New UK trade deals will dominate British politics post-election
By Paul McGrade, Lexington Senior Counsel
If the current polls are right, Boris Johnson will win a Conservative majority in the UK General Election on 12 December. He has said he would move quickly to distance the UK economy from EU rules and standards, through a ‘skinny Free Trade Agreement’ (FTA) which would see the UK leave the EU Single Market, Customs Union and oversight and enforcement architecture. If that happens, the UK would be free to negotiate a wide-ranging FTA with the US – which the Conservative election manifesto says will be a priority, to be negotiated in parallel to an EU trade deal.
The new trade deals will dominate UK politics after the election. For Brexiteers, who will form the centre of gravity of the Conservative party in the next Parliament, a US trade deal is the great prize of Brexit. The fact that a deep trade deal would require the UK to align more closely to US standards is part of its attraction to them. For the opposition parties, who would be in chaos after an election defeat, opposition to ‘de-regulation’ through a US trade deal would be one of the few issues around which they could unite. We already see this divide in the election campaign, particularly on drug pricing and food standards.
A US trade deal would play out in four stages:
- The UK government publishes a draft negotiating mandate. This could be as early as February 2020. It may repeat the Conservative manifesto in ruling out changes to on drug pricing or UK food standards, but the government here knows that these are non-negotiable for the US;
- Parliamentary scrutiny of the mandate (Q1-2 2020). Opposition parties will use the scrutiny process to attack an alleged ‘race to the bottom’ on standards. Select Committees may ask pharma companies to give evidence as part of this process; US ownership or commercial interests will become a political issue in the most sensitive sectors. We can expect an opposition campaign outside Parliament, too – including on social media;
- The substantive talks. The talks could progress quickly. The White House in particular will see opportunities to open the UK market for US trade interests – and will want to take advantage of relative UK weakness as it leaves the EU Single Market. Talks are likely to be one-sided, increasing the opportunities for UK market opening but also political controversy in the UK;
- Parliamentary approval. Although Parliament will have no right to amend or reject the trade deal, it can hold it up for 21 days; in theory indefinitely – though a fresh majority of MPs would be required every 21 days, otherwise the deal passes. Regulatory changes to give effect to a US trade deal would need Parliamentary approval, through either primary or secondary legislation; that provides another flashpoint for political opposition to the deal.
A US or EU trade deal: a binary choice
There may be market opportunities – a Boris Johnson government would be keen for a quick US trade deal to demonstrate the value of Brexit. The UK government lacks negotiators with deep trade experience, and there is only the vaguest political steer as yet – there is a lot to play for in engaging the government.
Global companies with an existing UK presence should also be thinking about their positioning; if Johnson wins a majority, a US trade deal will move front and centre of British politics – it is not an issue on which US companies will be able to keep their heads down. Nor will trade bodies be able to take all of the political heat. MPs and the media will want to know, at senior level, where individual companies stand – and stand to gain – on, for example, changes to drug pricing, agri-food market opening, or services liberalisation. US and global company links will become politically significant.
As areas such as data (will the UK be able to stay GDPR compliant?) and food standards show, the choice between ‘deep’ EU and US trade deals is a binary – and politically controversial – one. It is far from clear yet that Boris Johnson is prepared to take either the political heat or face the economic consequences of choosing the US over the EU through a deep trade deal. We will get some clues from the way he sets up the machinery of government to do new trade deals – and particularly where the EU trade talks sit. The real test will come once the UK has to make choices about the trade-offs inherent in a ‘Canada minus’ free trade deal with the EU, from the summer onwards.