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

William Alan Reinsch: Well, welcome, everybody. Welcome to our in-person audience as well as to our online audience for a discussion of the potential and opportunity for a U.S.-U.K. free trade agreement.

Those of you that are trade wonks like those of us at CSIS know this is – free trade agreements have been an issue of some controversy with – the Biden administration has not wanted to pursue trade agreements that have market-access provisions, or which need to be submitted to Congress. I think, one, that people have different views about that. But clearly, I think if you get into the thought about whether we should do them, once you get past that the most obvious one to consider doing is one with the U.K., a longtime ally. I think a lot of people would say this is a low-hanging fruit and we set out to study that a little bit, and I think Meredith Broadbent in a few minutes is going to talk about our findings.

But I think that one of the questions will be whether it really is a low-hanging fruit or not. It’s, certainly, a desirable target. But there are a number of issues that always come out in trade agreements because trade agreements, after all, whether they have market access provisions are not are about what’s good for us and what’s good for the other party, whoever it is, and, certainly, with the U.K. there are a number of issues that will prove to be difficult to resolve, the main one probably being agriculture, which I’m sure we’ll be talking about today with both our lead-off speaker and our panel to follow.

That’s an ideal – for those of you that know me, this is an ideal opportunity for me to make a chicken joke, which I make frequently in my columns. But I’m not going to do that. I’m going to leave that to Dave Salmonsen or Congressman Smith to make a chicken joke. But there are issues and we’re going to go through the issues and have, I hope, a series of good discussions.

Our pattern here is going to be that when I get done talking our keynoter, Congressman Smith, is going to come up and make some remarks and then he and Meredith Broadbent are going to have a conversation, followed by questions from the live audience and online questions and then he has to leave.

So, at 2:00 we’ll add a couple chairs to the podium and then we’ll have a panel discussion with Meredith and the people that I’m about to introduce, and so we’ll drill down into some of the specifics with the panel as well as hear what Mr. Smith has to say about the whole thing.

I’m really pleased to be able to introduce Congressman Adrian Smith, who is a sixth-generation Nebraskan, which is an impressive accomplishment, and also represents in land terms most of the state. If you look at a map of districts, you know, there’s a little one around Omaha and there’s a slightly bigger one, and then all the rest of the state is his. He was elected first in 2006, so he is a well-established veteran. And he currently serves as chairman of the Trade Subcommittee of the House Committee on Ways and Means, where he, among other things, actively promotes market access not just for Nebraska products but for all of America’s products, particularly agriculture products, all over the world. He also has been active on tax issues as a member of the Subcommittee on Health and the Subcommittee on Work and Welfare. So, it’s a real pleasure to have him with us.

Now, the panel is going to be moderated by Meredith Broadbent, who I think many of you know, who is a nonresident fellow here at CSIS. Also, a former many things. Former member and chair of the International Trade Commission, former assistant U.S. Trade Representative, former Ways and Means staffer, going back quite some time. And so, Meredith, who is also the author of our paper, is going to tell you about our findings and then moderate the panel.

The panelists are, briefly, Shanker Singham, who has a long career basically straddling both sides of the Atlantic, one leg here and one leg in the U.K. He’s the chief executive officer of Competere , an academic fellow to the IEA. In the U.K. he sits on the Trade and Agriculture Commission and the Wilton Park Advisory Council. In the U.S. he’s a life member of the Council on Foreign Relations and the Bretton Woods Committee. He was an advisor to the U.S. Trade Representative on SPS and TBT issues – trade wonks will know what that means – and he was adviser to the U.K. trade secretary on international trade issues. He is the author of over a hundred articles and book chapters as well as the leading textbook on the interface between trade, competition, and regulatory issues.

Next, we have Dave Salmonsen, who is currently senior director of government relations with the American Farm Bureau Federation here in Washington, is a member of the International Agriculture Policy Team. His responsibilities include trade negotiations along with being the principal Washington contact for several northeastern State Farm Bureaus. Before he joined the Farm Bureau, he was assistant to the commissioner of the New York State Department of Agriculture and Markets and he grew up on a farm in New York, which is dear to my heart because I work for the senator from Pennsylvania, and nobody realizes says that New York and Pennsylvania are big agriculture states. You know, where Mr. Smith is from gets all the ink, but in fact – (laughter) – you know, there’s a lot of stuff being grown in both New York and Pennsylvania. And I’m delighted to have David here, who’s an old friend.

