U.S.-UK Trade Agreement: Now Is the Time

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Introduction

Much has changed since the United States first launched trade agreement negotiations with the United Kingdom in 2019. Current geopolitical realities push the United States and the United Kingdom to rely less on China as an export market or as a source of imports, including inputs for manufacturing. In this new environment, bringing sluggish U.S.-UK trade agreement negotiations to a successful conclusion should be an immediate priority of the Biden administration.

The potential economic and strategic benefits offered by a U.S.-UK trade agreement are compelling. Due to the unique compatibility of the two economies, they can further be pursued as the foundation for implementing the lengthening list of aspirational multinational initiatives recently announced by the Biden administration, including the U.S.-EU Trade and Technology Council, the Indo-Pacific Economic Framework, the Americas Partnership for Economic Prosperity, the U.S.-Kenya Strategic Trade and Investment Partnership, and the U.S.-Taiwan Initiative for 21st Century Trade. As C.S. Lewis once said, “Put first things first and we get second things thrown in.”

The regional objectives listed above are expensive, but in a dangerous world they are much more elusive and challenging than tying down the crucial U.S.-UK trade partnership. Recently, in the aftermath of Brexit, the United Kingdom has pushed further on trade agreements than the United States: successfully concluding the UK-EU Trade and Cooperation Agreement to exit the European Union, followed by full bilateral trade agreements with Australia, New Zealand, and others. The United Kingdom has recently been accepted to negotiate membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), even as it has to look on as the U.S.-EU Trade and Technology Council considers a broad range of trade issues.

The new global environment provides an opportunity for the United States to capitalize on its overall strategic negotiating advantage as the most sought-after and attractive market with which to strike a trade agreement. The United Kingdom and many other countries remain eager to move forward with the United States on market opening trade agreements, and because of their interest, the United States enjoys a strategic advantage—one that is now being ignored at significant economic cost. As other economies (such as China) grow and develop naturally over time, the value of this strategic advantage will decline, so moving ahead immediately positions the United States to best achieve its key commercial, job-creating negotiating objectives. This paper attempts to summarize the major potential economic benefits.

While the U.S. Trade Representative (USTR) declines to participate in substantive market access negotiations, many countries around the globe are dashing ahead to conclude trade agreements that open markets to their exports. As a practical matter, due to new trade agreements among other countries, the United States’ approach to regulating sensitive commercial matters is becoming less globally relevant. To rejuvenate its global influence in commerce, international trade, and regulation, the United States needs to move forward now with the United Kingdom.

Resetting and reinvigorating its close relationship with the United Kingdom should improve the United States’ ability to work bilaterally to develop constructive plurilateral responses to strategic challenges posed by China, based on coalitions of the willing, which could be precursors to multilateral solutions. Collaboration with the United Kingdom will improve the United States’ vantage point and influence when combatting the China challenge, which includes: repression in Hong Kong; genocide in Xinjiang; coercion aimed at Taiwan, Australia, and other allies; unfair government subsidies; and widespread theft of cutting-edge Western intellectual property. The United Kingdom will be a valuable partner for the United States on a common and positive free market agenda for the global economy, while simultaneously mitigating the effects of rising bilateral tensions with China. Working together, with a shared commitment to the principles of the World Trade Organization (WTO), the United States and the United Kingdom may be able to reset the global rules of trade and regulation with a new advanced template, so that the system of global commerce functions better for workers and businesses alike.

Resetting and reinvigorating its close relationship with the United Kingdom should improve the United States’ ability to work bilaterally to develop constructive plurilateral responses to strategic challenges posed by China, based on coalitions of the willing, which could be precursors to multilateral solutions.

Bilateral Trade and Economic Relations

The United Kingdom was the United States’ fifth-largest goods export market, and the United Kingdom was the United States’ eighth-largest supplier of goods imports, in 2019. In 2020, the United States accounted for 17 percent of the United Kingdom’s total trade in goods and services, while the United Kingdom accounted for 5 percent of the United States’ total trade. Total U.S. goods trade with the United Kingdom grew to $61 billion in exports and $56 billion in imports in 2021, which exceeded 2020 levels but did not surpass pre-pandemic or pre-Brexit trading numbers.

The top three UK exports overall are automobiles ($27.1 billion), packaged medicaments ($18.9 billion), and gas turbines ($18.1 billion), which are exported to the United States, Germany, Ireland, the Netherlands, and France. Top UK imports include gold, packaged medicaments, and crude petroleum, products that come mostly from Germany, China, the United States, the Netherlands, and France.

Top U.S. exports to the United Kingdom include precious metal and stone ($14 billion), aircraft ($10 billion), mineral fuels ($7.4 billion), machinery ($6.2 billion), and electrical machinery ($4.6 billion), as of 2019. Key UK exports to the United States include vehicles ($11 billion), machinery ($10 billion), pharmaceuticals ($5.1 billion), and mineral fuels ($4 billion) as of 2019. Travel, financial services, and intellectual property rights (IPR) have historically played significant roles in UK-U.S. bilateral trade, although the pandemic has constrained growth in those sectors. As of 2017, the United Kingdom accounts for about 23 percent of U.S. exports of digital services.

The United Kingdom is the largest European investor in the United States, investing $505 billion total FDI stock in 2019. Furthermore, in 2018, the top five European employers in the United States were from UK firms. They employed close to 1.3 million Americans.

Like-Minded Partners with Similar Commercial Interests in the Global Economy

The backdrop for U.S.-UK negotiations is the failure of the Transatlantic Trade and Investment Partnership (TTIP) negotiations, which floundered in large measure because of European fears that a trade agreement would require acceptance of lower U.S. health, safety, and environmental standards. This concern may be less widely shared in the United Kingdom. Grassroots frustration with heavy-handed regulation is—at least rhetorically—behind Brexit, and it figures prominently in British politics today. This campaign theme featured in the turbulent 2022 Conservative Party elections for Prime Ministers Truss and Sunak, and during a campaign video, Sunak promised to “review and repeal all post-Brexit EU laws in his first 100 days, with the goal of adopting amendments by the end of 2023.” There is a provision in the Retained EU Law Bill, currently before the British Parliament, that would allow the deadline to slip until 2026, if the full review requires more time. A standing commission to review proposals for regulatory reforms has been created.

Observers like Peter Foster of the Financial Times advocate instead for a more realistic “targeted assessment of where divergence [from Brussels] will help the UK economy.” It can be expected that significant economic benefits for both the United States and the United Kingdom would come from reviewing and revamping selected regulations identified as too onerous, inefficient, outdated, or innovation-stifling, particularly for emerging high-tech sectors.

