Updated April 11, 2019
Brexit and Outlook for U.S.-UK Trade Agreement
Introduction
UK-EU trade would be significantly different than the
The trade aspects of “Brexit,” the expected withdrawal of
status quo of tariff-free trade. A no-deal Brexit could lead
the United Kingdom (UK) from the European Union (EU),
to lengthy customs checks, and some businesses are
are of congressional interest. Uncertainty over Brexit
stockpiling goods to build inventories. UK-EU supply
presents commercial challenges for the nearly 43,000 U.S.
chains, such as for the auto industry, are tightly integrated
companies exporting to the UK and for U.S. firms operating
and component parts are heavily traded. U.S. and other
in the UK, including some 4,000 majority-owned
banks are concerned about losing the ability to use their UK
subsidiaries (2016 data). The EU has agreed to extend the
bases to access EU markets without establishing legally
UK’s departure date to October 31, 2019, with an earlier
separate subsidiaries. Some financial institutions, such as
departure possible upon approval of the UK-EU withdrawal
Goldman Sachs, J.P. Morgan, Morgan Stanley, and
agreement. Details about the future UK-EU trade
Citigroup, have shifted (or are planning to shift) some jobs
relationship remain largely unknown, with uncertainty over
and assets from London to other European cities, such as
if, when, and to what extent the UK will regain control of
Amsterdam, Dublin, Frankfurt, and Paris.
its national trade policy. These factors directly shape
In 2016, after the Brexit referendum, the British pound fell
prospects for a proposed bilateral U.S.-UK free trade
to a record low, and concerns emerged about widespread
agreement (FTA), supported by the Trump Administration
harm to the UK economy. Doomsday fears may have
and some Members of Congress.
abated, but prolonged uncertainty over Brexit appears to be
On October 16, 2018, the Trump Administration notified
a drag on the UK economy. In 2018, the UK economy saw
Congress under Trade Promotion Authority (TPA) of
its lowest annual growth rate (1.4%) since 2012. Most
proposed trade agreement negotiations with the UK post-
analyses predict that the UK economy faces lower growth
Brexit. The UK cannot formally negotiate or conclude a
in all Brexit scenarios, with a “no-deal Brexit” constraining
new agreement until it exits the EU, which has exclusive
growth rates the most.
competence over trade policy and negotiates trade deals on
Post-Brexit UK-EU Trade Relationship
behalf of all EU member states (Fig. 1). In the interim, and
Brexit casts great uncertainty over the future UK-EU trade
absent a U.S.-EU trade agreement, World Trade
relationship. A draft agreement on the UK’s withdrawal
Organization (WTO) terms govern U.S.-UK trade (like U.S.
terms was rejected three times by the House of Commons
trade with the rest of the EU), and would apply after Brexit.
ahead of the original Brexit date of March 29, 2019. EU
Figure 1. Current UK Trade Status: Fast Facts
leaders have endorsed the deal, which also requires
approval by the European Parliament. The Brexit extension
gives the UK more time to secure domestic approval of the
withdrawal agreement, which the EU says is not open for
renegotiation.
Draft UK-EU Brexit Deal
During the withdrawal agreement’s transition period through
2020, the UK could negotiate, but not enter into, its own trade
agreements. The UK and EU agreed to work toward a UK-EU
FTA, with a fully independent UK trade policy arising after the
transition period. As a backstop to address the Irish border issue,