Finally, we have Jeff Weiss, who has spent more than 15 years in senior legal, policy, diplomatic negotiations and political roles in the government through three administrations, including the White House, USTR, and the Office of the Secretary of Commerce. Currently he co-chairs Steptoe’s trade policy practice and leads their supply chain team practice. At USTR he was senior director for Technical Barriers to Trade, assistant general counsel and assistant legal adviser at the mission, our mission to the WTO in Geneva, and has a long history of participation in some of our main trade negotiations during his tenure there.

They will be on afterwards, but right now, I give you Adrian Smith. (Applause.)

Representative Adrian Smith:

Well, good afternoon. I’m honored to be here; appreciate the invitation that – we’ve got many important things we need to do, and I certainly appreciate this opportunity to discuss what I think is so important with the U.S.-U.K. trade relationship.

Thank you, Meredith, for the time and effort that you put into this entire issue, and I couldn’t agree more: Now is the time.

I was actively engaged in the process for USMCA, and I understand trade agreements, certainly they are tough. But we know they’re worthwhile and, when done properly, we can achieve our shared goals, which are new markets for American producers and consumers, strong labor and environmental standards, because the U.S. is writing the rules of the road, and strong enforcement mechanisms so we can hold our trade partners accountable to their commitments. Trade works. It’s good for America and it’s good for the world when we lean in on this issue. That’s why I’ve been incredibly disappointed in the administration’s framework-first approach; there’s just no way to ensure the same level of accountability and access through a framework. I’m not rooting for these talks – I’m not rooting for these talks like IPEF and APEF to fail, but I don’t see how any end product actually guarantees the same kind of success we get with a true trade agreement.

The U.K. is a perfect example of leaving opportunities on the table. The United Kingdom is one of our strongest, closest allies. The Trump administration already started the work of bringing the U.K. to the table, and the appetite to reach a strong, comprehensive trade agreement that is rooted in science is there. As you know, the U.K. is a like-minded partner with similar commercial interests and values in the global economy. Reinforcing economic relationships with key allies will be key in combating China’s influence. China’s ongoing escalation of threatening behavior around the world is a serious threat, including right here in our country. Every time the U.S. leans in on trade and collaborates with like-minded partners around the world, China’s influence withers. Unfortunately, it seems where the Biden administration has missed that message, the U.K. has not. They’re not sitting on the sidelines waiting for us to come to the table, and the window of opportunity to pursue a U.S.-U.K. trade agreement, I believe, is shrinking. We lose opportunity to establish standards as we like them with each new binding agreement the U.K. signs. The U.S. is the most sought-after market, and we should leverage this strategic advantage. The longer we ignore it, the higher the economic cost. As we wait, China’s value increases with its aggressive economic and geopolitical strategy. Meredith, again, said it well: The time is now.

Thank you again for having me and I certainly look forward to our discussion. (Applause.)

Meredith Broadbent: So, do you feel like you’re in the eye of the storm? (Laughs.)

Rep. Smith: In many ways yes, but I also see this as an opportunity because it gives us the chance to lead. And as I mentioned before, when we can lead and really lean in, it’s how we improve environmental standards, labor standards, and actually opening up markets. And, you know, that market access is key. If we’re not gaining market access, I fear we are losing it, and therefore we need to lean in.

Ms. Broadbent: Yeah. What do you see ahead for trade legislation in the House? And how will your priorities be different from Chairman Neal and Speaker Pelosi?

Rep. Smith: Well, I think that number one, trade is a much more bipartisan issue than a lot of folks realize. USMCA, it got done in very bipartisan fashion. I even like to say that that there were more Democrats who voted for that, a Trump priority, than Republicans. Of course, that had somewhat to do with the balance of the – of the House. But it needed to be done. It needed to be updated.

And so, yes, there was reluctance. And in fact, there was even a little nervousness among agriculture because NAFTA had served so much of agriculture quite well. So the – you know, the mantra was do no harm. (Laughs.) But for example, there were no references to biotechnology in NAFTA. Well, now they are with USMCA. Of course, we need to enforce that now, too, which is – which is key. But I think it all goes back to the fact we need to lead on this, and we can achieve that by pushing.

So, our agenda – now, I can’t – I’m not the speaker. I’m not the full committee chair either. But I think there is an eagerness for us to say, you know, and to work toward what we want to sell and need to sell around the world because that’s what brings more prosperity here to manufacturing and agriculture, as important as that is.