The premise of this paper is that post-Brexit, the United Kingdom—which has been described as existing on the “liberal” end of the spectrum of EU member states on trade and investment issues—will be willing to take a fresh look at legacy EU regulatory barriers to U.S. exports. However, pursuing a comprehensive trade agreement (FTA) with the United States presents a fundamental challenge for the United Kingdom: how to square the circle of maintaining a system of regulations that is compatible with both the United States and the European Union, given that the European Union remains the United Kingdom’s number one trading partner. Overall, it is not realistic to expect the United Kingdom to develop standards and regulatory policies that are separate for Europe and the United States, but working out how this clash can be reconciled will be sector-specific, highly technical, and, arguably, the most difficult aspect of U.S-UK negotiations.

Three Key Goals: Locking in the USMCA Template, Converging on Regulation, and Ensuring Free Data Flows with Trust

The centerpiece of U.S.-UK trade negotiations should be twofold: (1) building on the many aspects of the pro-competitive United States-Mexico-Canada Agreement (USMCA), which are road-tested, are agreed to on a bipartisan basis in the United States, and stand as state of the art for trade agreements globally, and (2) promoting innovative mechanisms to harmonize and improve selected regulatory procedures with the United Kingdom, which currently adheres largely to EU regulatory practice. Where goals of consumer safety are the same—as they almost always are—and tough domestic politics resist harmonization of regulation, mutual recognition will be key.

It goes without saying that the United Kingdom should not diverge from Brussels on regulatory matters just for the sake of diverging. However, the United Kingdom is incentivized to do so in areas that will allow innovation to flourish, eventually resulting in new trade flows. Ultimately, the greatest gains to transatlantic productivity, efficiency, and economic growth will result if the regulatory space between the United States, the United Kingdom, and Europe can be further rationalized, including through mutual recognition of regulatory systems and harmonization, where possible. But this goal is a long way off. The first step is to negotiate a post-Brexit trade agreement with the United Kingdom that resembles the USMCA rather than what was on the table in the TTIP negotiations.

According to former USTR ambassador Robert Zoellick, “Digital policies to regulate and tax the transfer and use of information, data, software and technology will drive the future of trade.” Because the United Kingdom and the United States are two of the world’s largest and most technologically sophisticated exporters—globally dominant and highly integrated in sectors such as financial services, chemicals, medical products, biotech, and defense—the third key element of a U.S.-UK agreement will be setting innovation-friendly rules for digital trade flows. This is all the more important in light of the European Union’s efforts to set global standards for regulation, data flows, and artificial intelligence in a protectionist manner aimed at developing domestic capacity in certain technology sectors “as a form of digital industrial policy.”

Continuous Improvement in Regulation

At a high level, the United States and the United Kingdom are uniquely compatible in that both countries believe that competition should be the organizing principle for regulation, as it best delivers the most innovation, economic growth, and job creation. It will be important that U.S.-UK negotiations be defined by a common commitment to work for regulation and legislation that is as pro-competition and as little restrictive to trade as possible, consistent with regulatory goals. At the same time, holding fast to these overarching principles and recognizing the importance of mutual recognition and equivalence, countries should seek regulations that are harmonized where possible, especially with respect to outcomes.

While tariff elimination is always an essential goal of trade negotiations, to cite a former European chief trade negotiator, Pascal Lamy, the “new world of trade” is one in which the “obstacles to trade were about protecting the consumer from risk.” With regulation a hotly contested issue in both countries, improvements in the trade context should be centered around the parallel goals of promoting both economic growth and citizen welfare.

An entrenched, decades-old Washington-Brussels debate took much of the blame for sinking TTIP negotiations: whether regulatory processes should be (a) primarily descriptive and based on a scientific, cost-benefit risk management approach, resulting in more flexible and light touch strictures; or (b) primarily prescriptive, grounded in the precautionary principle resulting in more stringent regulation. This deep-seated difference of view continues to undermine prospects for the U.S.-EU Trade and Technology Council (TTC) discussions, launched in September 2021 to support “transatlantic convergence,” leaving uncertainty on whether they will achieve concrete market-opening results in harmonizing the regulatory restrictions that currently stymie U.S. companies and their workers who want to compete in the European market.

Virtually all exporting sectors of the U.S. economy—including agriculture, services, and manufacturing—uniformly see an agreement with the United Kingdom as an opportunity to innovate in the area of institutionalizing and normalizing regulatory cooperation on standards and product approvals. While it is difficult to measure the economic benefit of bridging regulatory procedures across a broad range of sectors, particularly high-tech cutting-edge industries, it cannot be overemphasized. As two of the world’s top technology leaders, the United States and the United Kingdom share the view that while it is the private sector that innovates, government regulatory choices can enable or diminish innovation.

The United Kingdom maintains legacy regulatory policies from its prior membership in the European Union. According to the U.S. National Association of Manufacturers and the Chemical Manufacturers Association, many of these policies are unnecessarily restrictive, non-science based regulatory approaches that require U.S. manufacturers to ban or impose costly restrictions on substances based on possible but unproven risk. These policies—such as those related to Registration, Evaluation and Authorization and Restriction of Chemicals (REACH), Restriction on Hazardous Substances (RoHS), Waste Electrical and Electronic Equipment (WEEE), and Maximum Residue Levels (MRLs)—are currently in place in the United Kingdom, and unless removed or modified substantially, they will impact and disadvantage a wide range of manufacturers in the United States by blocking them from exporting many highly competitive U.S. products to the United Kingdom.

Achieving national treatment for product certifications and full recognition by the United Kingdom of the safety of U.S. agriculture and food systems will also be top priorities for U.S. negotiators. Currently, the United Kingdom follows the EU practice of opposing the use of U.S.-based standards in many sectors. USTR observes that the EU approach includes efforts to establish ISO, IEC, and other bodies in which Europe is the exclusive developer of “international standards,” and to require its trading partners to use these particular standards as the bases for their technical regulations. The European Union has pushed for the exclusive “harmonization” to ISO and IEC standards where possible. However, while in general U.S. industry and USTR are frustrated with the European Union’s practice of only applying standards generated by standard-setting bodies in which Europe plays a dominant role, this sentiment can differ by sector. The U.S. auto industry, for example, is strongly at odds with Europe, while the U.S. medical device sector has worked out a better alignment with European regulators and supports most ISO and IEC standards relevant to its sector.

For their part, the U.S. standards system and the bulk of U.S. trade agreements recognize that there are multiple paths to viable international standards, supporting flexibility and competition. However, fundamentally divergent U.S.-EU views on what constitutes an “international standard” complicate opportunities for U.S.-UK. cooperation. No real working mechanism currently exists in the United Kingdom to recognize functionally equivalent standards arising from U.S.-domiciled standards developing organizations (SDOs). Often, a U.S. manufacturer’s product that does not strictly conform to, for example, European ISO or IEC standards must be further measured and tested against “essential requirements,” which are often vague and can be costly to pursue.

