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Breaking Down US-UK Trade Barriers Through State MoUs

Posted on April 19, 2023 by

Teresa Gordon

Teresa Gordon

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US UK FlagsThe US and UK are key trading partners; according to the UK Department for Business & Trade on March 2023, the US was the UK’s largest trading partner. Despite the strong economic relationship between the US and UK, there is currently no free trade agreement in place which makes things a little more complicated. However, the UK has found a creative way around these trade barriers.

In the absence of a bilateral free trade agreement between the US and the UK, UK companies are still coming to the US for trading and investment opportunities by working directly with states. These non-binding agreements are called memorandums of understandings (MoUs) and the goal is to increase trade and investment between the UK and US states. 

Post-Brexit Trade Agreements

UK recently announced the deal to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a major free trade block with 11 Pacific nations including Australia, Canada, Japan, Mexico. The two largest economies, the US and China and the EU bloc of countries, the UK’s largest economic partner are not part of CPTPP. 

Despite the current lack of a trade agreement with the UK, there has been a history of trade negotiations with the US. The 2019 Transatlantic Trade and Investment Partnership (TTIP) was a potential trade solution for the US and EU bloc which included the UK at that time, but negotiations halted primarily due to European fears that a trade agreement would require acceptance of lower US health, safety and environmental standards. Post-Brexit, the UK and US started trade negotiations but no agreement has been reached to date.  

The US and UK needed to find another way to support trade, which is why the UK started working directly with US states to foster trade and investment opportunities while strengthening its global economic ties. 

US-UK Trade Agreement Goals

Ideally there would be a bilateral free trade agreement between the US and the UK. If this were to occur, the first step would be to negotiate a post-Brexit trade agreement with the UK that resembles the United States Mexico Canada Agreement (USMCA) rather than what was on the table in the TTIP negotiations. This would involve promoting innovative mechanisms to harmonize and improve regulatory procedures with the UK, which currently adheres largely to EU regulatory practice. Another key element of a US-UK agreement would be setting innovation-friendly rules for digital trade flows. 

Encouraging Trade through State MoUs 

Until a formal free trade agreement is made between the US and the UK, the UK is turning to individual states for trade and investment opportunities by signing MoUs, which are not legally binding. These informal trade agreements cover a range of industries including energy, technology, automotive and aerospace. 

In 2022, the UK signed MoUs with Indiana, North Carolina and South Carolina with terms supporting the unique trade synergies between each state and the UK. During 2022, the UK was working with about 20 states in total to secure individual trade deals but to date no further MoUs have been announced. 

The goal of these MoUs is to eliminate barriers to trade while facilitating more investment, export and job opportunities. It’s a win-win for both countries—the UK is able to expand its export opportunities while US states are able to attract British investment. 

Continue the Conversation 

Increased trading and investment as well as shared innovation and workforce skill development between the UK and US at the federal or state level brings cross border opportunity and challenges. Contact us to learn more about the US tax and accounting considerations of expanding into the US market from the UK.  

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Teresa Gordon

Shareholder, International

Teresa leads the firm's international group and supports global businesses through all phases of growth as they expand to and from the U.S.

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