On May 8, the White House announced President Trump's first trade deal under his America First Policy. The deal struck between the United States and the United Kingdom will revise some of the tariffs imposed on the UK so far during the second Trump administration. Details of the deal are still emerging.
Elements of the Deal
The White House laid out the "General Terms" of the deal, known as the U.S.-UK Economic Prosperity Deal (EPD). While not legally binding, the EPD reflects a framework and promises on how bilateral trade policy will be shaped.
The EPD is expected to address three core objectives, all aimed at stimulating mutually beneficial bilateral trade, job creation, business operations, and investment between the two countries. The EPD reflects a first step in a reenvisioning of the U.S.-UK trade relationship, particularly in the technology space.
Six key areas of trade are addressed in the EPD: tariffs (focusing on relief for the following commodities/industries: beef, ethanol, automotive, steel and aluminum products, and pharmaceuticals); non-tariff barriers (supporting trade in agricultural and industrial goods); increasing digital trade; economic security; commercial opportunities (i.e., promoting U.S.-UK economic integration); and an "other matters" catch-all category, which touched on intellectual property rights and the exclusion of forced labor from supply chains.
Impact on Trump Tariffs
The trade deal offers respite from Trump tariffs, although the "reciprocal tariff" rate of 10%, announced on April 2, remains in effect as applied to the UK. However, both sides will commence further negotiations to reduce tariffs.
The 25% tariff on UK automobiles and auto parts threatened to create a relatively high overall blended tariff rate, given that automobile exports form a major share of the UK's exports to the U.S. Additionally, in March, Trump revoked certain benefits the United Kingdom (among other countries) had received since 2018 under the Section 232 steel and aluminum regime.
The Fact Sheet accompanying the EPD outlines a U.S. promise to structure an "alternative arrangement" for the Section 232 tariffs on UK autos, allowing a tariff rate quota (TRQ), by which the first 100,000 UK automobiles exported to the U.S. will not be subject to Section 232 tariffs (with only the 10% reciprocal tariff applicable).
The EPD also promises a "new trading union" for steel and aluminum between the countries, giving the UK a reprieve from the tariffs on steel and aluminum, as long as Chinese steel is not entering the supply chain and steel manufacturing facilities are UK-owned.
Revisions to UK Tariffs
U.S. agriculture is the biggest winner under the General Terms, with the removal of a 20% in-quota UK tariff on beef exports from the U.S., and a duty-free quota of 1.4 billion liters of U.S. ethanol exports. However, the UK has not yet made concessions on food standards: the UK remains aligned with EU standards. Both countries agreed to work together to "improve market access for agricultural products." Notwithstanding, this will continue to impact U.S. food sellers, despite some relief offered by the reduction of agricultural tariffs.
Some key U.S. "asks" are notably absent from the EDP. In particular, the UK made no commitments regarding its Digital Services Tax, which costs U.S. tech companies some GBP 800 million per year and has been cited by successive U.S. administrations as unfair. The General Terms do, however, hint at a future deal on digital services, which could include negotiations on that tax.
The Deal's Legal Weight
The General Terms specifically state that they are not a legally binding agreement. The EPD is not a trade treaty (the most formal option) and does not appear to be an executive agreement, which would still bind the countries under international law. By proceeding under a looser legal mechanism, the two left more work to be done: the EPD's "new paradigm" and promises must be implemented by the trade agencies in the respective countries.
To learn more about the U.S.-UK trade deal and its impact on companies' operations, sales, and marketing, join us on June 3 for a webinar discussing these issues.
Please reach out to the Venable authors with inquiries regarding how these latest developments may impact your U.S. business activities.
UK-based Fieldfisher's experienced multidisciplinary international trade team includes lawyers who have worked for or supported governments, international organizations, and multinational clients operating around the world. For more information please contact Andrew Hood (partner, International Trade): Andrew.hood@fieldfisher.com +44(0)330.460.6568.