On May 27, Indiana and the United Kingdom signed a trade deal of sorts. It’s technically a memorandum of understanding (MoU), and it does not include legally-binding obligations. But make no mistake, this deal is a game-changer, and it’s just the beginning.
Back in 2018, the Trump administration notified Congress that it was going to negotiate a U.S.-UK trade deal after Brexit. The Biden administration has cooled to the idea, even though talks continue. This put British Prime Minister Boris Johnson in a political bind. His government vowed it could deliver a U.S.-UK trade deal in short order, but as the opposition likes to point out, this now seems increasingly unlikely.
Enter Plan B. Johnson’s government has launched what it calls a “state level strategy,” the idea being to side-step Washington and pitch free trade directly to the governors. So far, the UK claims it’s in talks with 20 states. In addition to Indiana, the list includes California, Georgia, North Carolina, Oklahoma, South Carolina, Tennessee and Texas.
The UK will access 20 percent of U.S. gross domestic product through the first eight of these deals. Not surprisingly, Johnson has prioritized getting MoUs with California and Texas. California is the UK’s fifth largest trade partner. Texas would be the world’s seventh largest economy.
But there’s a problem. The Constitution’s Commerce Clause leaves little doubt that trade and treaties are the stuff of Congress, not the states. Indiana can’t lower tariffs on UK imports on its own, and Texas can’t sign formal commercial agreements.
So, what to do? The answer is to get an MoU. These deals are not legally binding. Rather, they set out aspirations, expectations and consultative mechanisms, hoping to increase cooperation though informal means. California and Texas, among other states, have signed MoUs with foreign federal and subfederal governments on issues that range from the environment to curbing illegal immigration.
The text of the Indiana-UK MoU makes for an interesting read in this regard. It calls for cooperating on workforce development, advanced manufacturing, low-emissions technology and government procurement, for example, and comes backed by a variety of information-sharing mechanisms and a working group to trouble-shoot the MoU. Section 10, on final provisions, concedes that none of this is legally binding. Rather, it will be pursued in “good faith.”
Don’t be too quick to discount this. The a la carte provisions of the Indo-Pacific Economic Framework aren’t legally binding either. Moreover, there may be big returns to regulatory cooperation, and on state- and municipal-level government procurement. Academic cooperation may also pay dividends in terms of technology transfer and facilitating education as a traded service.
These MoUs need the equivalent of a most-favored nation clause. If the provisions evolve over time, states that get deals early should get the best of whatever the UK gives states that sign up later.
The opposition says Johnson’s pursuit of these MoUs is not a substitute for a UK-U.S. trade deal. They’re right. But the MoUs are better than nothing, and they could also force Washington’s hand if, within the next year, half of all U.S. states have one and the rest are in queue.
The bigger picture is that, armed with creative MoUs, states can seek out deals with other trade partners, and with each other. There are, indeed, sizable markets to be tapped abroad. But as a handful of Canadian provinces have realized, the benefits of more free trade at home can be as great, if not greater.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.