As President Trump visits the UK, it is worth thinking about the potential for a UK-US free trade deal of the sort that President Trump has promised, and how that might work in practice. On February 28th, the Office of the United States Trade Representative (USTR) announced its negotiating objectives for a free trade agreement (FTA) between the US and the UK. It announced objectives for negotiations with the EU and Japan at the same time. While the objectives are similar for all the countries with which the US is seeking to negotiate FTAs, they were received in the UK with predictable howls of anguish from those who fear being railroaded by superior American negotiating strength and forced to consume supposedly dangerous, unhealthy American food. Here, we will consider whether the objectives could yield a genuinely liberalising FTA, and whether they accord with what the UK government is likely to seek in negotiations. We will also compare the potential UK response with the potential responses from the US’s other trading partners. The US Context Under the US’s Trade Promotion Authority legislation, the USTR must produce negotiating objectives prior to negotiating trade agreements. The objectives for the proposed FTA with the UK mirror the equivalents published recently for FTAs with the EU and Japan, and essentially build on existing agreements which the US has negotiated to date. They look to address the key trade barriers where the US is most concerned, responding to consultations with industry and interest groups. The negotiating mandate is consistent with a comprehensive UK-EU FTA (such an FTA has been presented here). It is not consistent with the UK being in the (or a) Customs Union, or regulatory harmonisation with the EU (whether achieved through membership of the European Economic Area or a bespoke agreement, or by operation of the backstop set out in the Protocol to the Withdrawal Agreement. It should be noted that while the requirement to maintain EU regulations for goods under the backstop applies directly only to Northern Ireland, the UK Government has committed as a matter of domestic policy to keeping Great Britain aligned with Northern Ireland.) The US wishes the UK to honour its WTO commitments particularly in the SPS area. It should be noted that these objectives are what it seeks from all of its partners, not just the UK. Many of the objectives merely restate commitments already made in international agreements such as a commitment to regulate in the SPS area on the basis of sound science. These would not, in the normal course be seen as an aggressive move, but they do highlight the fact that the EU is in violation of WTO rules in a number of these areas, and does not give them in its FTAs. The US government appears to be proceeding on the basis that the UK will be prepared to be more open than the EU in a variety of areas, making a UK-US FTA both more likely and quicker to deliver than an EU-US agreement. The UK Context The UK government has also carried out a public consultation on the basis that “the UK will have the opportunity to negotiate, sign, and ratify Free Trade Agreements (FTAs) during the implementation period (provided for under the draft Withdrawal Agreement) and to bring them into force from January 2021”. Responses have not yet been published. The consultation document, issued in July 2018, stated that the UK would be pursuing an “ambitious bilateral trade agenda, taking full advantage of the flexibility provided by our proposal for a future economic partnership (as set out in the White Paper on The future relationship between the UK and the EU on 12th July 2018)”. This refers to the so-called ‘Chequers plan’, under which, as previously noted, many of the trade objectives of a UK/US FTA would not be achievable. The future relationship described in the Political Declaration (which the parties are obliged to use their best endeavours to negotiate) is based on a single customs territory with no rules of origin, and consideration of regulatory alignment, so even if the UK is able to avoid or exit the customs union arrangement provided for in the Irish backstop, the prospect of the UK’s future relationship with the EU allowing either the UK or the US to meet its objectives seems remote. The outline terms in the Political Declaration would be difficult to reconcile with a US-UK FTA meeting these objectives; a more usual FTA between the UK and EU would be. US negotiating objectives must be looked at in the context of the evolution of US trade objectives over the last several years. These objectives have been developed to secure a bipartisan consensus in the US, and to achieve maximum market access gains abroad. Goods Tariffs As an opening principle, the objective is to “ensure fair balanced, and reciprocal trade with the UK”. The US will be seeking “comprehensive duty free market access for US industrial goods” this is certainly positive and liberalising but there are a couple of protectionist hangovers, in respect of textile and apparel products where “US import sensitivities” are to be taken into account, and for agricultural goods where there is a suggestion that tariffs will not be eliminated entirely and will be subject to adjustment periods in close consultation with Congress. If the UK is ultimately in a customs union with the EU (whether as a result of the backstop coming into effect or the conclusion of the future relationship currently envisaged in the Political Declaration), then it will not be possible to fulfil this