The United States and the United Kingdom's May 8 announcement of the "General Terms" of a U.S.-UK Economic Prosperity Deal ("EPD") focused on enhancing trade between the countries and reducing barriers to trade by resolving existing national security duty regimes affecting automobiles, steel, and aluminum, as well as market access for certain U.S. exports. While many details remain subject to further refinement and additional deal-making likely will occur, the summary announcements from both sides of the Atlantic provide important insight into the likely substance of other trade deal negotiations.
The EPD General Terms Is Not a Legally Binding Agreement
Importantly, the General Terms EPD "does not constitute a legally binding agreement," but instead outlines the major intended provisions of an eventual EPD. In this regard, the document is more of a term sheet that announces the essential elements of what each country intends do in the future. That said, as discussed more below, there are certain commitments each country has made to the other in principle. This reflects the practical realities of embarking upon a comprehensive trade deal in the short window available to the parties.
10% "Reciprocal" Tariffs Untouched
Most interesting is that the EPD would maintain the 10% baseline "reciprocal" tariffs imposed pursuant to the International Emergency Economic Powers Act (IEEPA). The UK's IEEPA "reciprocal" tariff was 10%. This tariff rate was imposed even though the United States enjoys a trade surplus with the UK. The fact that the 10% baseline tariff was not disturbed may signal that baseline ring-fence tariffs are a permanent fixture of Trump Administration tariff policy and will continue to be referenced as an "external" revenue-raising measure.
Section 232 Sectoral Tariffs Can Be Negotiated
The EPD General Terms opens the door for countries to negotiate off-ramps to the various sectoral tariffs issued and likely soon-to-be-issued pursuant to Section 232 of the Trade Expansion Act of 1962 (Section 232). This is a significant development because the negotiations were accelerated from the U.S. side in direct response to overtures countries made following the April 2 "Liberation Day" reciprocal tariff announcement and not the existing Section 232 measures.
For automobiles, the U.S. and UK have reached an "alternative arrangement" that will operate as a tariff rate quota (TRQ). 100,000 vehicles imported by U.K. car manufacturers will pay a 10% tariff, rather than 25% under Section 232. At present, it is not clear whether that 10% figure is inclusive of the 2.5% Column I tariff currently applicable to products classified under Heading 8703 of the Harmonized Tariff Schedule of the United States. The UK release appears to imply that it is, whereas the White House and Commerce Department releases appear to imply that it is not. The EPD General Terms do not expressly address this question. It is also unclear how "UK car manufacturers" would be defined for purposes of qualifying to make use of the tariff rate quota, but the UK release mentions Jaguar Land Rover and states that 100,000 UK cars is "almost the total the UK exported" in 2024. Imports above that 100,000 vehicle threshold will be subject to the existing 25% tariff put in place under Section 232. In addition, the countries will develop an arrangement for auto parts.
On steel and aluminum, the U.S. will "promptly construct a quota at most favored nation (MFN) rates for UK steel and aluminum and certain derivative steel and aluminum products." This essentially reduces those tariffs to 0% as most steel and aluminum articles do not have an above-zero MFN rate. In exchange, the UK has agreed to take certain supply chain security actions, including meeting certain U.S.-imposed requirements on "the nature of ownership of relevant production facilities." Although details remain scarce, this ownership reference implies that the U.S. is taking an approach in these negotiations that leakage or evasion concerns referenced in the President's February 2025 Proclamations must be redressed.
On the current Section 232 investigation on pharmaceuticals and pharmaceutical ingredients, the UK agrees to undertake supply chain security measures similar to those referenced above and will "improve the overall environment for pharmaceutical companies operating in the United Kingdom." The U.S. commits to negotiate "significantly preferential treatment" for UK imports covered by the investigation.
With respect to other pending Section 232 investigations covering semiconductors, critical minerals, medium and heavy trucks, wood products, and copper, the same general commitments apply for negotiated settlement: the UK will provide assurances concerning security in supply chains and the U.S. agrees to provide the UK with "significantly preferential" outcomes. However, arrangements with respect to these sectors is also made contingent on the "findings of related U.S. investigations."
"Economic Security" Foundation
The EPD General Terms contain several provisions which underscore concerns expressed by Trump Administration officials that any tariff-related dealmaking would need to ensure that the benefits of a given deal flow to the intended countries. Here, the countries expressly state their intent to apply rules of origin that maximize bilateral trade and "prevent non-participants from using our bilateral arrangement to circumvent tariffs." Relatedly, the countries embrace customs cooperation to combat duty evasion schemes and "the illegal transshipment of goods from countries subject to antidumping, countervailing duties, safeguards, etc."
Other provisions would yield coordination on related economic security topics. This includes "coordinating to address non-market policies of third countries" and the "effective use of investment security measures." The latter would appear to overlap with the Section 232 supply chain security requirements. Other provisions establish the countries' intent to collaborate on "ICT vendor security" and, in the realm of government procurement, to enforce provisions of UK law providing that "non-'treaty' states are not guaranteed non-discriminatory treatment in procurement." Collectively, these measures appear aimed at restricting third countries' ability to benefit from (or exploit) the bilateral deal.
Other Areas of Cooperation
Both countries will negotiate reductions in applied tariff rates on a preferential basis for "sectors of importance to" the exporting country. As an example, this may have been the import of the White House fact sheet's reference to giving "preferential access" to "high-quality UK aerospace components" in order to "maximize{} the competitiveness and secures the supply chain of U.S. aerospace manufacturers." If requested, the U.S. will "consider" extending such treatment to UK territories.
Other notable outcomes include:
- Each country will create a 13,000 MT TRQ for the other country's beef exports. The current U.S. in-quota tariff is 4.4 cents per kilogram. In-quota exports to the UK would be duty-free.
- The UK will create a duty-free TRQ of 1.4 billion liters for U.S. ethanol.
- Both countries will "work constructively in an effort to enhance agricultural market access," improve export verification, and cooperate in international standard-setting bodies, but reaffirm the need to comply with each countries' sanitary and phytosanitary standards. On this point, the UK's release emphasized that it is not "weakening" standards for imported food, whereas the White House targeted "non-science-based standards that adversely affect U.S. exports" in meat products.
- Both countries intend "to accord to conformity assessment bodies of the other treatment no less favorable than that it accords to conformity assessment bodies located in its own territory," and negotiate additional mutual recognition agreements for industrial goods and eventually services.
- Both countries will also work to identify what constitutes an "international standard," what such standards might be for "mutually agreed sectors of interest," and which of their standards development organizations meet such standards.
Finally, various areas are generally staked out for further negotiation, including: digital trade, financial services, digitalized trade procedures, implementation of existing government procurement agreements, intellectual property rights, labor practices, and environmental policies. There is also a general expression of intent to identify and act on mutually beneficial areas for economic integration.
Adjusting Supply Chains and Negotiating Settlements
The attorneys, licensed customs brokers, compliance professionals, economists, and trade specialists of Cassidy Levy Kent regularly assist companies in evaluating their supply chains to ensure compliant market access and adjust for tariff-related developments, both mitigating burdens and taking advantage of opportunities. Cassidy Levy Kent also leverages its thorough understanding of relevant legal regimes to advise governments on tariff policy and procedures.
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