The investigation by the International Trade Commission demonstrated that there are no significant economic obstacles to a free trade arrangement with the United Kingdom. To the contrary, there would be important economic benefits, not the least of which would be to cement the already substantial economic relationship, as well as serve as an instrument to improve trade relations with the EU. In addition, negotiation of a U.K.-NAFTA agreement could provide an opportunity to remove trade barriers that still exist within NAFTA.

• The United States and the United Kingdom are leaders in free trade, with similar traditions and history
  
  
• "The United States is the UK's largest single trading partner, accounting for about 12 percent of the UK's total trade and for 90 percent of its trade with North America." p. iii
  
  
• "Trade between the UK and the North American countries is subject to relatively few trade barriers." p. iii
  
  
• "The United States and the UK are the two largest global investors and largest recipients of foreign direct investment, and are also each other's largest foreign investor." p. iii
  
  
• "Many of those interviewed for this investigation reported that close cultural links between the UK and Canada and the UK and United States enhance trade and investment. They cited similar business cultures, the English language, similar law and tax structures, shared liberalization in telecommunications, financial sectors, and energy as stimulants to trade between the UK, United States and Canada." p. 1-5
  
  
• The UK would lead trade liberalization in certain sectors – including agriculture and financial services – under a different relationship with the EU
  
  
• "Some economists reported that the UK would liberalize faster and more extensively in these sectors if it had a different relationship with the EU. Many specialists interviewed acknowledged the UK's liberal outlook in these sectors, but concluded that the UK is a liberalizing influence on the EU." p. 1-4
  
  
• A general, if modest, positive economic effect of a UK-NAFTA arrangement
  
  
• "[A] complete elimination of tariffs on products traded between the UK and the United States would increase US imports from the UK by 7 to 12 percent, and UK imports from the United States by 11 to 16 percent." p. iii
  
  
• "...[O]verall tariff reductions are expected to have small aggregate effects, but may increase the availability of such products at lower prices and thus increase the range or variety of products available to consumers." p. ix
  
  
• "Despite the healthy trade relationship between North American countries and the UK, however, some trade barriers exist. These are evident for trade in agricultural products; pharmaceuticals; textiles, apparel, and footwear; machinery and equipment; services; and miscellaneous products." p. x
  
  
• The UK could modify its relationship with the EU without withdrawing from EU membership and could stimulate closer US trade with the EU
  
  
• "...[M]any commentators believe that a variety of arrangements could be worked out, should the UK enter into a North American FTA. Outcomes range from a complete retention of free trade, labor, and capital mobility among the EU states (including the UK) to severing the UK's ties to the EU. Perhaps the more probable outcome lies within the broad middle range, in the form of an attenuated attachment of the UK to the EU... In the longer term, another possible outcome might be the relaxation of trade restrictions between the North American economies and the EU as a whole." p. 1-1
  
  
• The UK's close ties to the EU could continue with a UK/NAFTA free trade agreement
  
  
• "As the UK and EU evolve closer together, however, an increasing percentage of the UK's overall trade and investment is taking place within the EU. Nearly all UK business leaders and all UK Government officials contacted by the ITC in this investigation note the pervasive feeling that, politically and commercially, the UK's future is in Europe." p. 1-3
  
  
• Some not-unexpected resistance among UK government officials to the UK/NAFTA concept
  
  
• "Most of the UK commercial and Government officials contacted by the ITC during this investigation expressed their opinions that a substantive alteration in the UK-EU relationship might be harmful to the UK. The commercial uncertainty resulting from any alteration in this relationship might result in currency volatility and investment flight. Were the UK to have a different relationship with the EU, the UK might not only face uncertainty in its trade and investment with the rest of the EU, but might also face uncertainty in its trade relationships with the rest of the world." p. 1-3
  
  
• UK exports to other, non-EU destinations play an increasingly important role in UK trade
  
  
• "However, between 1990 and 1998, UK exports to and imports from the EU14 grew less rapidly than total UK exports and imports... The shares of both UK exports and imports accounted for by the EU fluctuated erratically through the entire period." p. 2-1
  