The USMCA contains strong obligations related to regulation and standard-setting that should be mirrored in a U.S.-UK trade deal. Canada, Mexico, and the United States agreed to respect WTO and Technical Barrier to Trade (TBT) principles for determining a legitimate international standard, which clarified the legitimacy of standards developed with due process in a fair and open manner. The USMCA ensures that U.S. SDOs can propose standards that can be multilateralized. This is a big achievement, as Europe limits recognition to European-dominated standards organizations and promotes that discriminatory view to the rest of the world. However, parties to the USMCA are obligated to consider all standards that satisfy the legitimate objective of a technical regulation or conformity assessment procedure. Including this provision in a U.S.-UK deal will therefore enable technically equivalent standards to be referenced and used, significantly cutting U.S.-UK import/export costs and prices for food, services, and manufacturing inputs.

By agreeing to seek accession to the CPTPP, the United Kingdom has taken a step toward embracing the USMCA model of respecting WTO/TBT principles for determining legitimate international standards. This model, defined by having domestic procedures for adequacy and mutual recognition, is the most constructive path for increasing trade with the United States—but it may not align with current European regulatory practices and requirements in many sectors.

Reconciling the triangularity of the United Kingdom’s position between Europe, its largest market, and the United States, its closest ally and partner in technological innovation, stands as a fundamental challenge for the United Kingdom. U.S. negotiators need to be sensitive to this dynamic and work with the European Union where possible to make regulations more compatible among the three transatlantic markets when regulatory objectives are the same.

Highlights of Sectoral Opportunities for the United States

Chemicals

Trade in chemicals is a strong component of the U.S.-UK trade relationship (totaling $6.1 billion in 2021 [1]). Nearly 8 percent of UK exports to the United States were organic chemicals ($3.83 billion) in 2020. The two countries’ industries have an unusual record of cooperating to remove trade barriers in international markets. The U.S. industry, represented by the American Chemistry Council (ACC) and the Society for Chemical Manufacturers and Affiliates (SOCMA), urges negotiators to build on the USMCA. Foundational language in the USMCA includes customs and regulatory cooperation, clear rules of origin, technical barriers to trade and standards, and scientific-based risk assessment coordination. The ACC and SOCMA support promoting an agenda that encourages investment and innovation between both countries, including developing a common plan for increasing the protection of intellectual property rights, with an emphasis on trade secrets and data exclusivity.

For its part, the British Chemical Industries Association (CIA) has issued recommendations for a U.S.-UK agreement—including tariff elimination, clarity on rules of origin, and further regulatory cooperation—which are largely compatible with U.S. industry objectives. In fact, the chemical industries in the United States, Europe, and the United Kingdom have long had aspirations for transatlantic trade liberalization that have been stymied over the years by the more difficult political issues surrounding agriculture that hampered progress on the TTIP. Agreement on liberalizing trade in the chemical sector looked possible in the TTIP, but opposition among certain agriculture constituencies stood as a barrier to concluding a comprehensive agreement.

During TTIP negotiations, some EU consumer groups urged the European Union to rigidly adhere to EU regulatory requirements in an effort to protect people and the environment from hazardous chemicals, despite hazard review processes that were excessively time-consuming and duplicative of U.S. testing. Since both the United Kingdom and the United States seek high standards for human health and wildlife protection, both countries could benefit from sharing approaches, being open to each other’s best practices in regulation, and collaborating to develop new tools and standards to assess safety and efficacy, particularly in industries where technologies are evolving quickly.

In societies as technologically advanced as the United States and the United Kingdom, it goes without saying that regulators must constantly consider innovations and new flexibilities in their methods. The TTIP experience demonstrated that it is hard for the 27 EU member states and the European Commission to be dynamic in this regard, which creates a unique opportunity for U.S.-UK negotiators.

Medical Products

As leading global innovators in pharmaceuticals, biologics, and medical devices, the U.S. and UK medical products sectors—already highly integrated and synergistic—could see huge gains from this agreement, particularly in terms of expanded exports and the creation of many new high-paying jobs.

A good percentage of U.S. medical products companies have their European headquarters in the United Kingdom, and many UK companies choose the United States as their first market to expand into. The UK medical products industry struggles to raise capital for initial public offers (IPOs), and better access to the U.S. medical products market would facilitate the United Kingdom’s access to capital.

In 2020, the United Kingdom exported $5.32 billion worth of pharmaceutical products to the United States, around 10 percent of all UK exports to the United States. The United States in turn exported $2.78 billion in pharmaceuticals to the United Kingdom in 2020, equivalent to nearly 4.8 percent of total U.S. exports to the country. The commercial and collaborative exchange of products, inputs, know-how, and on-the-spot innovation in this sector contributed more to prevailing over the pandemic than can be described here.

Data show that the U.S. biosciences industry, for its part, supports 2.1 million employees and more than 127,000 business establishments in the United States, as of 2021. This employment area has grown by 11 percent since 2018, and this despite the fact that the overall economy shed 1.5 percent of its jobs base. Because of the skilled nature of these positions, average wages reached $94,543 in 2014—nearly twice the national average wage in the U.S. private sector ($51,148). Opening up new export opportunities in the United Kingdom can only amplify these exceptional trends and should be prioritized by U.S. negotiators.

Both the United States and the United Kingdom are home to renowned academic institutions. While the United States holds global leadership in a number of academic publications, the United Kingdom leads in publications per billion dollars of GDP. They both face a battle for high-tech talent and could benefit from exploring innovative public/private approaches to upskilling, similar to initiatives being considered in the Indo-Pacific Framework discussions. During the pandemic, companies in this sector looked to increasing the duplication of supply chains in the United Kingdom (and also Europe) to heighten resilience to unanticipated disruptions. As result, more commercial partnerships and parallel manufacturing lines for medical products are being established, a trend that will be reinforced by a trade agreement.

The Biotechnology Innovation Organization (BIO) observes that a trade agreement between the United States and the United Kingdom, as it charts its independence from the European regulatory system “where unscientific trade barriers substantially contribute to limit U.S. exports and economic growth in the United States,” will create opportunities and support new approaches to public/private partnerships for more research and development, and trade.

