we export them to the EU tariff free. Tariff free that is if they want to continue sending us BMWs and Renaults

christina speight said...

As the first comment right=ly asks what is the position if the UK quit and joined EFTA (Which it would!)
The Guardian's been stirring this but with scant regard fir the facts. The big BIG deal is not EU-USA but USA/NAFTA with EU EFTA inc EEA. If we withdrew from the EU we would be in EFTA/EEA. This scaremongering was credible before the complexity of Global trade evolved, but no longer.

Rollo said...

There will not be a free trade zone between the EU and the US. The EU is a protectionist tariff union. There will be exceptions to protect every French industry, and many others as well. And the Americans will give nothing away.

Open Europe blog team said...

Hi Christina, EFTA's membership is now limited to Norway, Iceland, Switzerland and Lichtenstein. So joining EFTA is only really a solution to trade with those states. EFTA states do however have their own FTA’s with others such as Canada (where the EU is still negotiating) but they do not have to negotiate as a block. EFTA’s biggest FTA is with the EU - the EEA – which Switzerland did not join due to fears over sovereignty. Joining (or remaining in) the EEA while out of the EU would leave us having to adopt many of regulations we have to adopt at the moment so is probably not the ideal model in that situation. We looked at some of these issues in our report 'Trading Places'.

christina speight said...

Open Europe thanks!

But this is another scare story. Norway and Switzerland actually do better than any of the 27 EU members because of their direct and prior access to the WTO the UN and sundry other bodies that usually pre-determine what the EU eventually does!

Rik said...

@ray
6000 GBP looks completely over the top. That is about the total costs to make a complete car (the most simple EU-allowed variety).
Most of the extra costs are in safety and enviromental devices of which most are useful.
Anyway not something you can likely use ico a FTA. If you now get a car from say Korea, you need to meet all those requirements as well. Highly unlikely that any FTA would allow to leave the safety stuff at the border.

justine rehan said...
This comment has been removed by a blog administrator.