Recently the UK government has announced the signing of a Memorandum of Understanding with the US state of Florida; with the state joining the ranks of Washington, Utah, North Carolina, South Carolina, Oklahoma and Indiana who all have laid out their state-level agreements with the United Kingdom in this way.
But what exactly does a Memorandum of Understanding mean, and how can it help UK businesses looking to trade with the United States of America?
In layman’s terms, a MoU is a starting point. The first port of call for two nations or regions looking to do business together. It’s the document version of a handshake, agreeing objectives and ambitions before entering negotiations for a more in-depth or structured trade agreement. Although not legally binding, an MoU carries substantial weight as it signifies the intent and commitment of the parties involved. When approaching any legal contract, a Memorandum of Understanding (MoU) can play a hugely beneficial role in clearly outlining the parameters; so, it’s easy to imagine how these documents can help clarify and streamline international trade.
Key Benefits of a Memorandum of Understanding
Facilitating Trade and Investment: This is the main benefit of a Memorandum of Understanding. Businesses from the two countries or regions involved will likely encounter more favourable circumstances when looking to trade, as both sides look for greater cooperation.
Collaboration and Networking Opportunities: MoUs create a framework for collaboration and networking between SMEs. They encourage partnerships, joint ventures, and knowledge exchange, enabling SMEs to leverage each other's strengths, share best practices, and explore new business opportunities. Such collaborations can lead to increased innovation, shared resources, and the development of new products or services.
Access to Government Procurement Opportunities: MoUs can open doors for SMEs to participate in government procurement processes. They can create mechanisms for SMEs to bid for contracts and supply goods or services to government agencies. This access to government procurement opportunities can be a significant boost for SMEs, as it provides a stable and reliable customer base.
Flexibility: Unlike more structured trade agreements, a MoU allows for higher levels of flexibility, being able to adapt to new circumstances and economic environments more easily than legally binding treaties.
Non-Legal Influence: While it’s non-binding nature could be considered restrictive in the legal sense, a memorandum still holds considerable weight in a wider sense. It carries political and moral influence, meaning the parties will be expected to uphold it or face losing out in the court of public opinion.
Access to Expertise and Resources: MoUs often involve government bodies, trade organizations, or industry associations. This opens avenues for SMEs to access valuable expertise, guidance, and resources. For instance, SMEs can benefit from mentorship programs, business development initiatives, or specialized training provided by these entities, which can enhance their competitiveness and capabilities.
Regulatory Alignment and Standards Harmonization: MoUs can contribute to regulatory alignment and standards harmonization. This alignment simplifies compliance requirements for SMEs operating in both jurisdictions, reducing bureaucratic barriers and enhancing business efficiency. It enables SMEs to navigate regulatory frameworks more smoothly, reducing costs associated with compliance and facilitating trade between the two entities.
"A real benefit of a Memorandum of Understanding is that, while not legally-binding, it can open doors to procurement opportunities in the private and public sector. Whilst a trade deal has more legal weight to it, benefits like this mean memorandums certainly should not be disregarded."
Jade Blackburn, Head of Sales - WTA
Why is the UK signing Memorandum of Understanding with several US states?
Given the structure of the United States, with responsibilities and laws shared between both federal and state level governments, a Memorandum of Understanding can be seen as a useful formalisation of any specific trade a particular state wishes to embark upon with the UK – without interfering with any federal trade agreements in place.
States with MoUs with the UK will have higher levels of transparency when it comes to trade and allow for more specific focus areas per state, to play into each region's strengths.
For example, the Utah MoU highlights an emphasis on the aerospace and academic sectors, while South Carolina instead places value on strengthening trade in the automotive sector.
Nevertheless, the nature of the US government is precisely the cause of the limitations of these state memorandums. As typically, a MoU will pre-empt further negotiations and a more legally binding agreement, but one expects these would all need to be agreed on a federal level instead. Therefore, trade opportunities on a state level will always be limited, no matter how many memorandums exist.
"There can be no doubt Joe Biden's government has set out a protectionist agenda, with the Inflation Reduction Act and his lack of interest in continuing negotiations over a free trade deal that began under the last administration."
"Whilst obviously falling short of a free trade deal, which the UK government publicly desires, these Memorandums of Understanding will help businesses to facilitate trade between the UK and some areas of the US."
Keri Barton, Sales & Marketing Director, WTA
Despite the drawbacks though, these MoUs between the UK and US states create a favourable environment for UK businesses, and SME’s in particular, given how they pave the way for enhanced business networks, regulatory alignment, and increased access to government procurement. SMEs can leverage these MoUs to expand their operations, access new markets, and benefit from the synergies between the UK and US state economies.