Ms. Broadbent: The administration, as you mentioned, has proposed a number of trade-like dialogues, IPEF and APEP and the U.S.-EU Trade and Technology Council. And as you mentioned, it’s – we think, and we agree with you that it’s important to get back to full trade negotiations with market-access commitments. If it is – if this is all important, would the U.K. not be the ideal candidate, as there would be bipartisan support for a deal with sort of no race to the bottom on labor and environment? As you’re weighing the different countries that you are interested in, how do you assess them?

Rep. Smith: No, I think, you know, it’s clear that so many countries want more access to our markets. Now, let’s be realistic. You know, over time we’ve basically given other countries more access to our markets than they have given us to theirs, so we want to level that playing field. And the most effective and productive means of doing that, I believe, are trade agreements.

Now, when you look at U.S.-U.K. relations, we have very similar values. This is something that I’m very hopeful we can get done. You know, as a representative of agriculture, that is important to have as well. But I think these can be very productive discussions that can result in bringing our countries, even as close as we already are, but even strengthening because, let’s face it, when you look at the geopolitical issues around the world it’s important that we even strengthen the good, strong relationships that we may already have for the future.

Ms. Broadbent: We think that the fact that the U.K. has disengaged somewhat from the EU regulatory system may create opportunities for U.S. trade negotiators to make headway on improving U.K. regulatory practices that govern U.S. exports to the U.K. As you know, the U.S. favors a more pro-competitive, science-based system that is not wedded to the – to the EU precautionary principle. Do you think this will be important for Congress? What do you think Congress will see as important in a U.S.-U.K. trade agreement?

Rep. Smith: Well, I think the U.K. pulling away, basically, from the EU makes it easier for us to have a trade – establish a trade agreement and get this done than expecting all of the EU to want to engage the same way. So that’s why I’m encouraged. And also, you know, we can’t shy away from working through the topics that we know we need to work through. As has been mentioned, you know, trade agreements aren’t easy, and – but we can’t just sit back and let the status quo run things because we’ll be losing ground.

Ms. Broadbent: Ambassador Tai speaks about a worker-centered trade policy. Sometimes I get the feeling that she doesn’t think that using USTR’s resources to expand U.S. exports and global markets is all that worker centric. I mean, I feel some ambivalence there. Am I being fair about that?

Rep. Smith: Well, I appreciate Ambassador Tai’s desire to strengthen workers. I work to do that as well. I think when we look at how best, how most productive to achieve that, it’s really hard to say that trade agreements have not been a great tool around the world for actually elevating environmental standards, elevating labor standards as well. Had we not engaged on trade over the last several decades – few decades, I really believe that labor standards and environmental standards in other countries would be worse than what they are right now.

Ms. Broadbent: Right. So, I assume you think those are some of the areas of cooperation on trade with President Biden. I know he didn’t mention anything on trade in the State of the Union that I can recall, except for the buy American amendments – I mean mandates, excuse me. Are you sensing that there are any key market-access barriers that Ambassador Tai is willing to work on and push hard on?

Rep. Smith: Well, I think in the new majority we need to push. Make no mistake, you know, the president talks about buy American and a lot of Republicans talk about buy American too. I think, you know, obviously, we want to support domestic jobs whenever we can.

You know, Kevin Brady, the former chairman of the full committee, he always makes a great point of when we want to buy American keep in mind that we also want to sell American. This is key, and especially when you see the productivity in our agriculture sector domestically. But think about the importance and the opportunity of helping feed the world, just agriculture alone.

You take, you know, to other sectors of our economy, manufacturing. I mean, my own district, yes, we’re known for agriculture, but we have significant manufacturing as well. Or, you know, processing of agricultural products, that’s manufacturing; adding value here. And to maintain and grow opportunities to export, I can’t say enough how important that is.

And certainly, again, I know where the president’s coming from on the buy American priority, but like I said earlier and Kevin Brady says, well, let’s remember we want to sell American.

Ms. Broadbent: Yeah. One exception to the divide between Democrats and Republicans is the bipartisan consensus to get more hawkish with China. How do you think Congress will respond to China’s counterproductive behavior? Are you considering legislation that may set up some incentives as well as sticks to help defuse a confrontation?