In addition to strict regulatory approval mechanisms, U.S. pharmaceutical, biologic, and medical device companies also face market access restrictions in the form of government-determined price controls and medical insurance reimbursement policies. Product approval rates in the United Kingdom are trending lower than in major markets in Europe. For example, between 2017 and 2020 only 108 new medicines were made available in England, compared to 147 in Germany. The U.S. medical products industry views the USMCA and the United States-South Korea Free Trade Agreement (KORUS) as precedents for establishing transparent regulatory and pricing practices based on “verifiable rules guided by science-based decision making.” These stakeholders seek regulatory approval mechanisms that allow manufacturers to provide health authorities and regulatory agencies with full input regarding product value assessments. In this regard, negotiators should consider whether private sector input could be provided to the UK government through a more regularized system of consultations with private sector advisors. Nevertheless, U.S pharmaceutical, biologic and medical device companies all endorse the USMCA as a very strong base from which to negotiate a trade agreement with the United Kingdom.

Overall, the U.S. pharmaceutical, biologic, and medical device industries seek: (1) market access, including fair pricing; (2) intellectual property protection and enforcement; and (3) regulatory “compatibility.” The Pharmaceutical and Research and Manufacturers Association (PhRMA) notes that UK citizens experience delayed access to pharmaceuticals and innovative medicines due to existing UK regulations—which also lead to high rates of product rejections—and the imposition of restrictions by the UK National Institute for Health Care and Excellence (NICE.) In PhRMA’s view, the prices of medicines should be based on criteria that reflect benefits to patients and healthcare systems, patterns of disease burden, and national socioeconomic indicators. Because the Health Care Technology Assessments employs, in their view, “rigid cost-effectiveness methodologies,” they agree that it “should not be the principle framework for assessing value.” Given that the British National Health Service figures as a sensitive political topic in the United Kingdom, negotiations on pharmaceutical pricing could be a difficult issue for trade negotiators.

Recently, U.S. pharmaceutical companies have been facing serious commercial challenges in the form of a rapidly escalating system of sector-specific “clawback” payments on innovative medicines, called the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS). Current projections for next year’s VPAS repayment rate are expected to be a 26.5 percent fee on revenue of pharmaceutical companies established in the United Kingdom. This would be layered on to all other normal business taxes, placing the United Kingdom as a global outlier compared to other European countries such as Germany (7 percent) and Spain (7.5 percent).

For medical devices, the FDA recently concluded a useful Mutual Recognition Agreement (MRA) on Good Manufacturing Practices (GMP) with the United Kingdom that limits repetitive regulatory requirements. A follow-on agreement to consider would be a MRA for Good Clinical Practice inspections, which would reduce the duplication of work undertaken by relevant regulatory authorities in the United States and the United Kingdom.

Sanitary and Phytosanitary Measures and Agriculture 

Members of the Senate Finance Committee and the House Committee on Ways and Means, whose views will be essential to getting a deal done, will insist that a U.S.-UK trade agreement include strong market-opening provisions for the U.S. agriculture sector. Current levels of bilateral trade in agriculture products are strikingly low; the United States exported about $1.7 billion in agricultural products to the United Kingdom (nearly 2.46 percent of U.S total exports to the United Kingdom) in 2019, mostly wine and edible preparations, while U.S. agricultural imports from the United Kingdom totaled only $806 million (1.26 percent of U.S. total imports from the United Kingdom) in product categories dominated by hard liquors

The United States will likely prioritize the removal of certain SPS and TBT barriers that keep globally competitive U.S. agriculture exports, such as beef and peanuts, out of Europe and the United Kingdom. Many observers fault disagreement over provisions regulating agriculture trade as ultimately bringing about the demise of the TTIP, so bridging with the United Kingdom on the treatment of U.S. agriculture exports will be a priority. The United States will push the United Kingdom to bring its SPS regime into compliance with WTO rules, whereby emphasis is placed on risk-based reviews as opposed to the hazard-based approach of the precautionary principle that is followed by the European Union.

It is an open question how the United Kingdom will respond on agriculture. Significantly, in its new trade agreements with Australia and New Zealand—negotiated when Boris Johnson was prime minister—the United Kingdom agreed to tariff- and quota-free treatment for agriculture, albeit with relatively long phase-out periods and a special safeguard to moderate import surges. However, as a candidate running against former prime minster Liz Truss, Prime Minister Sunak was quoted as saying that these two trade deals were “one sided” and that they had been rushed to conclusion for the sake of arbitrary deadlines. Several members of the British Parliament have raised strong objections regarding the painful impact of these agreements on the future UK production of beef and lamb, in the face of expanded import competition from Australia and New Zealand.

As negotiations ramp up for the United Kingdom to join the CPTPP, British farm lobbyists have raised more urgent concerns about the potential impact of UK membership in the CPTPP on the semi-processed food and agriculture sectors. Keeping in mind that agriculture and SPS requirements are the seas where the TTIP floundered, the United States will be in a stronger position to negotiate a valuable U.S.-UK deal on agriculture before the United Kingdom joins the CPTPP. While it is too early to know the package of gains and concessions that the United Kingdom will be able to negotiate when it accedes to the CPTPP, several CPTPP members (and those that aspire to join) are globally competitive in certain agriculture products, which could result in more pressure on domestic production in the United Kingdom. Getting in the door first—before the United Kingdom joins the CPTPP—is the logical way to help minimize any UK objections to making difficult adjustments in agriculture and thereby to maximize possible gains for U.S. farmers and ranchers.

The EU-UK Trade and Cooperation Agreement (TCA) established tariff-and quota-free trade on all agricultural products from both parties, insofar as they abide by detailed rules of origin requirements, which would apply to approximately 90 percent of agri-food products. The TCA has been described as “very thin,” lacking automatic equivalence for both systems, with the United Kingdom and the European Union keeping their separate SPS regimes. Now, with the United Kingdom a “third country” in EU trade terms, UK products are subject to the requirements imposed on imports from non-member states, including sanitary and phytosanitary (SPS) controls: a stringent and bureaucratic regime of export health certificates (EHCs), advance electronic notification procedures and inspections at border control posts (BCPs), and customs and contractual procedures. At the United Kingdom’s insistence, the TCA’s SPS chapter places an obligation on both sides to ensure that border controls are “proportionate to the risks identified” and do not create “unjustified barriers to trade,” which is more in line with U.S practice and WTO rules. In a nod to harmonization and cooperation, the TCA created a Trade Specialized Committee on Sanitary and Phytosanitary Measures to review and clarify SPS measures and to consider ways “to facilitate trade between the Parties.” The SPS provision also highlights the need for EU-UK cooperation on antimicrobial resistance, which both parties view as a serious threat to human and animal life. 