however, they agreed to allow the UK to stay in the customs
Trade and Economic Context
union if they failed to reach an alternative arrangement to avoid a
hard border (e.g., customs check, physical infrastructure)
The UK, at 15% of the EU gross domestic product (GDP)
between Northern Ireland and Ireland—thereby preserving
in 2017, is the EU’s second largest economy after Germany
extensive cross-border economic ties and the peace process.
(21%). As a bloc, the EU is the UK’s largest trading
(See CRS Report RL33105, The United Kingdom: Background, Brexit,
partner, while by country, the United States ranks first.
and Relations with the United States, by Derek E. Mix.)
Total U.S.-UK two-way trade in merchandise and services
($236 billion) was about one-third of such UK trade with
Potential scenarios for future UK-EU trade relations have
the EU ($788 billion) in 2017 (U.S. and WTO trade data).
mixed economic and political attractiveness (Fig. 2).
Many firms operating in the UK are taking steps to reduce
No Customs Union?
trade disruptions post-Brexit, especially if the UK leaves
A no-deal Brexit, whatever its downsides, would free the
the EU without a negotiated deal, loses its preferential
UK to negotiate its own FTAs with the United States and
access to the EU market, and returns to trade on WTO
other countries; the UK would no longer be a part of the EU
terms. While EU tariffs are low overall, WTO terms for
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Brexit and Outlook for U.S.-UK Trade Agreement
customs union and would regain control over its national
outside of the scope of the customs union, for example,
trade policy at once. Likewise, under the draft Brexit deal,
services, digital trade, public procurement, intellectual
if an alternative arrangement were reached on the Irish
property, and regulatory cooperation. Still, negotiating
border issue, the UK would not be a part of the customs
flexibility may be limited if a goal of being in the customs
union and would be free to negotiate its own trade deals.
union is continued alignment with the EU. A customs union
In either scenario, the UK likely would seek to negotiate an
also could limit UK trade policy such as in applying trade
FTA with the EU, but likely would not be able to replicate
remedies or developing country preference programs.
existing single market access. For instance, the EU bilateral
Other UK Trade Considerations
FTAs with Canada and Japan eliminate most tariffs but
have a number of exceptions, such as in services.
The UK, seeking continuity in its trade ties after Brexit, is
Negotiations could be lengthy; EU negotiations with
 Negotiating its own WTO “schedule” of commitments on goods,
Canada and Japan took, respectively, seven and four years.
services, and agriculture. The EU schedule applies to all EU
Other examples are Norway and Switzerland, non-EU
members. Agricultural negotiations are particularly complex as
countries that are not in the customs union, but have tariff-
they involve reallocation of EU and UK quotas. The UK’s post-
free access to the EU (with some exclusions, e.g.,
Brexit continued participation in the WTO Government
agriculture and fisheries for Norway, some services for
Procurement Agreement (GPA) was approved recently.
Switzerland). Norway and Switzerland have no say on EU
 Working to replicate existing EU deals with non-EU countries.
decisions on rules and regulations and must accept free
These EU deals would not apply to the UK post-Brexit. The
movement of workers and pay in to the EU budget.
UK has concluded a fraction of the deals it aims to replicate.
Norway’s access to the EU market is through its
The UK continues to engage, for instance, with Canada, Japan,
membership in the European Economic Area (EEA).
and South Korea, which have bilateral FTAs with the EU.
Switzerland (not in the EEA) has more complicated access
 Negotiating sector-specific regulatory agreements. A focus is on
through over 100 sectoral agreements with the EU.
mutual recognition agreements (MRAs) to assure continued
Figure 2. Non-EU Country Arrangements with the EU
acceptance by UK and partner country regulators of certain
product testing and inspections by the other. For instance, the
United States and UK concluded an MRA on pharmaceuticals,
as well as agreements on derivatives and insurance.
 Taking steps to pursue a range of new trade deals once outside of
the EU. In addition to the United States, potential countries
that the UK has identified as of interest for negotiating new
trade deals include Australia, China, India, and New Zealand.
U.S.-UK Trade Agreement Outlook
Should the UK regain independence over its trade policy,
prospects for a U.S.-UK FTA are mixed. Some experts
view a U.S.-UK FTA as more feasible than a U.S.-EU FTA,
given the U.S.-UK “special relationship” and historical
similarities in trade approaches. Others caution against the
likelihood of a “quick win.” Some stakeholders, particularly
in the UK, have raised concerns about effects, for instance,
on food safety regulations. Key issues also could include

financial services, investment, and e-commerce. In addition,
Source: CRS, based on various sources.
to the extent that the UK decides to continue aligning its
Customs Union?
rules and regulations with the EU, its largest trading
Alternatively, the UK could remain in the customs union or
partner, sticking points in past U.S.-EU trade negotiations
be a part of another customs arrangement, and not regain
(e.g., agriculture) could resurface in the U.S.-UK context.
control over its trade policy. This could occur if a UK-EU
The United States, meanwhile, may be hard-pressed to
deal keeps the UK in the customs union permanently or in
negotiate with the UK without clarity on the future UK-EU
an extended transition period.
relationship. How U.S.-EU tensions over tariffs would
affect the U.S.-UK negotiations also may affect the outlook.
Turkey is an example of a non-EU country in a customs
union relationship with the EU. Like Norway and
Congress is expected to continue consultations with the
Switzerland, Turkey has no voice on EU decisions, but
Administration over the scope of proposed negotiations,
unlike them, does not contribute to the EU budget. Turkey-
and engage in oversight during negotiations. Congress
EU trade is tariff-free on covered products (most goods and
would need to approve implementing legislation for a
processed agricultural products). Turkey has adopted the
potential final trade agreement to enter into force. See CRS
EU common external tariff, and must apply tariff reductions
Report R44817, U.S.-UK Free Trade Agreement: Prospects
that the EU negotiates with other countries. Preferential
and Issues for Congress, by Shayerah Ilias Akhtar.
access that the EU gains to these other countries, however,
does not automatically apply to Turkey, which would need
Shayerah Ilias Akhtar, Specialist in International Trade
to negotiate its own agreements with these other countries.
and Finance
If the UK were to participate in the customs union, it
IF11123
potentially could negotiate with other countries on areas
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Brexit and Outlook for U.S.-UK Trade Agreement


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