negotiating objective. On the other hand, if the UK and EU agree an FTA, then this would be consistent with the US objectives. If the Withdrawal Agreement is ratified on its current terms, then the UK could have simultaneous negotiations with the EU and the US, in which case the terms pursued in each will influence what is possible in the other. The negotiation that is moving more rapidly will drive the process. If the US is prepared to exert political will as is evidenced by the many statements of the US President and the US Ambassador in London, then it is possible the US track will move much faster than is generally thought. It may even be possible to achieve an interim agreement with the US on basic matters like tariffs and quantitative restrictions more expeditiously. The EU has indicated that it does not intend to include agriculture in its FTA negotiations with the US, and therefore will find it difficult to match the pace of a UK-US FTA if the UK is willing to have different regulatory settings than the EU. Sanitary and Phytosanitary Rules The US will seek to build upon the existing WTO commitments of both parties, working towards rules and mechanisms to eliminate unjustified restrictions and barriers on trade in food and animal products. This has been a source of friction between the US and the EU and will be an important test of the UK’s commitment to, and capacity for, real progress towards free trade. The EU has a history of violating WTO commitments on sanitary and phytosanitary (“SPS”) rules, in particular with respect to goods of interest to the US and does not make significant commitments beyond the WTO SPS Agreement in the SPS area in its FTAs. Critically, under the US objective it is expressly stated that each side “can set for itself the level of protection it believes to be appropriate to protect food safety and plant and animal health in a manner consistent with its international obligations”. This is vital for sovereignty and innovation and makes clear that it will not be a case of adopting US standards, rather of removing or amending regulations that are discriminatory in their effect and not based on sound science to achieve their policy goal. The US wishes the UK to commit not to “foreclose export opportunities to the US with respect to third country export markets, including by requiring third countries to align with non-science based restrictions and requirements or to adopt SPS measures that are not based on ascertainable risk”. This is unusual, but given the challenges the US faces as the EU actively seeks to export its regulatory approach, it is understandable. There is a global battle between the EU’s approach to regulation, which is prescriptive and precautionary, and more liberal approaches based on evaluations of equivalence and adequacy, as envisaged by the WTO SPS Agreement. A significant concern of the US and other trading partners of the EU and of China is the tendency of both to use the size of their markets to project their regulatory approaches, and base their market access offers on trading partners having identical regulation. This is an outlier position to that of most countries in the global trading system, which is to try to recognise as much as possible of other countries’ regulations provided the regulatory aims are aligned, and the regulation objectively achieves these goals. The US will be anxious to ensure that its trading partners adopt this vision of regulatory coherence and not that of the EU and China. It is in the SPS area that the EU would find the greatest difficulty in meeting US negotiating objectives. It would require a course reversal on the EU’s overall direction on SPS regulation. If anything, the EU’s SPS regulation is becoming more restrictive not less (See for instance Commission Regulation (EU) No 37/2010 (Maximum Residue Limits)). Technical Barriers to Trade The US’s objectives for non-agricultural goods are similar to the objectives for SPS rules. The US wishes the UK to address trade barriers in its technical regulation by adhering to WTO TBT Committee decisions and recommendations, and pursing mutual recognition of conformity assessment, amongst other things. This section includes an equivalent objective in respect of third country agreements that might prejudice US trade to that in the SPS section. Depending on the negotiations of the future relationship with the EU, the UK is more likely to share this objective than the EU. TBT/SPS and other regulatory issues have plagued the EU-US relationship from the early days of the Transatlantic Business Dialogue in the 1990s to the more recent attempt to negotiate an EU-US deal (the Transatlantic Trade and Investment Partnership, “TTIP”). TTIP foundered primarily on the fundamentally different approaches to regulation, and standard setting between the EU and US. If the UK merely replicates the EU approach, it is likely the UK-US FTA would founder for the same reasons. Services There should be much for the UK to agree with in the objectives that the US has set out for services trade and investment. The US objectives for trade in services, including telecommunications and financial services, are generally very liberalising on market access and non-discrimination, with reservations from the core commitments to be by way of “negative list”, which means that all sectors will be covered unless specifically excluded. This would lead to greater openness than the “positive list” approach under the General Agreement on Trade in Services. The US has long