Achieving broad tariff reductions and elimination of quota restrictions will be priority for U.S. agriculture groups. These groups, including the American Farm Bureau Federation, also urge negotiators to use the SPS and TBT chapters of the USMCA as a baseline for bilateral negotiations with the United Kingdom. In addition to the American Farm Bureau Federation’s focus on tariff elimination, various farm organizations are pursuing more specific areas for regulatory relief. The National Pork Producers Council and the U.S. Meat Export Federation (USMEF) request full equivalence of U.S. standards, such as those pertaining to growth hormones or pathogen reduction treatments (which are sold freely in the United States but prohibited under the EU regulatory system). The Corn Refiners Association (CRA) prioritizes the reduction of the EU tariff rate quota (TRQ) on corn gluten meal. The National Milk Producers Federation and the U.S. Dairy Export Council seek rules of origin that will guard against the European Union using the United Kingdom as a back door export hub to the United States. The National Potato Council supports including provisions that facilitate the trade of goods with advanced technologies, such as genetic modification and Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR), which is advanced gene-editing technology with medical applications. The Institute for Agriculture and Trade Policy requests that the UK agreement not limit farmers’ access to intellectual property, such as seeds and pesticides. 

Also, Congress will likely prioritize achieving market access assurances for common food names used by U.S. food manufacturers and producers, including for high-value spirits, wine, meat, and dairy products. Historically, Europe has employed (and proselytized globally) for certain geographical indications (GIs) to limit competition and block imports of products carrying what the United States views as common food names. Post-Brexit, the United Kingdom adopted the European policy of protecting commodities deemed to have a geographical connection under intellectual property laws. According to the UK government, GI protection ensures the integrity of the products’ “characteristics or reputation, authenticity[,] and origin.” The United States will request that the United Kingdom remove a broad array of EU legacy import barriers in place against many U.S. products based on geographical indications that the United States views as illegitimate.

Financial Services

The financial services sector, which broadly entails the management of assets and investing, accounted for $4.85 trillion in revenue in the United States and roughly $199 billion in revenue in the United Kingdom in 2021. Approximately $20 billion worth of financial services were exported from the United States to the United Kingdom in 2019, with the United States importing close to $12 billion in financial services from the United Kingdom. Similarly, the United States is a large investor in the UK market with $851 billion in foreign direct investment (FDI), while the United Kingdom invested $505 billion in the United States in 2019.

As the two premier suppliers of financial services in the world, the United States and the United Kingdom conduct a deep and sophisticated economic relationship in this sector. As such, the two governments will have much to share in terms of best practices in regulating this cutting-edge, constantly evolving industry. Given their deeply established relationship, increasing these trade and investment flows would be highly beneficial and growth-inducing for both economies.

Financial services were not explicitly covered in the EU-UK Trade and Cooperation Agreement (TCA)  report, a situation that remains an area of concern and vulnerability for the United Kingdom. Despite some movement of firms to the European Union, the United Kingdom is expected to remain prominent in the financial sector. Partly due to its location, the United Kingdom benefits from having access to U.S., European, and Asian financial markets—a strategic advantage that both U.S. and UK negotiators will want to preserve. Striking a trade and investment agreement with the United States would likely help to shore up the United Kingdom’s prominent position in this important sector and bolster overall confidence, recently shaken by large fiscal deficit projections.

An objective for the United Kingdom will be to maintain the access of UK financial institutions to European capital markets. Therefore, while there is a likelihood of some variation from the European Union in compliance requirements, as well as in supervision for the banking and insurance sector, it is unlikely any major divides will develop. The Taskforce on Innovation and Regulatory Reform (TIGRR) has been convened to examine possible creative and dynamic reforms, including with respect to the financial sector. Banking policy in the United Kingdom could evolve separately from the European Union but will likely align with international standards. Many key areas of financial regulation are based on standards set by international committees, such as the Basel Committee of Banking Supervision (BCBS), the International Organization of Securities Commissions (IOSCO), and the International Association of Insurance Supervision (IAIS); all these organizations work closely with the G-20 Financial Stability Board (FSB).

It is expected that the United Kingdom will take a more flexible approach than the European Union when it comes to regulating certain areas—such as sustainable investments, crypto-assets, and payments—and this represents an opportunity for the U.S. industry. The appetite and capability of the British financial sector to continue to grow in a post-Brexit environment highlights the significant opportunity for advancing the financial services relationship between the United Kingdom and the United States. The comprehensive financial services language in the USMCA provides a strong starting point for proceeding to negotiate financial services standards in a proportionate and pro-competitive manner based on global standards.

In the United States, the Coalition of Services Industries (CSI), the American Council of Life Insurers (ACLI), Securities Industry and Financial Markets Association (SIFMA), and the U.S. Chamber of Commerce all outlined recommendations for negotiating objectives for a U.S.-UK trade agreement that focused on replicating many of the USCMA provisions. These groups underscored the significant commercial benefits of clear and strong digital trade provisions, including the free flow of data and a prohibition on data localization requirements. They also emphasized the value of market access and national treatment provisions. They espoused support for enhanced regulatory coordination, including in the event of a cybersecurity incident.

The USMCA includes robust state-of-the-art financial services language. It sets out strong market access obligations, commits parties to national treatment, recognizes the importance of regional macroeconomic stability, and includes provisions to ensure the free flow of financial data and prohibit data localization requirements.

U.S. business groups do have strong concerns about replicating two controversial provisions from the USMCA. CSI stated that, unlike the USMCA, U.S.-UK negotiations should ensure the inclusion of non-discrimination disciplines in government procurement and provide comprehensive Investor State Dispute Settlement protections for financial services. SIFMA recommendations include urging that the agreement not impose measures requiring providers of financial services to buy a specific technology. This would be beneficial for U.S. exporters, who often face discriminatory technology requirements.

It seems that Financial Technology (fintech), which is having an ever-greater impact on cross-border financial services, is a key issue to address in a modern FTA; national treatment disciplines will help ensure that trading partners’ products are treated similarly to domestic fintech products.

Digital Trade, Taxes, and Platform Regulation

In what has been characterized as “regulatory overdrive,” the evolving European strategy to achieve digital sovereignty has set off cautionary alarm bells among congressional trade leaders and the Biden administration. Europe is moving to implement the Digital Markets Act (DMA) and the Digital Services Act (DSA) and intends to follow these far-reaching initiatives with: (1) European cloud security requirements that proport to prevent non-European-owned cloud and software providers from being able to compete for contracts in Europe and (2) the Data Act, which will force the sharing of non-personal data and the transfer of trade secrets from U.S. firms.

Although details of all of these European laws remain outstanding, trade leaders in Congress have expressed concern that they appear to unfairly discriminate against U.S. firms by using “arbitrary thresholds to ensure only a handful of large American companies” are targeted, while failing to regulate similar companies based in Europe and China. With tension and confrontation brewing between the United States and Europe on the regulation of digital platforms, it is possible that the United Kingdom could chart a more innovation-friendly path, consistent with the more advanced state of its digital economy compared to Europe.

