Trans-Atlantic Trade Relations

2021 Business Issues Guide

Trans-Atlantic Trade Relations

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New Opportunities for Strengthening Relationship

• Trans-Atlantic trade and investment supports an estimated 16 million jobs on both sides of the Atlantic.

• The Trans-Atlantic economy accounts for half of total global personal consumption.

• EU countries buy about 20% of California exports.

• Agreements with Middle Eastern countries help foster deeper economic and trade ties.

Background

The trans-Atlantic economic partnership is a key driver of global economic growth, trade and prosperity, and represents the largest, most integrated and longest-standing regional economic relationship in the world. The many reasons to support this relationship come from an economic perspective, a geopolitical perspective, a company benefit perspective, as well as regulatory cooperation, and technological innovation perspectives.

The United Kingdom formally exited the European Union on January 31, 2020 and has since been in a transition period that ended on December 31, 2020. On December 24, 2020, the EU and U.K. announced a trade agreement to avoid tariffs when the transition period ended. The EU Parliament was expected to allow the new agreement to come into force provisionally and approve it retroactively early this year.

Post-Brexit, the EU now officially consists of 27 countries: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, the Mediterranean Island of Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.

The EU-27 market represents an estimated 448 million people, and has a total gross domestic product (GDP) of $15.59 trillion, as of 2019, while the United Kingdom has an estimated population of 68 million people and a GDP of $2.87 trillion. The United States has 328 million people and a GDP of $21.37 trillion as of 2019 (World Bank).

The EU presidency rotates with each member country taking turns for six months at a time as chair of EU meetings and representing the EU at international events.

U.S.-European Union Free Trade Agreement

In October 2018, then-U.S. Trade Representative Robert Lighthizer notified Congress, in keeping with Trade Promotion Authority (TPA) protocol, of the Trump administration’s intent to start negotiations with the European Union. Negotiating objectives published in January 2019 included removing tariff and nontariff barriers and creating more balanced, fairer trade.

Total bilateral trade between the European Union and United States was more than $1 trillion in 2019, with goods trade accounting for $850 billion. The United States exported $336.3 billion worth of goods to EU member nations. The U.S. and EU are each other’s primary source and destination for foreign direct investment (FDI). The U.S. invested $3.6 trillion in the EU in 2018, representing 61% of total U.S. investment abroad, and the EU invested $3 trillion in the U.S., representing 68% of total FDI in the U.S. (AmCham Europe). California exports to the EU were $34.9 billion in 2019, making up nearly 20% of all California exports.

In December 2020, the EU announced a new “agenda for global change” between the EU and U.S., with the intention of creating a like-minded partnership in relation to China. The agenda outlines goals such as working together to solve bilateral trade irritants, leading reforms of the World Trade Organization, establishing an EU-U.S. Trade and Technology Council, finding solutions for a digital tax, and protecting technologies against global economic and security concerns.

U.S.-United Kingdom Free Trade Agreement

In October 2018, the Trump administration formally notified Congress that the administration would be pursuing a trade agreement with the United Kingdom once the U.K. left the EU. Negotiations were launched on May 5, 2020. Sessions followed with plans to continue until the agreement is reached. Negotiating amidst the coronavirus provided some challenges, so the U.S.-U.K. trade agreement is the first agreement to be negotiated virtually, and still is pending.

In July 2017, then-U.S. Trade Representative Lighthizer and U.K. Secretary of State for International Trade Dr. Liam Fox formed the U.S.-U.K. Trade and Investment Working Group, which focused on providing commercial continuity for U.S. and U.K. businesses, workers and consumers as the U.K. left the European Union. The working group met six times leading up until 2020, laying the groundwork for the free trade agreement (FTA) negotiations as it explored ways the two countries can collaborate to promote open markets, and freer and fairer trade around the world.

According to the U.S. Department of Commerce, the U.S.-UK investment relationship is the largest in the world, valued at more than $1 trillion in 2016 and creating more than 2 million jobs, about 1 million in each country. Moreover, U.K. FDI into the United States in 2018 totaled $597.2 billion, while FDI from the United States into the United Kingdom totaled $757.78 billion. Two-way trade between the United States and the United Kingdom was $132.33 billion in 2019 and the United Kingdom was the fifth largest importer of U.S. goods; the total value was $69.15 billion. The United Kingdom is California’s 12th largest export destination, with more than $5.2 billion in exports. In California, the United Kingdom is the No. 2 country for FDI through foreign-owned enterprises (FOEs). British FOEs in California provide more than 111,430 jobs through 2,433 firms, amounting to $9.44 billion in wages (World Trade Center Los Angeles, May 2020).

