Including Investment Provisions in the US-UK Trade Agreement

Student Name Course Instructor Date Including Investment Provisions in the US-UK Trade Agreement The US and the UK share a strong and enduring bond that has existed for a long time. The two countries deep historical and cultural ties and also a common language. Both countries have also demonstrated cooperation in major issues like security. Since World War II, the two countries have led the rest of the world in building an international system on which global prosperity depends. The economies of the US and the UK have remained intertwined. This has made both countries to remain critical trading and investment partners for each other. However, Brexit may threaten the trading and investment opportunities that have existed for a long time between the two countries. The US-UK trade is paramount for the economic growth of both countries. With the UK planning to exit the EU, it is critical for the EU to ensure that it maintains its strong ties with the US. As the UK pursues a trade agreement with the US, it should ensure that the agreement includes investment provisions. Brexit On a national referendum held on June 23, 2019, a majority of British voters supported the move by the UK to exit from the European Union (EU), a process known as “Brexit.” Since then, various members of Congress have demonstrated their support U.S.-U.K. free trade agreement (FTA) negotiations. Other Congress members have also supported the move while requiring that such negotiations do not undercut the promotion of broader US –EU relations. Since assuming office, President Trump has continued to demonstrate his support for Brexit (BBC 1). He has indicated his willingness to negotiate the agreement “quickly” and ensure that it benefits both sides. However, formal negotiations cannot begin immediately. The UK cannot engage in its trade negotiations due to its EU membership terms. As a result, on March 29, 2017, Prime Minister Theresa May notified the European Council of the UK’s intention to leave the EU. Until the UK completes withdraw and formally exists from the EU, it remains a member of the EU. Hence, the World Trade Organization (WTO) parameters continue to govern the US-UK trade as they do for the US trade agreements with the other members of the EU. Most of the ongoing conversations are informal on the potential bilateral FTA. Once the UK exits from the EU, it will lose some of the trade benefits derived from being a member of the EU. As a result, it is paramount that UK commences making trade agreements with countries like the U.S. The Essence of US-UK Trade The US and the UK have maintained deep and extensive economic relationships. For instance, firms from both countries are heavily involved in trade due to the integrated supply chain. In 2016 alone, the US exports and imports to the UK totaled $121 and $107 billion respectively, which yielded a $15 billion US trade surplus (Akhtar 2). At the same time, the UK was the US’s second largest trade partner after Germany. It accounted for about one-fifth of the total trade with the EU. Globally, the UK was the US’s fifth largest export destination and the seventh largest in terms of imports (Crown Copyright 10). The UK has remained the largest service trading partner with the US. The UK accounts for about one-tenth of all US total trade in services like tourism, financial services, and education. Moreover, foreign direct investment (FDI) has increased between the two countries in recent years. Majority-owned multinational enterprises (MNEs) from both the US and the UK have employed more than 2 billion workers. In 2015, the US-UK FDI reached $1.2 trillion, making the UK the second-largest destination for US FDI after the Netherlands (Crown Copyright 9). The US finds the UK a suitable trading partner due to its openness to business, employee skills and the ability to access the market due to the single market created by the EU. A majority of US companies in the UK have ventured mainly on finance, insurance, and manufacturing. The US companies in the UK take advantage of the passport right that allows them to establish a “hub” in the UK then proceed to undertake activities in the rest of the EU members without having to obtain authorization from the individual member countries. The Effect of Brexit on the US Companies in the UK A majority of the large companies in the US have a presence in the UK (Akhtar 6). The Brexit vote does not immediately affect the US investments in the UK. However, when the UK manages to withdraw from the EU, there is a possibility that the move will have adverse effects in the US companies. Meanwhile, investors are not sure of the outcome of Brexit which has made it challenging for them to plan and make an investment decision in the UK. Due to the uncertainty created by Brexit, US companies are unsure to what extent they can maintain their presence in the UK. A survey carried out indicated that 40% of the US companies in with a base in the UK were thinking of moving to the other EU countries (Rodionova, 8). The financial institutions are in particular likely to be affected by the outcome of Brexit. For instance, in case the exit causes a loss in “passport rights,” some of the major US banks are considering reducing their presence in the UK. Due to Brexit, the attractiveness of the country as the hub where companies use the UK to access other EU markets. The companies that use the UK to export to other EU member countries could be adversely affected by increased tariffs. Such companies may be forced to reorient their operations to focus solely on the UK customer. Alternatively, these companies can relocate to other EU members to avoid the likely increase in tariffs. The Essence of Investment Provisions It is critical for the UK to pursue both free trade and FTAs with the US. Free trade entails the freedom of individuals to transact without interference from politicians and bureaucrats. It includes the removal of impoundments that some benefit a few individuals while disadvantaging others. Through free trade, individuals in both the US and the UK have the opportunity to determine the best use of their resources. On the other hand, FTAs entail managed trade and includes rules meant to distribute particular benefits to specific interests. Through FTAs, countries can reduce domestic impoundments to trade and enable individuals to exercise greater economic freedoms. In this case, agreements between the US and the UK can serve to remove discriminatory agreements and abolish market-distorting subsidies. While trade agreement negotiations between the US and the UK are necessary, it is critical to negotiate trade agreements with the US. The two countries have enjoyed close business ties which have accelerated trade and investment between them. The number of US businesses has increased in the UK due to the openness of the market. Additionally, investments from the US in the UK have increased over the years as investors take advantage of not only the UK market but also the market availed by having the UK as the member of the EU. However, with the unc...