The Wait Continues for Trade Talks
Notes from the CEO – March 2021
Chief Executive Officer
At the time of writing, the confirmation of the two most significant political appointments for the transatlantic trade and investment portfolio is imminent. Governor Gina Raimondo will lead the US Commerce Department and Katherine Tai will be the new US Trade Representative. Biden’s nominee for US Trade Representative is generally well regarded in Congress, after years working with the Ways and Means Committee, and at her recent confirmation hearing, among questions about multilateralism and protecting US industry and workers, Tai’s response to a question about the UK-US trade negotiations was that she would “review the objectives in light of all the changes” 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 complicates the timeline and pushes any possible deal into 2022. Understandably, this will have disappointed many in the UK, given how significant the UK-US trade negotiations are in the ‘Global Britain’ agenda. A Comprehensive Free Trade Agreement would indeed reaffirm and strengthen one of the world’s 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…we 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’s trade and investment prospects to a large extent and deserve careful consideration by the transatlantic business community.
The first is the National Security and Investment Bill, 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 currently stands out among 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 it will lead to (you can read a more detailed analysis by our friends at Herbert Smith Freehills here).
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 – for security and attracting foreign investment. US investors, familiar with the American CFIUS (Committee on Foreign Investment in the United States) 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 beginning the administrative process to grant the UK Adequacy on data transfers. Politics will very likely interfere with what is meant to be a routine bureaucratic process: 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 – by explaining the very real, tangible ways in which it could go wrong.
Beyond UK-EU transfers, the question then is – what will be the UK’s 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 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’s Budget announcement will also be worth following, as the Chancellor is due to publish Jonathan Hill’s review of financial services regulation. The review has looked at how the UK can help attract some of the world’s most successful and innovative companies by providing easier access to capital markets – from potential relaxation of dual-class shares to minimum levels of free float to attracting more special purpose acquisition companies.
Beyond the Hill review, the Budget will set the scene for the UK’s 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%. Unless or until US corporation tax rates are increased this will mean a net tax cost for US corporates with tax paying subsidiaries in the UK for the first time in a long while.
BAB believes a comprehensive Trade Agreement between the US and UK is achievable and desirable but the prospects in the short term don’t look good. But this shouldn’t mean any relaxation of efforts to improve the trade and investment corridor for all businesses, especially SMEs, by the relevant government departments and regulators. There is much that can be done outside an FTA and the business community will support all the efforts that are made to provide leadership in digital trade, set high standards for environmental sustainability, and that puts SMEs at the forefront of trade.
We have an ongoing dialog with our members about all these issues and more in our highly active convening program and if these things matter to your business, please get involved and come along to one of our events in the next month.