Free Trade Agreements in Middle East

The United States has five free trade agreements with countries in the Middle East, along with Trade and Investment Framework Agreements (TIFAs). During 2020, the United States under the Trump administration also was responsible for brokering several peace deals in the Middle East between Israel and the United Arab Emirates, Bahrain, Sudan and Morocco—which will contribute to fostering deeper economic and trade ties between the United States and these countries in the future.

• The U.S.-Bahrain Free Trade Agreement, first enacted in 2006, is now responsible for $1.5 billion in bilateral trade, of which $1.4 million is U.S. exports to Bahrain. California is one of the top exporting states to Bahrain with $58.4 million in goods exported to Bahrain in 2019.

• The U.S.-Israel Free Trade Agreement was the first U.S. FTA. Since it entered into force in 1985, exports to Israel have increased by more than 450%. In 2019, Israel was the 23rd largest export destination for U.S. exports, which topped $14.3 billion. In the same year, California exported $1.6 billion to Israel, making it the 20th largest export destination for California goods. Israeli FDI into the United States totaled $38.45 billion in 2018, while U.S. investment into Israel totaled $27.14 billion.

• The U.S.-Jordan Free Trade Agreement went into effect in 2010. In addition to increasing trade, the agreement also aimed to improve labor standards in Jordan. The United States is one of the largest exporters to Jordan, having exported $1.47 billion of products in 2019. The United States imported $2.1 billion worth of goods in 2019. California is the largest exporting state to Jordan, exporting $283.8 million worth of products in 2019.

• The U.S.-Morocco Free Trade Agreement entered into force in 2006 to support economic and political reforms in Morocco and give improved opportunities for U.S. exports to Morocco. In 2019, goods exports to Morocco totaled $3.47 billion, compared to $79 million in 2005, the year before the FTA went into force. The United States also is one of the largest importers of Moroccan goods, importing $1.58 billion in 2019. California exported $116.9 million worth of goods to Morocco in 2019 and imported $118.2 million the same year.

• The U.S.-Oman Free Trade Agreement enacted in 2009 continues to promote trade and investment liberalization and openness in the region. The United States exported $1.9 billion to Oman in 2019. Since the FTA took effect, California exports to Oman have nearly tripled, totaling $123.8 million in 2019.

Anticipated Action

The California Chamber of Commerce is hopeful that the United States and Trans-Atlantic region will continue to strengthen relations in 2021 to deepen the world’s largest trading and investment relationship, with a focus on trade and investment initiatives. The CalChamber supports the following issues being discussed during negotiations:

• eliminating tariffs on trans-Atlantic trade in goods;

• establishing compatible regulatory regimes in key sectors to address regulatory divergences that unnecessarily restrict trade;

• a bilateral investment agreement;

• liberalizing cross-border trade in services; and

• bilateral expansion of government procurement commitments.

Progress has been slow as to whether to include agriculture and tariffs in negotiations.

It is expected the Biden administration will revitalize U.S. alliances with European nations, complete negotiations for a U.S.-U.K. Free Trade Agreement and consider an eventual U.S.-EU Free Trade Agreement.

It also is hoped the Biden administration will continue to cultivate the trade and economic ties with U.S. strategic partners in the Middle East.

CalChamber Position

The CalChamber, in keeping with longstanding policy, enthusiastically supports free trade worldwide, expansion of international trade and investment, fair and equitable market access for California products abroad and elimination of disincentives that impede the international competitiveness of California business.

Strengthening economic ties and enhancing regulatory cooperation through agreements with our top trading partners that include both goods and services, including financial services, is essential to eliminating unnecessary regulatory divergences that may act as a drag on economic growth and job creation.

Agreements like this can ensure that the United States may continue to gain access to world markets, which will result in an improved economy and additional employment of Americans.

January 2021

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Policy Contact

Susanne-Stirling-2012-300x300Susanne Stirling
Vice President, International Affairs