Unfortunately, from a U.S. perspective, the structure of new regulatory regimes in the United Kingdom appears to mirror the European Union’s two-pronged approach to platform regulation. In early moves, the United Kingdom has advanced a multi-agency platform regulatory framework. Jurisdiction is divided between the Digital Markets Unit (DMU), within the Competition and Markets Authority, and the Office of Communications, which is granted the authority to regulate “online harms.” The potential powers to be given to the DMU reflect intentions similar to the European Union’s DMA. Some proposals have explicitly outlined that the DMU would monitor firms designated as “holding strategic market status (SMS).” These firms, analogous to the large online gatekeeper firm designation in EU law, could be subject to legally binding principles, pro-market interventions, and obligations to notify the DMU of possible mergers.

Akin to the European Union’s DSA, the United Kingdom’s Online Safety Bill, sent to Parliament in March 2022, is aimed at regulating illegal content online. It includes protections for children, exemptions for content moderation, guidelines for fraudulent advertising, and identity verification rules. Unique in that it directs an independent agency to implement regulation specifically for social media and internet platforms, its enforcement falls to the Office of Communications, the traditional media regulator in the United Kingdom. These are early days, but it appears the United Kingdom is trending in the direction of European heavy-handedness in the regulation of digital technologies. In particular, the Online Safety Bill has been opposed by the current UK secretary of state for international trade, Kemi Badenoch, because of its troubling impact on freedom of speech. Stopping the United Kingdom’s drift down the European Union’s regulatory pathway and providing it some options and benefits for choosing an alternative course would be beneficial to U.S. interests.

The Digital Economy: Data Flows and Privacy

The ability to move data from Europe to the United States while complying with the General Data Protection Regulation (GDPR) has caused much disruption, cost, and uncertainty for U.S. and EU businesses and is another area where the United States may push for the United Kingdom to chart a different course than the European Union. The UK Data Protection Act 2018 came into effect before the United Kingdom separated from the European Union. The European Union adopted an “adequacy decision” for the UK data privacy framework that considers the UK regulation to be an equivalent level of data protection to the European Union. On July 18, 2022, the UK government introduced in Parliament the Data Protection and Digital Information Bill, which would include modifications for data transfers, but progress on this draft regulation has been paused. UK government statements indicate that it will be “replacing GDPR with our own business- and consumer-friendly British data protection system,” setting up the possibility that there will be additional flexibility on data transfers and privacy protection in comparison to what the European Union requires under the extraterritorial GDPR. If the United Kingdom diverges “too much” from the EU GDPR, there is a risk of that regulation being challenged before the Court of Justice of the European Union. As it develops its own GDPR, the United Kingdom government’s goal will be to protect consumer privacy and the safety of data while building in some more flexibility for business to trade freely, all while remaining consistent with preserving the European Union’s adequacy determination—a delicate balance, to be sure.

For its part, the United States does not have a data privacy framework equivalent to the United Kingdom or the European Union. The United States and the European Union have attempted to reconstruct the EU-U.S. Privacy Shield since a European Court decision struck it down in 2020. In March 2022, the U.S. government and the European Commission announced a new Trans-Atlantic Data Privacy Framework. And later in October, the Executive Order on Enhancing Safeguards for United States Signals Intelligence Activities granted increased legal protections for both Americans and Europeans as to how the U.S. government, specifically national security agencies, can collect and use personal data. This new executive order states that the government agencies can only collect data that is “necessary” and “proportionate” for surveillance. This regulation aims to respond to the main issue of the Schrems II case, which ruled the EU-U.S. Privacy Shield illegal. In its opinion, the European Court of Justice had cited the deep scope of U.S. data collection in government surveillance and lack of redress options for EU citizens.

The United Kingdom has not adopted an adequacy decision for the United States, but both sides are searching for interoperability. In October 2022, UK secretary of state for digital, culture, media and sport Michelle Donelan and U.S. secretary of commerce Gina Raimondo stated that a data adequacy deal could be on the table. An agreement would allow data to flow freely between the United States and the United Kingdom while alleviating privacy and liability concerns. Donelan welcomed the U.S. executive order, saying that it “strengthens the safeguards and establishes new redress routes for UK data processed by U.S. authorities.”

The United Kingdom and the United States should work to establish mutually recognized definitions of key terms that would facilitate cooperation and convergence on artificial intelligence (AI) regulation. These include, for example, explainability, trust, AI, and general purpose AI (GPAI).[2] A lack of common definitions restrains progress on the scope of standards and regulations on AI. Against the backdrop of heightening geostrategic competition with China, the European Union and the United States need to engage and align within standards bodies on AI. An omnipresent risk within the three-way transatlantic relationship is that the European Union’s aversion to Chinese participation in EU standards bodies will lead to no non-European participation in these bodies at all, which could ultimately prevent U.S. entities from shaping outcomes.

The United Kingdom and the United States should work to establish mutually recognized definitions of key terms that would facilitate cooperation and convergence on artificial intelligence (AI) regulation.

The Digital Economy: DSTs and Tax Issues

In April 2020, the United Kingdom planned—but later revoked—the enactment of a 2 percent Digital Services Tax (DST) on certain search engines, social media platforms, and online marketplaces that exceeded a given threshold, calculated as 2 percent of revenue obtained through British users. This was expected to include Amazon, Apple, eBay, Facebook, and Google. U.S. trade retaliation was averted through a political agreement referencing the Organization for Economic Cooperation Development/Group of 20’s (OECD/G20) Inclusive Framework on Base Erosion and Profit Shifting on tax challenges from digitization. On the basis of this agreement, USTR terminated a Section 301 investigation against the United Kingdom, Austria, France, Italy, and Spain. It is hard to imagine Republican House Ways and Means and Senate Finance Committee members moving forward on a trade and investment agreement with the United Kingdom without knowing the fate of this DST proposal.

As part of Pillar 1 of the OECD Inclusive Framework, the United Kingdom and other countries agreed to remove existing DSTs and similar relevant measures “until the earlier of December 31, 2023, or the coming into force of the multilateral convention to give effect to Pillar One.” The United Kingdom decided to adopt a transitional approach where the DST liability that U.S. companies accrue during the interim period would be creditable against future taxes accrued under Pillar 1 of the OECD agreement.

In October 2021, the United Kingdom said it would phase out its DST on large U.S. tech firms, such as Google and Amazon, since global reform to corporate taxation goes into effect in 2023. Rishi Sunak, then UK chancellor of the exchequer, said: “We have agreed a way forward on how we transition from our digital services tax to the newly agreed global tax system.”

