Hello and welcome back to the Pinsent Masons Podcast, where we keep you up to date with the most important developments in global business law every second Tuesday. I'm Matthew Magee, and I'm a journalist here at Pinsent Masons. This week, we take a first look at what the implications might be of the UK-US trade agreement announced last week. But first, here's some business law news from around the world.
The UK's tightened immigration policies affect businesses and universities
Australian employers should start planning now for new gender equality target setting requirements and
AI live testing is envisaged in UK financial services
UK immigration rules will be tightened in a way that affects the recruitment of foreign workers by UK businesses and the enrolment of foreign students in UK university courses. The proposals include some surprises for organisations, an immigration expert has said. Shadow pledger was commenting on the UK government's White Paper on immigration, which sets out its plans to reduce net migration and better link the country's immigration system to the skills and training requirements in the UK economy. The government intends to apply a staged approach to immigration reform, beginning by making changes intended to curb lower-skilled migration. A New Labour Market Evidence Group is to be established to review sectors with particularly high levels of overseas recruitment. Employers in these sectors will need to create a workforce strategy to show their commitment to skills and training in the UK, as well as engaging with the domestic labour force for recruitment.
From April next year, Australian employers with over 500 employees will be required to select and meet or improve against gender equality targets over a three-year period. The new gender equality measure is in addition to the current obligation to report gender pay gap data to the Workplace Gender Equality Agency and takes gender pay gap reporting further than anywhere else in the world according to one expert. The legislation does not apply to smaller employers with between 100 and 499 employees, but those employers can voluntarily select and measure progress against targets if they wish. Financial services firms will be able to live test artificial intelligence models in the UK with the help of regulators under an initiative described as pioneering and ambitious by experts in fintech and financial regulation. The Financial Conduct Authority set out proposals to develop a new AI live testing service through its existing AI Lab. The new service is aimed at supporting firms with implementing consumer-facing AI tools. Access to the service will be subject to eligibility criteria, with a process designed to maximise value for firms looking to deploy established proofs of concept, the FCA said. Fintech expert Luke Scanlon said “AI live tracing is pioneering and ambitious. The FCA has promised to provide participating firms with appropriate AI expertise in addition to regulatory expertise.”
Last week the UK and the US agreed what was widely reported as being a trade deal but was in fact something much more limited and impermanent. But it was an important step for the UK in navigating a trading environment that has changed out of all recognition since Donald Trump became US president again in January. He has taken a highly unconventional approach to economics and trade, imposing, removing, amending and threatening a dizzying array of tariffs on countries he sees as economic foes and those who, until recent weeks, were long-standing economic friends. UK prime minister Keir Starmer scored an important political victory in being the first country to get some kind of trade agreement with Trump, but is it economically significant? And how might it affect other trading relationships? For help in understanding all of this I turned to London based trade law expert Totis Kotsonis, who started by explaining what the agreement is and, just as importantly, what it isn’t.
Totis Kotsonis: I think there's a lot of misconception out there that somehow we've got a trade deal with the US. Whereas if you look at this brief document that came out on Thursday, a 5-page document, it says on its face, it says on page one, that this document is not a legally binding agreement and it also says further down that actually either party may terminate what they call the arrangements by giving the other written notice. So what we have essentially is a document of intentions and, as again, the document itself calls proposals. So for the moment, we have nothing, right? I think it's important to make that very clear because a lot of people have been kind of thinking that, all right, we've sorted it all out. We're now going to benefit from what happened on Thursday. There's a lot of hard work to get to a deal. And yes, who knows whether we will get to a deal that suits our interests. It is important to highlight the fact that what we're getting, or what we will get, assuming all these promises are borne out in a deal, will put us in a better position than we would have been without the deal. But it won't put us in a better position prior to Trump. It has promises about the US lowering its tariffs, so in certain situations even having zero tariffs in relation to the automotive industries up to a quota in relation to, for example, steel. And it also potentially promises other areas that are of importance to the UK, such as pharmaceuticals, for example, being one subject to the UK agreeing to take into account the US security requirements in our supply chains. Which, I mean, I think it's not a secret to say that everyone has interpreted that as saying we have US concerns about China. So if we think that we don't want the UK to be sending stuff that has a Chinese component, then the UK has to comply with that in order to take advantage of the preferential treatment that we're willing to offer.
Matthew Magee: The agreement that's been published is pretty vague, so predicting its impact involves a lot of guesswork. But it's already clear that while the proposal isn't good for everyone, some industries are emerging as winners.
Totis: Well, automotive industries is a key one. The steel for sure and aluminium again is another. Potentially pharma, although pharma hasn't, there's no detail on it. It's just sort of a, there's some conditional promise there that it might play out or might not. I think these are potentially the three key sectors that are likely to benefit. I mean, other industries are concerned for example, our agricultural sector is very much concerned in relation to references there that seem well would potentially lead to making it easier for agricultural production in the US reaching our shores. So yes, it is a give and take, but it's almost like the UK having to choose which sector should benefit and which sectors should be exposed to greater competition that might actually potentially lead to them becoming uncompetitive. Look, lots of questions unfortunately remain and so some businesses in these sectors I mentioned, you know, might see this as a kind of a positive, but it's quite limited I think for now. The joy that this document brings is quite limited for now.
