Arguments for a Toxic US Trade Deal – De-bunked!

20 June 2020 - 1:30pm
News

The UK government is pushing ahead with a US trade deal that threatens our rights, standards and public services, despite broad public opposition. Below we look at the arguments that activists have heard from MPs defending the government’s proposed trade deal with the US – and show you why the arguments for the deal just don’t stand up to scrutiny.

They say: “The benefits of an ambitious and comprehensive UK-US FTA are substantial”, and “[t]his means better jobs, higher wages, more choice and lower prices for all parts of the UK”

In reality: Even by the government’s own projections, the purported benefits are vanishingly small. While admitting that the growth could be as low as 0.02%, they amount at best to just 0.16% of GDP – and only by 2035, and only if there will be zero tariffs, which the UK government and US trade representative Robert Lighthizer have already said will not be the case. Compared to the massive hit the economy is taking from Covid-19 and an increasingly likely no-deal scenario with the EU (for which there are many models, but the hit often estimated to be around a 6–8% reduction in GDP), this does virtually nothing. Dr Peter Holmes, an academic at the UK Trade Policy Observatory at Sussex University, said:

“The numbers are very small. It just goes to show how tiny the gains are from a free trade agreement with the US compared to losing our present arrangements with the EU.”

The government estimates also don’t take into account the loss to public coffers from the increased prices the NHS may be forced to pay for medicines, which in an extreme case could amount to as much as £500 million per week.

They say: “Higher wages” – “DIT’s own analysis suggests productivity gains from a UK-US FTA could contribute to wage increases of up to £1.8 billion for UK workers in the long run.”

In reality: The evidence presented for this in the government’s argument is thin and based on a “questionable premise, in assuming that the UK can both have zero-tariff trade with the EU and with the US after signing trade deals”. Full Fact, the independent fact-checking charity, has said that the government’s analysis makes a projection on wages on the assumption that we sign a free trade agreement with the EU first. Reports on the current EU negotiations do not appear very promising, and so the scenario in which the £1.8 billion wage growth is described by Professor of Economics Marta Bengoa as “extremely optimistic” (and would only amount to approximately £1 a week per UK worker after 15 years).

They say: “Better jobs”

In reality: The overall impact of the deal on jobs in the UK is far from clear, but there are indications that the deal would result in greater income inequality, greater youth unemployment, and the ‘re-allocation’ and loss of jobs. Even the government admits in its estimates that while some businesses might expand, others “may be adversely affected due to the increased competition”. An official impact assessment of the impact of the now defeated TTIP on the UK said that the deal would lead to the loss of at least one million jobs in the EU and USA combined.

According to the BBC, young people aged 16–24 make up a disproportionate part of the workforce in the sectors forecast to lose jobs because of the deal. This will be a further disaster for young people in this country, who already face the highest risk of unemployment due to the coronavirus crisis. Analysis from the TUC suggests that without urgent action, the UK may be on the brink of a surge in youth unemployment. We do not need free trade deals that deepen existing inequalities and risk jobs. We need a global plan for a just recovery and just transition that includes jobs and income guarantees.

Worryingly, one of the key areas that the government’s report highlights for ‘further development’ between the two countries and as one which supports jobs is the arms industry. At a time when this cooperation has led to the use of UK weapons for racist internal repression in the US, we should be aiming to suspend and not further expand UK arms sales to the US – and all repressive regimes.

They say: “The agricultural sector, for instance, would be a winner with lower input costs and a bigger export market”, and “there will be no compromise on the UK’s high animal welfare, environmental, food safety and food import standards in any future FTA, including one with the US”

In reality: The truth is that the agricultural sector stands to take a massive hit from this deal, and the government has abandoned promises to keep US food made using levels of pesticides and hormones currently illegal in the UK out of our supermarkets.

Farmers across the UK are deeply concerned about the impact that the UK’s trade deals will have on the sector through the lowering of standards in farming and food production. American agribusiness interests are at the heart of the US trade agency’s agenda for a deal with the UK – US agribusiness wants a deal that will scrap UK regulations on pesticides, genetically-modified crops, and the production of meat products. British farmers have made it clear that they would see this deal as a betrayal.

Find out more about the risks to our food from a US deal.

They say: “Ministers have assured MPs that the NHS will be protected in any future trade agreement, including one with the US. The price the NHS pays for drugs will not be on the table, and nor will the services the NHS provides.”

The reality: According to Global Justice Now, the risk is not that the government would sell off the whole institution to US healthcare firms but that modern trade deals include rules on trading services, intellectual property rights, market access, investor protection and data flows – all of which pose threats to the extent that private firms can operate within the NHS as well as the prices it pays for drugs”.

If the government is keeping its word, it should ensure legally binding carve-outs so that there can be no doubt that public services are exempt from a US trade deal.

They say: “The inclusion of investment protection provisions and associated ISDS mechanisms in trade agreements helps protect UK investors, both large and small, from discriminatory or unfair treatment by a state”, and “there has never been a successful ISDS claim made against our country”

The reality: Proponents of ISDS say it is needed to encourage investment and provides protection to reassure potential investors – but the evidence is clearly against this.1 Companies actually decide to invest based on things like closeness to market, availability of skilled labour, levels of infrastructure and access to inputs. Few investors are even aware of ISDS. Brazil has never signed up to ISDS, which hasn’t affected its ability to attract investment. When investors are worried about risks, there are established ways they can deal with this, through investment contracts or political risk insurance. For disputes, there are the normal courts. ISDS is unnecessary and must be abolished.

Secondly, the UK has been subject to a successful ISDS case – the Eurotunnel Case, in which the UK was forced to pay €8 million to Eurotunnel for costs incurred preventing migrants entering the UK between 1999 and 2002. And it is the subject of another, case Ashok Sancheti v, the United Kingdom (2006), in which the UK won. However, even where a state wins a case, the costs of a defence can be huge – legal costs average USD 11 million in ISDS disputes.

LSE research has shown that having ISDS in a deal with the US could result in the UK being sued under ISDS more than Canada – the country with the most ISDS cases against it in the world.

Read more about the threats of ISDS.

They say: The UK “will be ready to walk away from the negotiating table if the right deal is not on offer”

We say: The US is currently driving a hard bargain – on food standards and much more. We say the proof of the pudding is in the eating, and urge the government to scrap this toxic deal.


1 See for instance: E Aisbett, ‘Bilateral investment treaties and foreign direct investment: correlation versus causation’ in Sauvant, K. and L.E. Sachs (eds.) The effects of treaties on foreign direct investment: bilateral investment treaties, double taxation treaties and investment flows. New York: OUP, 2009 ch.15; Poulsen, Lauge N. Skovgaard, ‘The Importance of BITs for foreign direct investment and political risk insurance: revisiting the evidence’ in Sauvant, K. (ed.) Yearbook on International Investment Law and Policy Oxford: OUP, 2010; J. W. Yackee, ‘Do Bilateral Investment Treaties promote foreign direct investment? some hints from alternative evidence’”, Virginia Journal of International Law 51 (2) 2010, pp.397-43; Lauge N Skovgaard Poulsen, Bounded rationality and economic diplomacy: the politics of investment treaties in developing countries. CUP, 2015

 

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