UK pins hope on joining US, Mexico and Canada trade pact

UK trade updates

Sign up to myFT Daily Digest to be the first to know about UK trade news.

The UK hopes to join a trade pact between the US, Mexico and Canada as hopes fade for an imminent bilateral agreement with Washington. 

The USMCA trade pact was signed by Donald Trump, then US president, with Canada and Mexico last year after a long renegotiation of the existing 1994 Nafta deal between the three countries. 

The agreement, which was widely backed by Democrats on Capitol Hill, included tightened environmental and labour standards, a new digital chapter and strict rules of origin requirements for the automotive industry.

British officials said on Tuesday shortly before Boris Johnson, UK prime minister, was to meet President Joe Biden that the UK was considering applying to join USMCA. “There are a variety of different ways to do this,” noted one senior official. “The question is whether the US administration is ready. The ball is in the US’s court. It takes two to tango.”

Britain already has trade agreements with Canada and Mexico, so the main gains would be linked to the US element of the deal.

However, the Biden administration has made clear that trade deals are not a legislative priority as it focuses on its domestic economic agenda.

Trade experts questioned whether it was realistic for the UK to join the pact and, even if it could, whether the price of entry would be worth paying.

Dmitry Grozoubinski, a trade consultant who is visiting professor at the University of Strathclyde, said any accession process would leave the US, Mexico and Canada with the whip hand, free to name their price for joining what is essentially a regional trade pact.

“It’s certainly ambitious,” he said, “And it’s also not clear how this would resolve the fundamental challenges to a US-UK free trade deal, which is firstly that the US has no appetite for it and, secondly, there remain significant areas, like agrifood standards, on which the two sides fundamentally disagree.”

David Henig, director of the UK Trade Policy Project, said it remained “someone else’s trade agreement with the rules made by someone else”.

Henig estimated that joining USMCA might add perhaps only 0.1-0.2 per cent of gross domestic product to the British economy while still leaving Britain open to some of the problems associated with a possible bilateral US trade deal.

“Are the benefits really worth it?” he asked.

USMCA also has limited coverage of many of the UK’s competitive advantage in exports, notably services, and would subject many UK companies to two competing sets of regulations.

But Sam Lowe, research fellow at the Centre for European Reform, said that it would be “quite an occasion” if Britain were to join USMCA, even though he was sceptical that it would happen.

“You would have all the issues with a bilateral US relationship — they don’t go away,” he said. “But from an economic point of view a deal would not be negligible.”

Pro-Brexit politicians in the UK have long pointed to a trade deal with the US as one of the great upsides of leaving the EU. Leading figures in the Trump administration early last year promised that a US-UK trade deal was at the “top of the list” of priorities.

However, the UK’s hopes of clinching a bilateral trade deal with the US have faded since Biden came to power in January.

Speaking alongside Johnson ahead of the meeting in the White House on Tuesday, the US President said the pair would discuss trade. “On a Brexit free trade… We’re going to talk a little bit about trade today and we’re going to have to work that through”, he said. 

The two sides have not resumed formal talks, and Katherine Tai, the US trade representative, has been carrying out an assessment of the state of the negotiations.

British officials have previously expressed hopes that the US would join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership trade bloc, opening a back door to closer US-UK trade ties since London is also seeking to become a member of the CPTPP.

They are understood to have raised concerns with their US counterparts that trade links are stronger between the UK, Canada and Mexico than between the UK and US.

Speaking to Sky News before a meeting with Biden in the White House on Tuesday, Johnson evaded a question on whether he might secure a trade deal with the US by 2024.

“We will keep going with free trade deals around the world including in the United States. I have plenty of reason to be optimistic about that. But the Americans do negotiate very hard.”

“We’re going to go as fast as we can.”