A Closer Look at the UK – US Economic Prosperity Deal - Tariffs, National Security and Beyond

The General Terms of the EPD have been published, setting out immediate commitments made by the UK and the US and also indicating the areas where the two countries intend to negotiate further. The EPD’s General Terms (which remain subject to negotiation before a legally binding agreement is reached) focus on tariffs and non-tariff barriers to trade, as well as digital trade, economic security, and national security.

Whilst the EPD is not a comprehensive free trade agreement, given the recent tariff escalation (as reported by us previously – please see here), it will offer comfort to businesses operating in the impacted sectors, including automotive, agricultural, and steel and aluminium.

The UK and US governments have also announced their mutual commitment to focus negotiations on additional key sectors, such as pharmaceuticals, and to collaborate in key areas of advanced technology (including aerospace, biotech, life sciences, quantum computing, and nuclear fusion).

Tariffs

The General Terms set out a mutual intention to reduce import tariff rates for UK- and US-originating goods in sectors of importance to each country. Reduction of applied tariff rates will take place following a reasonable period of negotiation, and the timing of the mutual reduction of rates will likely be coordinated (taking account of domestic legal processes). Quotas for duty-free or lower tariff rate imports of certain goods have also been announced.

We summarise below the key commitments in relation to the different sectors covered by the EPD.

Steel and aluminium, automotive and aerospace

• The US will allocate a quota for UK steel and aluminium and certain derivative steel and aluminium products at most favoured nation (MFN) rates, effectively scrapping the 25% rate imposed recently as part of the tariff escalation. This is conditional upon the UK meeting US’ supply chain security standards for steel and aluminium products intended for exports to the US.
• The US will lower the tariffs imposed on UK cars from 27.5% to 10% for up to 100,000 vehicles.
• While the General Terms do not yet include an exemption for aerospace parts, President Trump’s team have announced plans to create a tariff carveout for certain engines and other aircraft parts from the 10% baseline rate.

Beef and ethanol

• The UK will remove the 20% tariffs which the US beef imports are subject to (previously for a quota of 1,000 metric tonnes) and create a preferential duty-free quota for 13,000 metric tonnes for US beef. Further agricultural concessions are expected to be negotiated in the next phase of discussions.
• The US will reallocate 13,000 metric tonnes of its existing “Other Countries” tariff rate quota (TRQ) for UK beef.
• The UK will offer a preferential duty-free TRQ of 1.4 billion litres for US ethanol.

Pharmaceuticals

• The two countries also intend to negotiate significant preferential treatment outcomes on pharmaceuticals and pharmaceutical ingredients, provided that supply chain security requirements are met.

The US will retain its 10% “reciprocal” tariff rate on other imports from the UK – although the scope of this is the subject of continuous negotiations between the countries.

Non-Tariff Barriers

• The UK and the US will work to enhance agricultural market access and have agreed that meeting the importing country’s sanitary and phytosanitary (SPS) standards and other mutually agreed standards is of key importance. The countries will address mutual concerns and strengthen cooperation in areas such as export verification programmes.
• The UK and the US have each affirmed their intention to treat the other’s conformity assessment bodies no less favourably than their own domestic ones. This includes equal treatment in terms of procedures, standards, fees, and other requirements related to accreditation, approval, licensing, or recognition.
• The intention is to expand on the current Mutual Recognition Agreements (MRAs) by negotiating new ones where appropriate, particularly for industrial goods.

Digital Trade, Economic Security and National Security

• The UK and the US have committed to negotiating a comprehensive set of digital trade provisions that will cover services — including financial services — as well as to promote paperless trade, pre-arrival processing, and the digitalisation of procedures for the movement of goods between the two countries.
• The UK and the US intend to deepen their collaboration on economic security by coordinating responses to ‘non-market practices of third countries’ (i.e. policies that disrupt free trade principles) and by enhancing cooperation on investment screening, export controls, and cyber-security matters such as Information and Communications Technology (ICT) vendor security.
• The nature of the collaboration in respect of investment screening, and whether this collaboration will grant the US an ‘informal veto’ as part of the UK’s National Security and Investment Act (e.g. blocking or imposing increased scrutiny on investments in the UK) as has been speculated, is yet to become clear.
• To promote fair, competitive, and secure access to each other’s procurement markets, the UK and the US have reaffirmed their commitments under the Agreement on Government Procurement (GPA). The UK and the US are also planning to discuss how these commitments are implemented, including through the UK’s new National Security Unit for Procurement and the enhanced powers granted by the Procurement Act 2023 (which currently provides that states which are not party to any of the international agreements listed in the Act are not protected from discriminatory treatment during a procurement process).
• The UK and the US have also agreed to include provisions in the EPD focused on customs cooperation to prevent duty evasion. This includes tackling schemes such as illegal transshipment of goods otherwise subject to anti-dumping measures, countervailing duties and safeguards, as well as combating other practices that circumvent trade remedies and pose risks to economic security.

Commentary

The EPD represents a positive step in trade relations between the UK and the US. The potential for future collaboration on ‘emerging technologies’ such as biotech and quantum computing is also of key interest given the move towards protectionism in these fields in recent years.

While it remains to be seen how the deal develops, it is interesting to note the immediate commitment to meeting each other’s SPS standards. This indicates that the UK will retain the flexibility to set its standards in a way which facilitates easier trade with the EU.

It is also worth noting that the UK has not committed to removing the digital services tax on US technology companies. The scope of any future digital trade provisions will be of particular interest in this context, and it is expected that the UK will come under pressure from the US to make fiscal conditions more favourable for US tech giants.

The UK and the US have openly acknowledged that the General Terms of the EPD do not constitute a legally binding agreement. Negotiations will continue as both sides work to develop and formalise the initial proposals. For the time being, the uncertainty of trading conditions between the UK and the US is likely to remain, fuelling current economic volatility.