Matthew: Totis says that what companies, industries, and economists want more than anything else is certainty. All right, a 30% tariff on your products going to the US isn't good news. But if you know what's happening and when, then you can plan, change your pricing, invest in entering new markets, maybe even change what your product actually is. But he says this is not a deal that delivers very much in the way of certainty.
Totis: No, it doesn't. It doesn't exactly, because even those industries that potentially will benefit from what's on offer under this document, well, until they have it in their hands, they have nothing, right. The two parties have made it clear, as I mentioned when we started, that this is a document about intentions and it's not legally binding. So who knows what might come up in the context of negotiation? Who knows what potential issues or requests or demands the US side might put to us that might make it really hard for us to agree on a more comprehensive deal or a deal that delivers to the promises set out in this document. There's a lot of uncertainty plus there is the additional point which we need to be mindful of, which is the US has a deal with a trade, a free trade agreement with Canada and Mexico. But effectively that deal was completely put aside when it came to the initial announcement of the imposition of tariffs. Now, would that play out again? You know, this is a major concern. The US can at any point say national interest, national security concerns. We're not going to be implementing and we're going to be changing what we have promised to do.
Matthew: Something else is going on in this agreement. It's not just about what tariffs will or won't be imposed on goods moving between the US and the UK. Under the guise of national security worries, the US looks to be seeking to stop trading partners from doing business with its biggest global economic rival, China. This could put the UK on a collision course with the EU, Totis says.
Totis: I mean, there is an argument that potentially what we've got here would limit the extent to which we're able to trade as we wish with the rest of the world. Demands potentially that we take into account US concerns about supply chains. And again, China is, as we mentioned, a potential target here. Would we want to be doing that? Would we say we'll have to do that because otherwise we're not going to be getting a deal? And there is some sort of vague wording here about standards and cooperation in relation to standards. Would that mean that there's a demand for us to lower our standards so in any event move away from a current arrangement where we really do things in line with the rest of Europe? Would there be a demand that we actually move closer in relation to standards, closer to the US? Now, certainly my view is that will put us in a very tight spot actually, because we do not want to move away from Europe in terms of standard setting, not least because that would create issues in relation to Northern Ireland. As you might recall, Northern Ireland after we left the EU has its own regime where effectively for all intents and purposes remains in the single market for goods, right of the EU single market for goods, which means that anything that is put onto the Northern Irish market has to comply with EU standards. So, if we're moving away from that, that creates an issue as regards to the cohesion of the UK because you have different standards applying to Northern Ireland and different standards applying to the rest of the UK. So that in itself is going to be a massive dynamic but also do we as a nation want really to move, if we have to choose between closer trading relations with the US and a closer relationship with the EU, which of course the government is now trying to do, I think we probably will choose our closest and largest trading partner, which is the EU. But yeah, again, another uncertainty.
Matthew: The agreement is, as Totis has pointed out, very much not a comprehensive trade deal. So that means it might get the UK into trouble with another supranational body, the World Trade Organisation or WTO.
Totis: But one majority of trade experts would tell you that this is really tricky territory and potentially unjustifiable under WTO rules. The concern we have with the potential trade deal under this document is that we would be giving better access to our market to the US, but not offering the same to other countries with which we do not have a comprehensive trade deal. And now the keyword is comprehensive because under WTO rules, you are entitled to be offering better access to partners with which you have a trade deal which substantially covers all trade. Now the concern here is that potentially we will end up with a trade deal that absolutely does not cover all trade, substantially all trade. I have seen some commentary in the press about, oh, well, you can still justify giving the US better treatment. And on the basis that it's an evolving situation, you start off with certain commitments, but then you continue negotiations that might take 20 years to get to the promised land of a comprehensive trade deal. I am concerned about the extent to which that itself would provide sufficient cover for us to offer a better deal to the US. But look, we'll just have to wait and see. Again, what I'm absolutely sure our government is aware of all these risks and I would be really surprised if our government will do something which explicitly puts us in breach of our WTO commitments. So I would think it will be an issue that will be considered carefully by the government before agreeing to a specific deal.
Well, thank you for joining us here on the Pinsent Masons Podcast. We know there are lots of calls on your time, and every time you join us, we appreciate it enormously. Remember, you don't need to wait to hear from me every two weeks. We publish daily news and analysis from our team of reporters all around the world at pinsentmasons.com. And you can sign up for the personalised news digest so that you only hear about what you care about at pinsentmasons.com/newsletter. Thanks again for sticking with us and until next time, goodbye.
The Pinsent Masons Podcast was produced and presented by Matthew Magee for international professional services firm Pinsent Masons.
