Why Brexit Britain Should Join the U.S.-EU Trade Deal
This piece was created in cooperation with Chatham House. Marianne Schneider-Petsinger is the U.S. geoeconomics fellow at Chatham House's U.S. and the Americas Programme. The views expressed here are the author's own.
Having Britain as an additional party to a U.S.−EU free-trade agreement would benefit all sides.
U.S. President Barack Obama cautioned that the United Kingdom would be at the ‘back of the queue’ for a trade agreement with the United States if the country chose to leave the European Union. But in the post-Brexit world a deal might be struck more swiftly. Various ideas for bringing Britain and the United States into a formal trade arrangement have been floated. These range from a bilateral UK-U.S. trade deal, to the United Kingdom joining the North American Free Trade Agreement that connects the United States with Canada and Mexico, to Britain being a party to the the Trans-Pacific Partnership that the United States hopes to seal with 11 other countries along the Pacific Rim.
One option stands out from the rest: opening the Transatlantic Trade and Investment Partnership, or TTIP, to the United Kingdom after Brexit. The United States and European Union are currently negotiating TTIP.
Good Reasons for Britain in TTIP
From the British perspective, signing up to TTIP would mean a more comprehensive deal with the United States than a bilateral UK−U.S. trade agreement. For instance, Britain is very keen to include financial services regulation in any trade agreement with America, but given Washington’s reluctance, this ambition might only be achievable if countries such as France and Germany throw their financial heft into the negotiations.
Continuing involvement in TTIP negotiations also allows London to begin securing its trade position with the United States right now. Though its influence in the European Union may weaken as it heads for the exit, Britain could make the best use of influencing the EU position on TTIP while it remains a member. London could then accept the terms of TTIP and accede as a third party relatively quickly after exiting the European Union. Official negotiations on a UK−U.S.-only deal would have to wait until the United Kingdom has left the EU, as trade talks fall under the exclusive competence of the European Union.
Further, having the United Kingdom as a party to TTIP would ensure for Washington and London that the scale of the deal is not reduced, thereby maintaining the pact’s strategic appeal and its ability to set global standards. At the moment, the United Kingdom is the EU’s second-largest economy, accounting for approximately 18 percent of gross domestic product. With Britain in TTIP, the sheer size of the transatlantic market space will have more pull for other countries to adopt common transatlantic rules in order to gain market access.
Finally, the United Kingdom joining TTIP as a third party would establish the agreement as an open platform that is available for other countries to join. Michael Froman, the U.S. trade representative, has characterized TTIP as being just such an open agreement. EU representatives have been more ambivalent, though this is starting to change in the wake of Brexit. David O’Sullivan, the current EU ambassador to the United States, recently said that as “we’ve always seen TTIP as a potential open platform, [the] UK could still benefit [from it] even not as a member of the European Union.” While now might not be the right time to expand the TTIP bloc beyond its original participants given that negotiations are already complex and drawn out, it would be beneficial for the negotiating partners to send a strong message that countries that are willing and able to commit to TTIP’s high standards will be welcomed later on.
Obstacles to Britain in TTIP
But before the United Kingdom could be added to TTIP after Brexit, major hurdles will have to be jumped and crucial questions answered. The first obstacle is actually getting a TTIP deal, which will require significant efforts by political leaders and negotiators on both sides of the Atlantic.
Second, selling the ‘UK in TTIP option’ to Brexiteers will not be an easy task. After all, Leave campaigners argued that the U.S.−EU deal might undermine Britain’s National Health Service and was thus presented as one of the reasons to cut loose from Brussels. The major rationale behind TTIP is regulatory harmonization, so if the United Kingdom were to sign up to TTIP it would still have to apply many EU rules in its own territory. This would run counter to the arguments for leaving the European Union in the first place.
Third, it will be a challenging job for London to untangle its trade relationship with the European Union while at the same time negotiating TTIP together with Brussels. It would be easiest if the United Kingdom decided to remain a member of the EU customs union. Britain would then be required to impose the European Union’s external tariffs on countries like the United States. This would fit seamlessly with the ‘UK in TTIP’ option. But with the United Kingdom likeliest to pull out of the customs union, the task will be more complex.
Finally, the timing of Brexit and the TTIP negotiations could cause complications. In the unlikely event that a U.S.-EU free trade deal is concluded and ratified while the United Kingdom is still a member of the European Union, the agreement (or the parts of it that fall under national competence) would most likely continue to apply to Britain after Brexit without any need for accession. If the TTIP negotiations continue beyond Brexit, then the United Kingdom would move from negotiating as part of the EU bloc to becoming a third party. This raises the issue of whether the United Kingdom and European Union continue to negotiate with the United States as one bloc.
Special economic relationship
Still, the depth of the economic ties between the United States and United Kingdom means that the TTIP option is likely to be welcomed favorably by both countries. The United States is Britain’s most important single export market, with goods and services worth £45 billion shipped in 2015. Last year, the United States ranked third after Germany and China as a source for UK imports. With nearly $1 trillion invested in each other’s economies, the United States and the United Kingdom are also each other’s largest investors. Given this special economic relationship, Britain is unlikely to be at the ‘back of the queue’ in any event. But the TTIP option is the best path to preserving and strengthening the relationship post-Brexit while also realizing the wider strategic benefits of a transatlantic trade agreement.