Rep. Smith: Well, I think as we see China’s strategy employed, various parts of the world from Africa to other continents as well, they are aggressive. That doesn’t mean we should just sit back and do nothing and just talk about it. Engaging on trade, especially with how China likes to sell their products – engaging on trade I think is the most appropriate and effective means of holding China accountable. Certainly, then we need to enforce trade agreements too. But I think making sure that China knows that we are paying attention and that when they say they’re going to buy some of our products we hold them to that and those commitments, and constantly reminding them of that as well.

But trade agreements is really – with whatever country it might be at a given point in time, is evidence that we are serious, that we are aggressive, and that we mean business – and that, ultimately, we will bring more prosperity to our own economy.

Ms. Broadbent: Right. We know that many U.S.-based companies are scaling down operations in China and often moving to neighboring countries like Vietnam and Indonesia. The U.S. is not part of CBTPP or RCEP, the Chinese-dominated agreement which, while overall a pretty weak deal, does contain significant reductions in tariffs and expansions of tariff-rate quotas for the members of RCEP and not us. Is there a danger that the U.S. will be left on the outside looking in as these markets of middle-class consumers grow dramatically in the next 10 years?

Rep. Smith: Short answer, yes. (Laughs.) I couldn’t put it more directly. Watching other countries engage, even among themselves aside from China, that is something we should be concerned about. And like I said before, if we’re not gaining market access, we’re probably losing it. And the competition is alive and well whether we participate or not, which means our competitors – even friendly competitors – they’re likely gaining market share as we would be losing it. And I hope we can work together to avoid that.

Ms. Broadbent: Well, the Ways and Means Committee is also ground zero for a lot of tax issues, and the European Union has achieved unanimity on implementing the OECD Pillar One and Pillar Two tax agreements. And OECD countries continue to release implementation guidelines, including guidance for the untaxed profit rule which allows countries to levy additional taxes on companies doing business in their jurisdiction which are paying below the 15 percent rate in other jurisdictions. You and other House Republicans have made clear that you have no interest in implementing this agreement and at some degree it just doesn’t work. Should we expect calls for trade remedies? How do you expect USTR to handle the confrontation that we’ve got coming up with these countries?

Rep. Smith: Yeah, it would be interesting to know what kind of dialogue in house – for lack of a better term – between USTR and Treasury. You know, Secretary Yellen, she led the way on supposedly a negotiation, but I worry that she gave too much away. And we’re already seeing other countries who said they agreed, they’re finding workarounds.

And competition, when applied evenly, can do so much – helps consumers, helps producers, grows an economy, grows opportunity. So, to remove competition on in this case taxation and a competitive tax code – to remove that I just think is a step in the wrong direction, and especially as it relates to what some would want to – want to do of thinking that if we just raise taxes everything else will fall into place. And when you see what we did with tax reform of 2017, TCJA, that internationally – now, in the years leading up to TCJA there was basically common agreement that we were least competitive internationally in different ways with our – especially our corporate tax code. So, you even saw, you know, President Obama supporting a more competitive corporate tax code.

And we had some good discussions, I think, at the time, and I – when you see what we ultimately did in 2017 it was highly productive and it really teed up, I think – was it perfect? No. And that’s why we need to always remain engaged on that and find new ways to have tax policy level the playing field and also create more competition. But to just cede all of this agreement and authority basically to other countries I think is a step in the wrong direction.

Ms. Broadbent: OK. I know living standards for farmers in Nebraska are linked to export sales of soybeans and cattle and wheat. What are you seeing? What are the trends you’re seeing now? Are things slowing down or are exports continuing to grow?

Rep. Smith: Well, it varies in different ways in different products. But by and large, you know, we – take Asia, for example. It is – it is key, just given the population, that we’re able to sell our products into such large populations. We want to avoid disruptions there. You know, the science-based standards are what is key, especially when you – now, I’m perhaps a little parochial here, but when you look at the quality of our products and the quantity in which we can produce them, it only makes sense to be able to sell more of our products into other countries, especially when they need them – I mean, of course to feed their population, but when they can leverage perhaps more economic opportunity there by buying our products that’s a win-win scenario.

Ms. Broadbent: Good. All right. Well, I don’t want to keep you past the appointed hour, and you need to get back to work as you’re – (laughter) – doing the Lord’s work and we appreciate everything you’re doing so far.

Rep. Smith: Well, thank you. Thank you so much.

Ms. Broadbent: So, it’s been enjoyable. And thanks for making it.

Rep. Smith: I appreciate this opportunity and look forward to keeping in touch.

Ms. Broadbent: OK. Terrific. Thank you.

Rep. Smith: Thank you. (Applause.)