Type of Agreement
There might be a thin or barebones agreement waiving tariffs on most or all goods in 2020. This would require the agreement of the EU and the UK. It would not be likely to deal with many crucial issues in particular in many areas of regulation and trade in services. Moreover, the EU has indicated that it will not afford unconditional tariff-free access to the EU market unless the UK agrees to some level of level playing field provisions / regulatory alignment. Otherwise, UK businesses could compete unfairly with EU businesses in circumstances where they were not bound by basic commitments in relation to fair competition, employment health and safety and environmental standards.
Incoming EU Commission president Ursula von der Leyen in a speech to the London School of Economics in January 2020 set out the EU’s approach to the forthcoming trade negotiations
The European Union is ready to negotiate a truly ambitious and comprehensive new partnership with the United Kingdom. We will make as much of this as we can. We will go as far as we can. But the truth is that our partnership cannot and will not be the same as before. And it cannot and will not be as close as before – because with every choice comes a consequence. With every decision comes a trade-off. Without the free movement of people, you cannot have the free movement of capital, goods and services.
Without a level playing field on environment, labour, taxation and state aid, you cannot have the highest quality access to the world’s largest single market. The more divergence there is, the more distant the partnership has to be. And without an extension of the transition period beyond 2020, you cannot expect to agree on every single aspect of our new partnership. We will have to prioritise.
The European Union’s objectives in the negotiation are clear. We will work for solutions that uphold the integrity of the EU, its single market and its Customs Union. There can be no compromise on this. But we are ready to design a new partnership with zero tariffs, zero quotas, zero dumping. A partnership that goes well beyond trade and is unprecedented in scope. Everything from climate action to data protection, fisheries to energy, transport to space, financial services to security. And we are ready to work day and night to get as much of this done within the timeframe we have.
The EU UK task force published a series of slides in the second week of January 2020 in relation to certain key issues in the Brexit negotiations.
It emphasised the difference between EU membership and non-EU membership. It highlighted that membership of the EU involves being part of a system of rules with an overall system of treaty rules EU regulations, judicial review, enforcement supervision and market surveillance and administrative oversight and enforcement by the EU Commission and governments as their agent. Being outside this system, even with a very close relationship with it, is fundamentally different from being inside it.
EU Membership Qualitatively Different
A non-member cannot have access to the basic four freedoms: free movement of goods, services, capital and persons. A free trade agreement may involve a limited opening of trade in certain areas only. There can be no global opening up of the EU market to a non-member on the same terms as to a member. There might be a targeted removal of barriers in certain areas, but there could be no comprehensive unconditional freedoms enforceable as of right.
The EU is a regulatory union involving pooled sovereignty with harmonised rules in which mutual recognition is the default position and restrictions are prohibited with direct legal effect. In contrast, the UK would have regulatory autonomy and freedom to set its own rules. It would comprise a different regulatory space.
Under these conditions, which is the traditional and default position worldwide, access to the market of the other requires full compliance with the host state rules. This may take place by agreements between states, but they would have no direct effect and could not be enforced directly by businesses, individuals and others. The arrangements could operate only mutual agreement rather than by qualified majority, as applies for much detailed secondary EU legislation.
The EU has emphasised its position on a trade agreement dating back to the original European Council guidelines in 2017 and 2018. As close a partnership as possible is sought with a wide-ranging free-trade agreement provided that there are sufficient guarantees for a level playing field. It has emphasised repeatedly that there is a balance of rights and obligations. It is a fundamental principle that the UK as a third country non-member, does not live up to the same obligations as a member and cannot have the same rights and enjoy the same benefits as a member.
There can be no general free movement of goods. Customs controls and procedures will apply. Most duties and quotas may be eliminated over time, and there is an ambition to have zero tariffs and zero quotas. New customs tariffs and quotas would be prohibited. There would be a ban on measures of equivalent effect.
Authorisation requirements must be justified by specific rules and exceptions provided for in the partnership. There should be enhanced disciplines on import and export licensing, import and exports, monopolies transhipments manufactured goods and origin. Rules of origin should be based on the standard preferential rules of origin of the EU
The partnership will include provisions prohibiting dumping and allowing for countervailing and safeguard measures so that either party may take appropriate measures in accordance with the WTO agreements in that regard.
Within the framework of the EU Customs Code, the partnership should aim at optimising customs procedures, supervision and controls and facilitating legitimate trade by using available facilities arrangements and technologies while ensuring authorities can take effective measures to enforce legitimate public policies and protect financial interests.
The EU has cautioned that mutual access to fishing waters is a key element of an economic partnership.
There should be appropriate customs cooperation to facilitate legitimate trade while protecting the interests of each of the EU and the UK. Use of all facilities and a range of technologies is likely. There is likely to be mutual recognition of trusted trader programmes such as authorised economic operator. There is likely to be a deep level of administrative cooperation in customs and VAT matters.
The UK status as a third country implies a distinct legal order and the necessity to manage risks at the border through customs checks and procedures. There should be appropriate and modern rules of origin in a zero-tariff environment based on level playing field commitments.
A very significant simplification and easing the burden in relation to certification of origin is the registered export system (REX) which allows certain exporters to certify origin on the basis of meeting certain conditions. Bilateral cumulation should be allowed processing so that processing in each of the EU and UK would count towards origin the purpose of the goods for the purpose of the preferential trade agreement.
The new agreement should build on and go well beyond the WTO trade facilitation agreement, including a comprehensive set of customs-related provisions covering transparency efficiency and non-discrimination. There should be administrative cooperation and mutual assistance in customs and VAT matters including the exchange of information to fight fraud and other illegal activities and mutual assistance for the recovery of claims related to tax and duties between states.