advocated a negative list approach. Even the NAFTA agreement, now almost a quarter of a century old, has this approach to services. The US objectives also accept the possibility of exceptions from the core disciplines for the UK, to be kept as narrow as possible. This will be of vital importance to UK negotiators who will be required to secure reservations to protect public services, including the NHS. As noted by Liam Fox, “the UK’s public services are protected by specific exceptions and reservations in all EU trade agreements, and as we leave the EU, the UK will continue to ensure that rigorous protections are included in all trade agreements to which it is party.” The EU has now partially adopted the negative list approach to services (See Services and Investment in EU trade deals – Using ‘positive’ and ‘negative’ lists, published by the European Commission in April 2016) but is likely to require many more reservations than the UK, as the UK has traditionally been one of the most open member states on services. Horizontal Matters Investment The US primary objective in investment negotiations is to ensure the best possible protection for US investments. In international agreements, this has come to mean agreeing not to engage in expropriations, actions tantamount to expropriation and even to cover some areas where government action takes away an investor’s legitimate expectations. Investment is an area where the US seeks maximum protection for its investors. Since both countries are the largest investors in each other’s markets, both will likely seek this protection they should come to an agreement on this measure of protection. The US objectives are silent on the issue of investor state dispute settlement (ISDS) which allows private parties to bring claims against state parties for violations of investment provisions. The UK has not made its position on ISDS clear. In his letter to the International Trade Committee, Liam Fox was at least open to the inclusion of ISDS, but given the political sensitivity of ISDS in the UK as well as in the US, it seems unlikely that the UK would insist up on it as an objective. Investor-State dispute resolution has been a part of the regulation of investment for decades under Bilateral Investment Treaties (BITs). While publics in the EU have resisted them, it should be pointed out that they do provide an avenue for smaller firms to hold governments to account when they expropriate their property or take actions tantamount to expropriation. Large firms can simply rely on their governments lobbying on their behalf. The mere possibility of being sued under ISDS does have an effect on a government’s domestic policy choices. The US has handled this issue in the USMCA by eliminating ISDS with Canada but limiting it in Mexico to certain sectors (oil & gas, power generation, transport services and management of infrastructure). Given that flexibility compared to previous BITs and FTA investment chapters, we do not expect the ISDS issue to be a significant problem with the UK. Data Flow The US will be seeking “state of the art rules to ensure that the UK does not impose measures that restrict cross-border data flows and does not require the installation of local computing facilities”. This will be one of the most difficult areas for the UK to agree. Even if the UK leaves the EU without a Withdrawal Agreement or otherwise negotiates a future relationship restoring regulatory autonomy in this area, the attachment to the EU approach to data protection and privacy is strong amongst regulators and larger businesses. This lays down barriers to international transfers of personal data (so vital to financial services, which are specifically mentioned by the US in this context) and the uses of personal data. The UK has already enacted the EU’s General Data Protection Regulation and as a matter of domestic policy there is no intention to reform or amend it. In a letter to the International Trade Committee, Liam Fox noted that the UK will wish to promote “robust data protection standards and the flow of data internationally” but wishes to “discuss with the US how best to ensure that the current protections afforded to UK citizens can be maintained post exit”, referring to continuing the EU’s Privacy Shield arrangement for data transfers between the UK and the US, which has now been confirmed. There is deep concern among US firms about the EU’s approach to data protection. The US has long set great store on data flow – it is currently one of its most important trade objectives. If there is to be a global solution to the data issue, it can only come from a global set of disciplines based on adequacy as the US will never accept the EU approach. This will be one of the more difficult areas of the tripartite negotiation between the UK, US, and EU, all elements of which will be moving broadly simultaneously. The UK must be able to move away from the strict territorial requirements of the EU’s data protection regime, but build on and extend the EU’s Privacy Shield arrangement with the US. It should also work to eliminate barriers to the flow of non-personal data. These efforts would deliver huge benefits in services trade and e-commerce. The discussion of data flow does not take place in a vacuum. The UK also seeks to be part of the new WTO working group on e-commerce, and if it is to play any serious part in this group, it will have to diverge from EU data protection rules and instead seek an adequacy type arrangement both for itself and on a global