US-UK deal leaves some uncertainty for businesses

Trade law expert Dr. Totis Kotsonis of Pinsent Masons said that while the economic prosperity deal will be broadly welcomed by industry at a time of heightened trade tensions and increased tariffs globally, businesses will want to see the detail of what is finally negotiated. He added that the deal’s compliance with World Trade Organization (WTO) rules has already been called into question too.

The exact terms of what has been agreed are still to be negotiated in many areas, but on Thursday the US and UK governments published a document that sets out the general terms of the deal (5-page / 138KB PDF). It is not legally binding. The scope of what has been agreed as of now is limited but is significant for both the US and UK agricultural and automotive industries, in particular.

Under the deal, the US government has agreed to reduce the tariffs it imposes on the import of automotive vehicles from the UK, from 27.5% to 10%, up to a cap of 100,000 vehicles each year. UK prime minister Sir Keir Starmer described it as “a huge and important reduction”. An “accompanying arrangement for attendant auto parts for such autos” will also apply, according to the document published.

The UK government has agreed to remove the current 20% tariff on US beef exports to the UK, with a tariff-free arrangement to be in place within a quota of 1,000 metric tonnes (mt). A “preferential duty-free quota of 13,000 mt” will also be applied for UK imports of US beef, with that arrangement being matched by the US in relation to UK beef exports. A further preferential arrangement is also to be applied to US exports of ethanol to the UK. Other US agricultural exports to the UK are expected to benefit from reduced tariff rates in the next phase of negotiations.

The deal reached also envisages UK exporters of steel and aluminium and certain derivative steel and aluminium products benefiting from reduced US tariff rates. However, the UK government must first meet undefined “US requirements on the security of the supply chains of steel and aluminium products intended for export to the United States and on the nature of ownership of relevant production facilities” for those benefits to be extended. The White House said the deal “creates a new trading union for steel and aluminium”.

A similar agreement in relation to UK exports of pharmaceuticals and pharmaceutical ingredients to the US is also provided for under the deal, though that is subject to the outcome of an ongoing investigation by the US administration into the effect that US reliance on imports of pharmaceutical products has on the country’s national security. Should a deal be reached, UK pharmaceutical manufacturers and suppliers can expect “significantly preferential treatment outcomes” on their exports to the US. The UK has agreed to “endeavour to improve the overall environment for pharmaceutical companies operating in the United Kingdom” as part of what has been agreed.

The two countries have further agreed to explore reduced tariff arrangements for products subject to similar US investigations, which would include semiconductors and critical minerals.

The US will continue to apply a 10% “reciprocal” tariff on all other imports from the UK, though that is the subject of ongoing negotiations between the countries.

It has been reported that the UK would remove, or at least cut, the digital services tax it levies in respect of US-based technology companies that service UK businesses and consumers. However, no such concession has been agreed. Instead, the document published alludes to “an ambitious set of digital trade provisions” being negotiated between the two countries, with services, including financial services, to fall in-scope of such a deal.

Collaboration, on issues such as intellectual property rights protection, mutual regulatory recognition, and regarding international standards, is also provided for in the US-UK agreement.

US president Donald Trump said it promises to be “a great deal for both countries”, while Starmer said that while the agreement reached will save and create jobs in the UK, there is more to be done. He said: “We are more ambitious for what the UK and US can do together. So, we are hammering out further details to reduce barriers to trade with the United States across the board.”

Kotsonis said: “From the perspective of most businesses what is most important is to have certainty as to the conditions for trading. For the moment, this non-legally binding five-page framework document, that sets out certain ‘proposed’ commitments, delivers nothing of the sort. Indeed, the document makes it clear that, either side may terminate ‘this arrangement’ by giving written notice to the other. Ultimately, we must assume that an agreement will in fact be reached, given that it would be politically and strategically difficult for both sides to walk away from negotiations empty-handed.”

“Even so, in terms of tariffs, a future US-UK economic prosperity deal is only likely to put some UK exporters to the US in a better position than they otherwise would be. In other words, exporting to the US would still be on the basis of tariffs that would be higher overall than they were prior to the implementation of the Trump administration’s tariff hikes,” he said.

“Separately, the extent to which non-tariff barriers can be addressed in a substantive and satisfactory manner under a future agreement is open to question. It is notable that the document affirms the parties’ understanding that imported food and agricultural goods must comply with the importing country’s sanitary and phytosanitary standards. At the same time, there is still a risk that the UK would be put under enormous pressure to give some ground in this area, as well as in relation to the adoption of standards more generally, in return for a US agreement to apply lower tariffs in sectors of importance to the UK,” Kotsonis said.

“This would put the UK in an extremely difficult position, forcing it to choose between a substantially less ambitious trade agreement with the US or, accepting US demands on standards – which is likely to mean greater divergence from the EU, making it more difficult for the UK to deepen its relationship with its most important trade partner,” he added.

The document also refers to the parties’ continued discussions towards a “transformative technology partnership”.

Kotsonis said: “Whilst no further details are provided on this, the concern here is that such partnership would involve the UK disapplying or at least reducing substantially the levy which it applies under its digital services tax. To be clear, if this were to materialise, such policy change must be applied across the board rather than in relation to US companies alone, to avoid falling foul of WTO rules.”

“Concerns as to WTO compliance will also arise if the agreement between the parties does not cover substantially all trade. If so, the UK could find itself breaching its WTO obligations by offering to the US preferential tariff access to its market which is better – under the ‘most favoured nation’ principle – than that which it offers to other trading partners with which it does not have a comprehensive trade agreement,” he said.

“Ultimately, as Canada and Mexico would attest, even if an agreement is concluded between the parties, the concern is that this might not provide businesses with the certainty which they crave. The US may still consider in due course, that its national interests render it necessary for it to disapply some of its commitments under such agreement,” Kotsonis added.

Last week, the UK also agreed a comprehensive free trade agreement with India. India is pursuing a similar trade deal with the EU too.