The Wait Continues for Trade Talks
Notes from the CEO – March 2021

DE - Cirlce

Duncan Edwards
Chief Executive Officer
BritishAmerican Business

At the time of writing, the confirmation of the two聽most significant political appointments for the聽transatlantic聽trade and investment portfolio聽is imminent.聽Governor Gina Raimondo will聽lead聽the聽US Commerce Department and Katherine Tai will be the new US Trade Representative. Biden鈥檚 nominee for US Trade Representative is generally well regarded in Congress, after years working with the Ways and Means Committee,聽and at her聽recent confirmation聽hearing, among questions about multilateralism and protecting US industry and workers, Tai鈥檚聽response聽to聽a question about the UK-US trade negotiations聽was that聽she would 鈥渞eview the objectives in light of all the changes鈥 that have taken place in the world since the start of the process in 2018.
Her comments suggest nothing will be signed before the current Trade Promotion Authority expires, which聽complicates the timeline and pushes any聽possible聽deal into 2022. Understandably, this will have disappointed many in the UK, given how significant the UK-US trade negotiations are in the 鈥楪lobal Britain鈥 agenda. A Comprehensive Free Trade Agreement would indeed reaffirm and strengthen one of the world鈥檚 strongest bilateral trade and investment relationships.
No doubt, UK ministers with foreign policy or trade portfolios are itching to get on a plane to DC as soon as possible to meet their new opposite numbers. We completely understand and sympathize with this and hope that these ministers will start vigorously making the case to re-open the possibility of international travel for the business and leisure markets as well鈥e all know that face to face meetings really matter.
In both countries, the focus this week is on budgetary and fiscal matters but as our Senior Policy Manager, Andrei Cazacu, reminds me, there are other legislative and regulatory issues that have the power to shape the UK鈥檚 trade and investment prospects to a large extent and deserve careful consideration by the transatlantic business community.
The first is聽the聽National Security and Investment Bill,聽a significant new piece of legislation which seeks to balance the need to protect national security with the need to attract more investment, by introducing a robust FDI screening mechanism. The UK聽currently stands out among聽G7 economies in not having such a mechanism, and certainly must have the power to act in the face of national security risks.
However, in its current form, the Bill seems considerably more restrictive than comparable regimes in several areas, from its broadly defined concept of national security, to its extraterritorial application, to the unworkable volume of reviews聽it will lead to聽(you can read a more detailed analysis by our friends at Herbert Smith Freehills聽).
The hope is that, as the Bill makes its way through the House of Lords, amendments and the secondary legislation will improve it and strike a better balance between the two pressing needs 鈥 for security and attracting foreign investment.聽US investors, familiar with the American CFIUS聽(Committee on Foreign Investment in the United States)聽regime, should continue to engage with the process and explain how the draft can be improved.
Secondly, it was encouraging to see the European Commission聽beginning聽the administrative process to grant the UK聽Adequacy on data transfers.聽Politics will very likely interfere with what is meant to be a聽routine聽bureaucratic process:聽while no single actor involved can veto an Adequacy Decision, the risk of politicization and dramatization from politicians runs high. Industry will therefore need to continue to make the case for uninterrupted data flows 鈥 by explaining the very real, tangible ways in which it could go wrong.
Beyond UK-EU transfers, the question then is 鈥 what will be the UK鈥檚 strategy to maintain its leadership in digital trade? How will it continue to attract data flows from around the world, and balance that with the high standards of privacy that the government has said it will uphold?
On聽financial services, Parliament is currently taking views on how much divergence from the EU can and should there be. While appetite for major divergence is low, it is inevitable that the 2 systems, now untied from each other, will evolve separately and in some cases distinctly. This falls under the UK-EU discussions for the most part, but Wednesday鈥檚聽Budget聽announcement will also be worth following, as the Chancellor is due to publish Jonathan Hill鈥檚 review of financial services regulation. The review has looked at how the UK can help attract some of the world鈥檚 most successful and innovative companies by providing easier access to capital markets 鈥 from potential relaxation of dual-class shares to minimum levels of free float to attracting more special purpose acquisition companies.
Beyond the Hill review,聽the聽Budget聽will set the scene for the UK鈥檚 post-pandemic recovery. Rumored to be included are a scheme to help High Street businesses reopen, more money for the vaccination rollout, and an extension of the business rates holiday into the summer. There are signs that we can expect several tax increases, most likely corporation tax being raised from 19% to 23%.聽Unless or until US聽corporation tax rates are increased this will mean a net tax cost for US聽corporates聽with tax paying subsidiaries in the UK聽for the first time in a long while.
糖心视频 believes a comprehensive Trade Agreement between the US and UK is achievable and desirable聽but the prospects in the short term don鈥檛 look good.聽But this shouldn鈥檛 mean any relaxation of efforts to聽improve聽the trade and investment corridor聽for all businesses, especially SMEs,聽by the relevant聽government departments and regulators.聽There is much that can be done outside an FTA and聽the business community will support all the efforts that are made聽to provide leadership聽in digital trade, set high standards for聽environmental sustainability, and that puts SMEs at the forefront of trade.
We have an ongoing dialog with our members聽about all these issues and more in our highly active convening program and if these things matter to your business, please get involved聽and come along to one of our events in the next month.