basis. Intellectual Property The US seeks strong protections for intellectual property rights in its agreements with all its trading partners, and it is duly included here as an objective. While it can be expected that the UK may have broadly similar objectives, given the UK’s interests in pharmaceuticals and technology sectors. The economic literature supports the notion that intellectual property protection is a critical part of economic development. It is a part of the panoply of property rights protection, and the UK and US’s economic interests are relatively aligned on these issues. At the same time, it is important that intellectual property rights are not drawn so broadly as to curtail innovation and the activities of new entrants. The US objective of preventing “the improper use of the UK’s system for protecting or recognising geographical indications (GIs), including any failure to ensure transparency and procedural fairness, or adequately protect generic terms for common use” will likely come into conflict with the UK’s commitment to protect EU GIs in the draft Withdrawal Agreement and intention in the Political Declaration to continue with “appropriate protection” for GIs. This will be a difficult negotiation as it is a crucial part of the US’s negotiating objectives. US agricultural interests see the vast number of EU GIs as a protectionist tool, and an incorrect application of intellectual property protection. The number of UK specific GIs is relatively small, and some are protected by international agreements to which both the US and UK are parties (such as Scotch Whisky, for example) so if it were possible to renegotiate the UK’s commitment on GIs in the Withdrawal Agreement, UK businesses would not be materially prejudiced. The EU position on GIs is inconsistent with US negotiating objectives. This will make an EU-US FTA very difficult to negotiate. Good Regulatory Practice The objective here is to facilitate market access and promote greater compatibility between US and UK regulations. This has been a persistent problem that has thus far proved to be unsolvable in trade talks between the US and the EU. What constitutes good regulatory practice is left at a high level and includes, for example, transparency, promoting the use of impact assessments and similar methods, and providing opportunities to comment on the development of regulations that includes both trade and competitive effects, and due process. The UK already operates practices that would meet many of these requirements, and provisions covering these matters are common in FTAs, including the EU’s. This objective is a sound one, and one where the parties would be well placed to make significant progress in achieving greater regulatory compatibility, but only if the UK is not bound to EU regulations, which would mean it would not be able to make commitments in respect of regulation that it has no real role in promulgating. Liam Fox noted in his letter to the International Trade Committee of the UK Parliament of July 2018 that “it is critical… that UK-US FTA is a living agreement. We support the inclusion of a structured arrangement for future dialogue between UK and US regulators, while recognising that such a dialogue should not have a chilling effect on future public interest regulation.” This indicates that in principle the UK and US will be aligned on this objective, although Fox’s letter also cautioned that the independence of regulators in the UK and its partner countries would need to be taken into consideration in the context of regulatory mechanisms in an FTA with the US. This should be welcomed, but, given the commitment the UK has made in the non-binding Political Declaration to consider aligning on regulations and to maintain alignment in Northern Ireland, if Northern Ireland effectively stays in the EU single market for goods, the UK’s ability to negotiate around this objective would be constrained. Competition Policy The negotiating objectives set out basic requirements in competition policy, in particular some current high profile issues for the US. US authorities have become concerned with the application of antitrust law by the European Commission. The US believes that the EU is interpreting competition law in increasingly restrictive ways and applying it expansively outside of its territory, most notably in the tech sector. The US has previously complained about the Commission’s approach to transparency and due process, and so the negotiating mandate’s reference to these issues is also unsurprising. If the UK is committed to maintaining EU competition policy (as it would be under the current iteration of the backstop in the Withdrawal Agreement and Political Declaration) it would be unable to commit to anything in this area that would entail diverging from the EU. However, the UK could seek to negotiate a competition chapter in the UK-US FTA if it also negotiated similar provisions in an EU-UK FTA. State-Owned Enterprises and Market Distortions/Currency Manipulation These objectives do not particularly relate to specific UK challenges, but represent what the US will be seeking in any trade agreement given its current priorities and the situation in the global trading system. The US has been pre-occupied by the impact of China’s state-owned enterprises (SOEs) and market distortions on the US market, particularly in manufacturing. It would like to see strong disciplines in this area in all modern FTAs to put more pressure on China. The US anticipates that the UK would