U.S. ambassador Katherine Tai released a statement after the announcement of the agreement on October 21, 2021, which stated:

We reached our agreement on DSTs in conjunction with the historic OECD global agreement that will help end the race to the bottom over multinational corporate taxation by levelling the corporate tax playing field. In coordination with Treasury, we will work together with these governments to ensure implementation of the agreement and rollback of existing DSTs when Pillar 1 enters into effect. We will also continue to oppose the implementation of unilateral digital services taxes by other trading partners.

 

The United States has historically been strongly opposed to DSTs, although this tension has subsided temporarily in light of the agreement through the OECD on a global minimum taxation framework. However, with Republicans in control of the U.S. House of Representatives beginning in 2023, it is questionable whether the United States will implement the OECD/G20 Inclusive Framework. Thus the understanding the United States reached with the United Kingdom to suspend its DST tax may be in jeopardy.

Energy Security and Green Trade Considerations

Announced in April 2022, the United Kingdom’s Energy Security Strategy approach is focused on achieving independence from foreign energy sources combined with concerted efforts to decarbonize domestic energy supplies by: (1) increasing its offshore wind capacity, (2) doubling the previous hydrogen production target, and (3) ramping up additional nuclear projects. The United Kingdom also aims to increase extraction activity in the North Sea. The United Kingdom passed a moratorium on fracking in 2019, which was rescinded by Prime Minister Truss and reinstated by Prime Minister Sunak.

Historically the United States exports a fair amount of oil- and gas-related products to the United Kingdom. In 2020, crude petroleum was one of the United States’ top goods sent to the United Kingdom, accounting for 8 percent of total exports to the United Kingdom ($3.25 billion).

The United Kingdom and the European Union have a closely linked demand for energy sources. The UK pipeline to Belgium and the Netherlands has been an effective transit route for liquefied natural gas (LNG); the United Kingdom has attempted to reduce the effects of the geopolitical fallout from the Russian invasion of Ukraine by sending significant volumes through this pipeline, despite the fact that the pipeline typically flows in the opposite direction during winter to support UK energy needs. The challenge for the United Kingdom, the European Union, and the United States will be to maximize production of energy to avoid being at the mercy of the Russians.

Prior to invading Ukraine, Russia accounted for nearly a quarter of the United Kingdom’s refined oil imports. However, June 2022 marked the first time on record that the United Kingdom did not import Russian fuel, and costs have since increased precipitously, leading some to fear an economic recession and potential humanitarian consequences should the winter be particularly harsh. A research briefing published by the British Parliament in November 2022 shows that British energy bills have grown by 54 percent in April 2022 and were due to increase by a further 80 percent in October 2022; with a price cap under the Energy Price Guarantee, the government will limit the October increase to 27 percent, with a further increase of 20 percent expected for April 2023. In total, the UK government will need to spend $27 billion between fall 2022 and spring 2023 to offset the rising costs of energy as a result of ongoing disruptions. Overall, British imports of Russian goods are down 97 percent compared to pre-invasion levels.

While the majority of the United Kingdom’s energy comes from oil and natural gas, the country has a fairly diversified mix of sources, including a focus on sustainable energy as well. In Q4 2021, wind power contributed 26.1 percent of the country’s energy, while bioenergy contributed 12.7 percent, solar power contributed 1.8 percent, and hydropower contributed 2.1 percent of the United Kingdom’s total electricity generation. In 1991, by comparison, renewable energy accounted for just 2 percent of the country’s energy supply. In 2010, zero-carbon power accounted for less than 20 percent of the United Kingdom’s energy mix, but it has since increased to 50 percent by 2021.

The United States has recently become the world’s largest producer of LNG, according to the U.S. Energy Information Administration (EIA) in July 2022. Exports grew about 12 percent in the first half of this year compared to the same period in 2021. The United States is exporting a significant amount of LNG to Europe. EIA found that exports to the European Union and the United Kingdom accounted for 71 percent of total U.S. LNG exports in the first five months of 2022. The United States has agreed to increase exports to Europe, and one way is through the UK terminals. (Spain has the other largest LNG hub in Europe.) The United Kingdom is well positioned to act as an “energy bridge” to the continent, increasing transatlantic energy security overall.

The spring of 2022 saw the United Kingdom receive a record number of LNG shipments, although the country lacked sufficient storage and has thus been exporting its excess LNG to Europe. “We are working with the Americans to get more LNG into Europe,” said Karen Pierce, the United Kingdom’s ambassador to the United States. “We’ve come to an arrangement with the Port of Baltimore. . . . The LNG terminal in Baltimore will ship more LNG to the UK, and we’ll ship it onto Europe.”

LNG provisions are not typically mentioned in FTAs, although energy provisions overall, such as renewable energy and efficiency, are an increasingly common feature of newer FTAs, including in the CPTPP and USMCA. The CPTPP, for example, includes national treatment measures for energy exports, including LNG which is particularly attractive to Japan. While the U.S. Department of Energy oversees the authorization of LNG exports, it does not interfere when the export destination is a country with whom the United States has an FTA. Under the USMCA, meanwhile, energy products are zero-tariff, and export approvals are automatic.

The United States could increase LNG supplies to the United Kingdom, although environmentalists object to the emissions impact of a growth in fossil fuel use and posit that renewable energy sources, such as solar and wind, would afford the United Kingdom much more significant energy security and independence in the long run. When Boris Johnson was prime minister, the United Kingdom negotiated and concluded what was arguably the most advanced chapter on environment and trade, in the UK-New Zealand FTA. The environment chapter includes fossil fuel subsidy reform and the most exhaustive list of environmental goods with liberalized tariffs in a trade deal. With 290 items, this environmental goods list includes nearly five times as many products as the Asia-Pacific Economic Cooperation’s (APEC) list. In other words, the United Kingdom has shown an appetite for liberalizing tariffs on environmental goods, which could ultimately help support a faster transition to a diversified energy basket.

The United Kingdom’s interest in the transition to more clean energy through broadening economic ties has displayed three unusual memorandums of understanding (MOUs) signed between the United Kingdom and the states of Indiana, North Carolina, and South Carolina. The MOU with Indiana commits parties to exchange green skills education, promote strategic partnerships between private sector companies, and do more to support innovation through scientific collaboration. Priority sectors in this regard include energy infrastructure, low-emission technology, agriculture, and advanced manufacturing. The MOU with North Carolina commits parties to achieve net-zero greenhouse gas emissions by no later than 2050 through support of the clean energy sector. Discussions on similar MOUs are underway with California, Georgia, Tennessee, and Oklahoma—reflecting, perhaps, the United Kingdom’s frustration with slow progress bilaterally on climate and trade issues with the Biden administration.

