While a free trade agreement between the US and the UK will benefit both countries, how important is the UK as a US plastics trade partner?
Perc Pineda, PhD
Chief Economist
The deal-or-no-deal Brexit question was answered at the close of 2020. The UK and the EU struck a trade deal preventing supply chain and consumption disruptions in the UK. Zero tariffs and quotas between the UK and EU took effect on January 1, 2021. When it was part of the EU, the UK benefitted from any EU trade agreements with more than 70 countries. Reports indicate that the UK struck trade deals with 60 countries. In October last year, the UK and Japan signed a free trade agreement. According to reports, trade agreements with Canada and Mexico will start early this year. US-UK free trade talks began last year. However, according to the Congressional Research Service (In Focus, January 14, 2021) “It is uncertain if a Biden Administration will continue with the trade negotiations or engage, for instance on specific bilateral issues first.”
While a free trade agreement between the US and the UK will benefit both countries, how important is the UK as a US plastics trade partner?
In 2019, the US plastics industry export to the UK totaled $1.3 billion, which places the UK as the 11th largest export market. In plastics products alone, the UK was the fourth-largest US export market that generated $823.9 million in exports. US exports of resins to the UK in 2019 totaled $437.8 million, and plastics machinery and plastics mold exports were $34.6 million and $5.3 million, respectively. US plastics imports from the UK in 2019 were slightly over $1.0 billion positioning the UK as the 9th top source of US plastics imports.
While the US has maintained a surplus in plastics industry trade with the UK—from a low of $138 million to a high of $387 million from 1997 to 2019—it had trade deficits in some years in plastics machinery and plastics mold. Except in 2016 and 2019, the US has a trade surplus in plastics machinery. The US had a trade surplus in plastics mold through 2003, thereafter, it had a deficit except for two years of surplus in 2010 and 2012.
Based on the 2020 year-to-date data ending November, the US had a $260.2 million trade surplus with the UK. The trend of a US surplus in resins and products and deficit in machinery and mold appears to have continued in 2020.
Knowing the contours of UK-EU trade relations, the US—as a third country exporter—will continue to face competition from EU members in the UK market just as in previous years before Brexit. Based on trade data from the International Trade Center—a joint agency of the World Trade Organization and the United Nations—of the $18.8 billion plastics and products thereof (HTS 39) the UK imported in 2019, 67.2% originated from EU member countries—20.3% of which originated from Germany. Imports from China and the US were 11.1% and 7.3%, respectively. The US not only competes with duty-free imports from EU countries, but it also competes with other countries.
Additionally, the US faces competition from developing countries under the UK’s Generalized System of Preferences (GSP). Developed countries offer non-reciprocal preferential treatment such as zero or low tariffs on imports originating from developing countries. The US is one of the 13 countries, including the EU, granting GSP preferences. With the UK no longer part of the EU, it is now granting GSP preferences on its own.
In 2019, a 6.0% tariff—the Most Favored Nation duty rate—was imposed on US exports of polyethylene with a specific gravity of <0.94 in primary form (HTS 390110) to the UK. However, India’s export of the same commodity in 2019 was levied a preferential tariff for GSP countries of 2.5%. India’s exports of this polyethylene grew 56% from 2015-2019 while that of the US grew only at 7.0%. On plastic products, such as HTS 391690[1], US exports were also assessed a 6.0% duty. The same imports from India into the UK were duty-free under preferential tariffs for GSP countries.[2]
The examples above are two of other preferential tariff rates afforded to GSP beneficiaries. It is not being advocated here that GSP should be dismantled, after all, there are eligibility requirements for countries to benefit from GSP. Those that are no longer considered developing countries lose their GSP eligibility. More importantly, there are economic arguments for developed countries to extend differential and more favorable handling of trade with developing countries. A US-UK free trade agreement, however, will enhance trade and improve US industries’ competitiveness in the UK market. More importantly, the UK is a key partner of the US in plastics trade—a major source of plastics imports of the US. The benefit of a US-UK free-trade agreement for the plastics industries of both countries will be positive.
[1] HTS 391690 – monofilament of which any cross-dimension >1 mm, rods, sticks, and profile shapes of plastics, whether or not surface worked but not further worked (excluding that of polymers of ethylene and vinyl chloride))
[2] Tariff rates came from International Trade Center, a joint agency of the World Trade Organization and the United Nations.