be a strong ally in the fight against market distortions caused by governments and SOEs. As this plays into concerns often raised in the UK, we can be hopeful that this will be the case. Rules of Origin The negotiating objectives here are unsurprising given recent pronouncements of the Trump administration. They include ensuring that the benefits of the FTA “go to products genuinely made in the United States and the UK” and that “the rules of origin incentivise production in the territory of the Parties, specifically in the United States”. This is disappointing in that it would likely result in the rules of origin becoming trade barriers. The FTA would then be trade destructive rather than trade creative, cancelling out or annulling the benefits of tariff elimination. Such an approach to rules of origin would present the UK with challenges as it negotiates an FTA with the EU at the same time. The UK will seek very liberal of rules of origin so that it can ensure that products from the UK-EU27 supply chain can qualify for preferences under its FTAs. This is likely to be one of the tougher areas of negotiation. Government Procurement A core objective of the UK will be minimal restrictions on competition for government procurement, including the US agreeing to waive its Buy America regulations for the UK. Buy America, and numerous other domestic preferential purchasing programmes allow sub-federal authorities (i.e. state and local government) to preference US suppliers and not open their procurement processes to foreign competition. While the US seek to open up government procurement opportunities in the UK, its objective is not to allow these disciplines to cover its own sub-federal entities. Most government procurement is at the sub-federal level in the US, and the UK would be seeking access for its suppliers to compete in that market, as confirmed by Liam Fox in his letter to the International Trade Committee. In government procurement, the federal government for constitutional reasons cannot compel states to open their government procurement to foreign entities. In the Uruguay Round USTR was able to persuade some two dozen states and some large municipalities to unilaterally make procurement commitments in the WTO, but the willingness of states to do that now is less. The UK will have to convince the states and their municipalities to be more open on government procurement. A critical element of this will be how much market access the UK will be able to give for key exports of products from those states, and much of that will be in the agricultural area. The UK also has major interests in defence procurement, and would likely seek to ensure its defence industry is not disadvantaged by US rules. There are Buy America provisions in defence procurement, as well as other restrictive rules such as the International Traffic in Arms Regulations (“ITAR”). The UK should seek to be part of the common defence area with the US to which ITAR exemptions can apply (as have Canada and Australia). The US objectives state that it wishes to maintain exemptions for key Department of Defense procurements and broad exceptions for government procurement for national security, so there may be some room for negotiation in this sector. Environment, Labour and Anti-corruption The objectives in these areas are not especially controversial given the approach trade agreements have adopted in recent years. Both the UK and US maintain high standards in both these areas, and negotiation of this chapter should not present major difficulties. Both sides will likely need to include protections in these areas to reassure domestic interest groups and legislatures that the FTA does not start a ‘race to the bottom’. Conclusions There is nothing especially surprising in the US’s negotiating objectives. Even in the areas which have attracted the most media coverage, the objectives are as expected and do not materially go beyond what the UK can expect from other trading partners, such as the CPTPP countries. The US does not have adoption of its systems and regulations as an objective, but would require the UK to comply with WTO rules and regulate in ways that are consistent with sound science. This will raise issues in the negotiations between the UK and the EU, as the more goods that the UK allows into its territory that are not compliant with EU rules, the more border checks will be required to ensure that only compliant products are exported from the UK to the EU. This is a particular problem for the border between Northern Ireland and the Republic of Ireland where the parties have agreed that they will not operate physical infrastructure or related checks and controls (as per the Joint Report and draft Withdrawal Agreement). This makes the work of the alternative arrangements joint group as agreed between the UK and EU even more important. There is no question that managing a UK-US and UK-EU negotiation at the same time will be a challenging task, not least because of the legal default underpinning the UK-EU negotiations comprising a customs union under the backstop. Many of the EU and US’s trading partners have found ways of agreeing with both but not from within a customs union or the single market. What the UK has forgotten after more than forty years of its trade policy being subsumed within the Common Commercial Policy is that trade policy is a dynamic process with an ever-changing battlefield. Ultimately it is at the intersection of politics, economics and law – and politics usually wins.