More than any other trading partner, the United Kingdom will push the United States to innovate in reframing trade agreements to support lower carbon emissions and a cleaner environment. To begin, the United States and United Kingdom should seek to liberalize trade on a list of environmental goods. Second, the parties should seek greater alignment on green subsidies and procurement, a topic that has been front and center in the U.S.-EU TTC. Third, the parties should explore defining a common methodology for the emissions intensity of traded goods. Together, these policies will lessen long-term trade frictions and accelerate constructive pathways to reducing carbon emissions.

More than any other trading partner, the United Kingdom will push the United States to innovate in reframing trade agreements to support lower carbon emissions and a cleaner environment.

Teaming Up to Urge China to Adhere to the Rules-Based Trading System

The United States and the United Kingdom, both strong proponents of market principles and the WTO rules-based trading system, recognize that they face a common economic threat to their future in damaging Chinese non-market economy practices. This is an area where an exchange between the two governments holds unique promise for constructing an effective trade remedy response mechanism that could be broadened later to include more countries, in a common approach to trade defense from non-market economies. In both the United States and the United Kingdom, domestic political support for free trade has been damaged by the identified threat from Chinese non-market economy practices. These practices led to a flooding of markets worldwide with subsidized, unfairly traded overcapacity that has, at times, swamped production in iconic industrial towns in both the United Kingdom and the United States.

As part of the 2021 WTO Trade Policy Review of China, in statements demarcating a new era of trade tension with the country, the United States—with supporting statements from nearly 50 other WTO members—criticized China for “undermining the rules-based global trading system through its massive use of industrial subsidies” that “skew the playing field against foreign competition” and result in severe “excess capacity.” In addition to domestic subsidies and other unfair trade practices, a second related issue of cross-border or transnational subsidies stems from China’s Belt and Road Initiative (BRI). This policy’s disrupting effects have caused both the U.S. and UK governments to further scrutinize Chinese practices, which they see as an intractable and overwhelming challenge to the WTO system.

A starting point in bilateral discussions, for example, could be considering a recommendation made in a 2021 report of the UK Trade and Agriculture Commission (TAC) forged as part of the domestic consensus-building process in the United Kingdom that paved the way for the United Kingdom’s external trade policy, including the EU-UK Trade and Cooperation Agreement. This deals with successful agriculture exporters Australia and New Zealand, as well as CPTPP accession. While the proposed TAC mechanism was aimed at dealing with deviations from agreed international standards, it could be used for any distortion that has a negative trade or market-distorting effect.

In the TAC’s parlance, many of the anti-competitive market distortions (ACMDs) that pervade the Chinese market today are not adequately addressed by current trade tools. ACMDs include market distortions that favor local firms through government laws, regulations, and practices. These distortions can impact government procurement, mergers and acquisitions, and investment. In addition, distorting countries may benefit from intellectual property theft. The TAC proposes a new trade remedy mechanism based on objective measurement of damaging non-market distortions and a tariff applied in an equivalent amount to the competing products that enjoy an artificial edge because of the distortion. According to the TAC, “The mechanism can be used offensively, where a country is preventing market access by the UK by means of the market distortion, or defensively where a distortion in a foreign market leads to excess exports from that market.”

While crafting a bilateral or multilateral trade remedy response to non-market economy practices by third countries is new ground, it is an urgent assignment the United Kingdom and the United States should take on.

Conclusion

The overall benefit of a U.S.-UK trade agreement is simple and obvious: improving the security and economic prospects of U.S. and UK citizens and workers in the global economy. Congress should hold the Biden administration to account for reaching this objective. Together, the United States and United Kingdom can achieve the following:

  1. Maximize the benefit to the U.S. economy of the hard work that Congress and USTR put into the USMCA by replicating this sound model with another major trading partner.
  2. Improve the overall bilateral regulatory environment across a range of sectors, which will reduce costs and create supply chain efficiencies between the United States and the United Kingdom.
  3. Establish next-generation digital regulations that can be promoted globally.
  4. Cement the U.S.-UK economic relationship with a meeting of minds on a fair and transparent trade remedy mechanism for protecting both countries’ industries from non-market economy practices that will allow them to countervail these practices, in a way that may dissuade China from so much injurious behavior in the future.

An agreement between the two most digitally intensive economies in the world should establish a gold standard for digital trade rules, with binding disciplines on data free flows. According to the Information Technology & Innovation Foundation’s (ITIF) Nigel Cory, the United States “has been largely absent from genuine trade and economic engagement in the Asia-Pacific in recent years,” particularly when compared to more ambitious digital partners such as Australia and Singapore; “in choosing its path,” he continues, “the administration should not allow misguided opposition to deter it from insisting on binding rules for data flows and other key digital economy issues.” In other words, efforts underway via the fledgling Indo-Pacific Economic Framework for Prosperity (IPEF) and other Biden administration trade initiatives are insufficient. Concluding a U.S.-UK deal will be the best way to position the United States to succeed in the U.S.-EU Trade and Technology Council, the IPEF, the Americas Partnership for Economic Prosperity, the U.S.-Kenya Strategic Trade and Investment Partnership, and the U.S.-Taiwan Initiative for 21st Century Trade—all which will be good for economic growth.

The UK and U.S. governments have much to share in terms of best practices in regulating cutting-edge, constantly evolving industries. Agriculture will be more of a challenge—but not facing the conflict won’t make it go away. Given the existing relationship between the United States and the United Kingdom, increasing trade and investment flows would be highly beneficial and growth-inducing for both economies. Although labor-intensive and bureaucratically challenging, a method of institutionalizing bilateral regulatory cooperation in priority areas impacting trade should be a key deliverable in this agreement.

The unusual bipartisan support for concluding a deal—yet untapped by the Biden administration—could make it a winning accomplishment for the president and the next Congress. According to bipartisan legislation, “The robust labor and environmental protections in the United Kingdom reduce the risk of regulatory arbitrage” that would undercut workers and businesses in the United States. If the United States aspires to set standards for regulations impacting trade that will be followed by other countries, a U.S.-UK trade agreement is the first and most logical step. Missing the opportunity to strike a deal—particularly on data flows and regulatory principles—with such a well-matched partner as the United Kingdom is difficult to justify. Again, as C.S. Lewis once said: “Put first things first and we get second things thrown in.”

Meredith Broadbent serves as a senior adviser (non-resident) with the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

The author would like to thank Scholl Chair interns Elizabeth Duncan and Daniel Elizalde for their helpful contributions to this research.

This report is made possible by support from the Legatum Institute and Gilead Sciences, Inc.

Please consult the PDF for references.

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Meredith Broadbent
Senior Adviser (Non-resident), Scholl Chair in International Business