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Chlorinated chicken not the only impediment to post-Brexit US-UK trade deal

Ask any pro-Brexit lawmaker in the U.K. about the economic rationale for leaving the European Union, and they are likely to cite the ability to strike trade deals with non-EU countries.

One of the most highly anticipated potential accords is with the U.S., with which the U.K. already has a $127.1 billion annual trading relationship. U.S. President Donald Trump, a proponent of Brexit and prolific critic of the EU, has regularly trumpeted the benefits of a pact, saying in August, "we're going to do a very big trade deal," one that is "bigger than we've ever had with the U.K."

But despite all the talk of transforming the Special Relationship into a free-trade relationship, there is no shortage of impediments to an agreement. In fact, Bill Reinsch, senior adviser and Scholl Chair in International Business at the Center for Strategic & International Studies in Washington, said in an interview that a U.S.-U.K. agreement will be far more difficult to achieve than either country's leader suggests.

'EU Museum of Agriculture'

Top of mind for most consumers, in the U.K. at least, is food standards, symbolized by the ongoing debate about the safety of U.S. chickens washed in chlorine after slaughter, a practice outlawed in the EU.

British media has covered the issue heavily, spawning a counteroffensive from the Trump administration, with U.S. Ambassador to the U.K. Robert Wood Johnson publishing an editorial in The Telegraph titled "Don't let smears about US farms trap Britain into the EU’s Museum of Agriculture."

Improving market access for U.S. farmers has been a priority for the Trump administration, so health and safety standards are likely to be a crucial issue in any trade deal, according to Chris Rogers, research director for Panjiva, a division of S&P Global Inc. "Differences in phytosanitary standards and local tastes are probably significant."

Two-way trade in agriculture between the two countries was $2.8 billion in 2018, or just 2.2% of total trade, with the biggest U.S. exports being wine and beer, tree nuts, prepared food and soybeans. The top U.S. goods export to the U.K. in 2018 was aircraft, valued at $12 billion, followed by $8.5 billion worth of gold and $6.7 billion of machinery.

Top U.S. goods imports from the U.K. in 2018 included $11 billion worth of vehicles and $9.3 billion worth of machinery. Agricultural goods imports from the U.K. totaled just $824 million in 2018, led by $119 million worth of snack foods, $60 million worth of cheese, and $53 million worth of wine and beer.

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Cutting a deal with the U.S. could also close doors with the EU, which is the U.K.'s largest trading partner by a wide margin, representing £634 billion of annual trade in 2018, amounting to 46% of all U.K. exports and 54% of imports. Without the protection of the EU, the U.K. would likely struggle to fight U.S. demands.

In any negotiations, the Office of the U.S. Trade Representative will likely push for adoption of U.S. health standards, said Reinsch. "A tariff-only agreement would be achievable, but tariffs are a relatively small part of our trading relationship. It's really about harmonizing or mutually recognizing standards and regulations," he said.

The Office of the USTR, which declined to comment on negotiations to S&P Global Market Intelligence, said in its negotiating objectives released in February that it will seek provisions to "remove expeditiously unwarranted barriers" that block U.S. agriculture and food exports.

Backstop blues

For all the concerns over agriculture issues such as hormone-treated beef, chlorinated chicken treated and GMOs, the biggest impediment to a deal might be political issues raised by Brexit itself.

"The special relationship we have with the U.K. won't do much when you have to go to Capitol Hill for approval," Warren Maruyama, a former USTR general counsel and a partner at Hogan Lovells in Washington who has advised clients on Brexit, said in an interview. "It's all about commercial considerations and votes."

Nancy Pelosi, the California Democrat and Speaker of the House, has indicated that a no-deal Brexit that involves the Prime Minister walking away from the Irish backstop — the policy designed to avoid a hard border with Ireland after Brexit — will effectively make any U.S.-U.K. trade deal dead on arrival in Congress.

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For now, any substantial work on a trade deal is on hold until the U.K. leaves the EU, currently scheduled for Oct. 31, but highly likely to be delayed for a third time. The U.S. and U.K. first announced in October 2018 their intent to enter into negotiations toward a bilateral trade deal, though the two countries cannot formally begin negotiations until the U.K. completes Brexit.

While a deal will likely be agreed upon eventually, what can be accomplished hinges largely on the shape of the future relationship between the U.K. and the EU, said Marjorie Chorlins, senior vice president of European affairs at the U.S. Chamber of Commerce and the executive director of its U.S.-U.K. Business Council. Until then, American companies will not know whether they are getting access just to the U.K. or also to continental Europe when they invest.

There remains a considerable risk that the U.K. could leave the EU without a deal, which, while freeing the U.K. to negotiate trade deals with anyone it wishes, would also plunge it into chaos, with the ensuing drag on the economy.

Should a no-deal outcome ensue, Britain would be consumed with damage control, leaving little time for trade negotiations, Reinsch said.

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