U.K. Must Decide on Regulatory Future with EU, Lawmakers Say

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By Ali Qassim

The U.K. must decide how closely it will align with European Union regulations once it leaves the EU before starting talks with the U.S., lawmakers said in a report.

The U.K. also needs to provide more details of the economic benefits and trade-offs of any potential trans-Atlantic deal, the parliament’s International Trade Committee said in a set of recommendations to the government on how to approach future U.K.-U.S. trade relations.

“The Government has been extolling the virtues of a potential deal with the US, and this wooing has been met with positive sounds from Washington,” Angus MacNeil, the chair of the committee said in a statement to launch the May 1 report. But he stressed “it would be a catastrophic error to rush into negotiations with the US without a comprehensive trade strategy.”

The recommendations come as the British government tries to negotiate its future trade relationship with the EU once Britain has left the bloc in less than a year. One of the major obstacles facing Prime Minister Theresa May is that while she repeatedly insists the U.K. is leaving the single market and the Customs Union, many business sectors and members of parliament are opposed to such a total rupture with the EU.

Align with EU or U.S.?

After several months of oral inquiries in parliament and written submissions, the committee concluded that questions about trade with the EU and the U.S. “cannot be answered in isolation,” MacNeil said.

Speaking for the 11 members of the committee, he said the government needs to address questions about whether the U.K. would align its regulations with the U.S. and “risk erecting impenetrable trade barriers with our other global partners, particularly the EU.” Another question is if EU and U.S. regulatory regimes clash, which side would the government prioritize?

These issues are important because as U.S. Commerce Secretary Wilbur Ross highlighted last November, any comprehensive trans-Atlantic deal would require the U.K. to dilute its EU-led regulations that are “significantly different from the U.S.,” the report said.

The committee advised the government to consider establishing a cross-departmental working group on trade and regulation that informs all of its trade negotiations, including with the EU.

Industry, Farming Favor EU

In contrast to the government’s ambivalence on the regulatory question, industry and agriculture are unanimous in their support for continuing the alignment with the EU.

Any potential free trade agreement with the U.S. shouldn’t put at risk “our ability to sell vehicles and parts to the EU, our largest and closest customer,” Mike Hawes, Society of Motor Manufacturers and Traders chief executive, told Bloomberg Law in a May 2 email.

Giles Derrington, the head of policy at lobby group tech UK—whose members include Google Inc., Microsoft Corp, and Oracle Corp. agreed. In a May 2 email, he pointed that out that the U.K.'s “role as a bridge between the UK and the EU is incredibly important for many US tech companies.” He added that it is important to build on this strong position, and not risk it to pursue a deal that may not add to gross domestic product.

Ian Cranshaw, the head of business development and international trade at lobby group the Chemical Industries Association, said the majority—60 percent—of chemicals and pharmaceutical exports go to the EU. “A Brexit deal must allow this trade to happen without disruption or additional cost,” he told Bloomberg Law.

”Securing frictionless, tariff-free access to that market must be a priority for government,” a spokesman for the U.K.’s agricultural lobby-the National Farmers Union told Bloomberg Law.

Need for Details

The committee highlighted that the economic benefits of any U.S. deal are “presently unproven.”

“The Government appears to be engaged in an exercise in doublethink,” MacNeil said, adding that officials have said new trade deals will be the “pot of gold at the end of the Brexit rainbow.” However, they also say it’s too soon for a “realistic estimate of the possible contents or benefits of a deal with its highest-priority target.”

TechUK’s Derrington concurred that “we have to know what those trade-offs are, and what areas the UK wishes to prioritize in a US trade deal before it is possible to determine the value of any deal for UK tech.”

A spokesman for the Department for International Trade told Bloomberg Law it is too early say what specific measures there might be in any deal and covering what sectors. But he added that the government is developing a range of economic modeling techniques that international trade agencies and organizations can use to assess the potential impact of free trade agreements.

TTIP Lessons

The report also said there are lessons from the stalled Transatlantic Trade and Investment Partnership talks.

One priority is for the government to ensure it protects public services under any deal as fears over the takeover of the U.K.’s National Health Service by U.S. private firms was a major concern during TTIP talks.

The Department of International Trade spokesman said the government will “ensure rigorous protections” for the NHS will be included in all agreements involving the U.K.

The U.K. should also ensure that any trade negotiations are as open and available to the public as possible as perceptions about lack of transparency also created stumbling blocks during TTIP.

Questions over how to resolve investor-state disputes were a major bone of contention at the time. The report urged the government to spell out its ISDS policy and the purpose of an ISDS mechanism where the U.S. and U.K. have “sophisticated, independent domestic judicial systems,” the committee said.

The U.K. should also be aware that any deal with the U.S. federal government, particularly on services crucial to the British economy, “does not necessarily guarantee market access for UK service providers at the state or even local level.”

The committee cautioned that “without senior sub-federal participation in the U.S. negotiating team it is unlikely that UK services exports benefits will be achieved.” As a result, it advised the government to include state-level representatives on the U.K.-U.S. Trade and Investment Working Group created last year by the U.K. and U.S. governments.

To contact the reporter on this story: Ali Qassim in London at correspondents@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

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