  
• "The North American share of UK trade remained fairly constant during 1990-1998... Between 1990 and 1998, UK exports to North America rose steadily by 47 percent to $42 billion, after an initial decline in 1991." p. 2-1
  
  
• "The UK trades more with North America, as a percent of total trade, than do the other 14 EU member states as a whole... [D]uring 1990-98, the UK traded almost twice as much with North America as did the other EU member states together (as a percent of total trade)." p. 2-4
  
  
• The trade barriers that could be lowered under UK/NAFTA free trade agreement
  
  
• Agriculture: "The EU has a broad range of tariffs, regulations, and programs that have been identified as impediments to trade in agricultural products. Many EU agricultural imports face tariffs in excess of 15 percent....Canada maintains trade barriers on a wide range of agricultural products....Tariffs present the most significant barriers to agricultural trade with Mexico....US impediments to imports fal into several categories." p. 3-3, 3-4
  
  
• Energy and fuels: "The energy sectors in the US and the UK have few tariff and nontariff trade barriers. However, Canada did not bind its tariffs on gas, oil, and related products in the Uruguay Round, and its tariffs are subject to change at any time... Access to the Mexican market is restricted because oil exploration, production, refining, and gasoline retailing and trade in Mexico are reserved for Pemex, a state-owned monopoly." p. 3-6
  
  
• Chemicals, plastics, and rubber products: "For the most part, impediments to trade in the chemicals, plastics, and rubber sector are few....Canada retains a 15.7 percent ad valorem duty on surgical and rubber gloves and prohibits imports of used tires from countries other than the United States....Mexico prohibits the importation of certain chemicals for health and safety reasons, requires import authorization and licenses for most chemicals and plastics, and has implemented reference prices for chemicals. US suppliers consider EU standards on certain chemicals to be unnecessarily restrictive." p. 3-7, 3-8
  
  
• Pharmaceutical products: "Pharmaceutical products face certain EU nontariff barriers....Canadian nontariff barriers affect a wide range of pharmaceutical products....Mexican regulations and program have been identified as impediments to trade in pharmaceutical products....US nontariff barriers to trade in pharmaceutical products affect medicinal products and sunscreens." p. 3-9, 3-10
  
  
• Forest products: "There are few impediments to trade in this sector. The most significant barriers are Mexico's system of reference prices and Canadian and Mexican prohibitions on the importation of printed material." p. 3-12
  
  
• Textiles, apparel, and footwear: "The EU has cited a number of regulations that it feels impede trade with North America in this sector [including NAFTA rules of origin, Mexican and US labeling requirements, Canadian value-added tax, and customs information]. The EU claims that high tariffs in this sector create significant barriers to trade with the United States and Canada." p. 3-15
  
  
• Minerals and metals: "Research has identified few impediments to trade in this sector." p. 3-17
  
  
• Machinery and transportation equipment: "Most nontariff barriers reported in this sector pertain to motor vehicles." p. 3-18
  
  
• Miscellaneous products: "US and Canadian tariffs for certain products in this category, reference prices in Mexico, and EU regulation presented the most significant barriers to trade among the four countries." p. 3-20
  
  
• Services: "A large number of measures affect a variety of service industries in each of the four countries. The most significant barriers are in the banking and securities, insurance, and telecommunication service industries. Barriers in these areas have economywide effects as these industries constitute integral components of the commercial infrastructure." p. 3-23
  
  
• In general, need to address UK-EU relationship
  
  
• "Any change in the UK's trading relationships of the type envisaged in the...letter from the Senate Finance Committee would require the formation of some policy to govern the UK's trade relationship with the rest of the EU. Such a policy could fall within a broad range of possibilities, from keeping current preferential trade relationships essentially unchanged to a complete severance of ties between the UK and the EU. This discussion illustrates some of the intermediate trade relationships that the EU maintains with other countries. Needless to say, since over half of the UK's imports and exports are with the EU, this trade relationship is important to the UK economy and any changes to it would have profound effects." p. 2-19