There should be the facilitation of inspections and formalities in relation to the carriage of goods, security and include the mutual recognition of authorised economic operators where the necessary conditions regarding the security of trade are met. There would be likely to be customs cooperation to mitigate the burden of customs controls and procedures. This might involve mutual recognition of authorised traders, mutually agreed security measures, the exchange of information and other measures.
The EU negotiation directives indicated the new EU UK partnership should contain comprehensive arrangements including a free-trade area with customs and regulatory cooperation underpinned by robust commitments ensuring a level playing field for open and fair competition as well as by effective management and supervision, dispute settlement and enforcement arrangements, including appropriate remedies.
There should be no mutual recognition of regulatory frameworks and regulatory decisions. Products must comply with the rules of the importing party. Therefore, checks on imports for safety health and other public policy purposes remain.
The approach to regulation is to build on the World Trade Organisation technical barriers to trade agreement. This sets out common principles and framework policies on the standardisation of technical regulations and conformity assessments.
The agreement defines international standards and promotes regulatory compatibility based on the use of international standards. It sets out principles on the use of standards in support of product legislation. The promote streamline testing and certification for the purpose of verifying conformity. It takes a risk-based approach requiring third-party conformity to high-risk products only. It permits the use of manufacturers self-declaration of conformity was currently applied. The provides principles on the use of accreditation to qualify conformity assessment bodies where third-party conformity assessment is required.
The agreement provides for good regulatory practice and minimum transparency requirements for measures. This includes early consultation of stakeholders, assessment of regulatory options and notification of procedures to partners. It involves cooperation and market surveillance, marking and labelling provisions to facilitate trade, consultation mechanisms to address specific concerns and information for stakeholders about applicable measures.
A similar approach is taken to sanitary and phytosanitary requirements, those applicable to animal health and food regulation. Such products will be required to comply with EU legislation. Third country must be authorised to export live animals plans and derivative products. Live animals and animal-derived products high-risk plants are subject to systematic border controls upon entry into the EU customs territory.
The EU has emphasised the core sanitary and phytosanitary principles including
- recognition of the EU as a single area for transparent and fair
- import conditions and authorisation procedures
- import checks
- precautionary principle
- cooperation and exchange and specific policy areas
Each side is free to regulate itself in relation to its goods. There may be regulatory cooperation on a voluntary basis. In common with most worldwide practice, the EU will not afford automatic recognition of regulatory standards. Each side preserves its regulatory autonomy. Access requires full compliance with the home state rules.
The partnership should provide for regulatory approaches that are transparent, efficient, promote the avoidance of unnecessary barriers to trade in goods and are compatible to the extent possible. There should be disciplines, i.e. commitments on technical barriers to trade and sanitary and phytosanitary measures that go beyond the existing WTO agreements.
In relation to technical barriers to trade, the disciplines should set out principles in the fields of standardisation, technical regulations, conformity assessment, accreditation, market surveillance, metrology and labelling. This includes the definition of international standards based on current shared practice and aims to promote the use of relevant international standards as a basis for technical regulations. They should streamline testing and certification requirements, for example, through the application of a risk-based approach to conformity assessment. This includes self-assessment of certification in sectors where it is possible and appropriate.
There should be a mechanism to address any specific trade concerns related to barriers to trade and to provisions aiming to ensure timely dissemination of information about measures to importers and exporters.
Sanitary and Phytosanitary
In respect of sanitary and phytosanitary measures, the partnership should build on the WTO agreement with a view to facilitating access to each of the EU’s and UK’s market by protecting human, animal and plant health. The provision should pursue the application of new export authorisation processes and recognise regionalisation in case of disease and pest outbreaks on the basis of appropriate epidemiological information provided by the exporting party.
The SPS provisions should take account of and respect international standards guidelines and recommendations of the International Plant Protection Convention, the World Organisation for Animal Health and the Codex Alimentarius.
The SPS provisions should cover
- transparency and non-discrimination,
- the avoidance of undue delays,
- the recognition of the parties’ health and pest control status, control inspections and approval procedures,
- certifications and import checks,
- emergency measures,
- the approval of establishments without prior inspection,
- regulatory cooperation on antimicrobial resistance,
- cooperation in multilateral fora on such issues,
- cooperation on sustainable food systems and
- the creation of a mechanism to address expeditiously specific trade concerns relating to SPS or any other relevant measures.
It should apply the precautionary principle, promote cooperation and exchanges and animal welfare. There should be cross-cutting disciplines on good regulatory practices and transparency for the development and implementation of efficient, cost-effective regulation of goods, early public consultations on significant new regulations or reviews of existing measures.
As a general principle, the EU is open to freedom to establish in either direction, on the basis of direct formation with an entity or a branch established in the other state (the UK and EU as the case may be). There might be limited cross-border provision of services and for movement of staff. There might be sectoral exclusions reservations and exceptions in relation to services.
As with goods, access would require full compliance with the host state rules. There would be no harmonisation of rules nor mutual recognition of rules.
The EU UK partnership and agreement should include an ambitious comprehensive and balanced provision on trade in services and investment in services and non-services sector. It should, however, respect the parties right to regulate. It should deliver a level of commitment beyond the WTO commitments taking into account the EU’s current free-trade agreements.
There should be substantial sectoral coverage covering all modes of supply. There should be no discrimination in the areas covered. There should be exceptions and limitations as appropriate, including the exclusion of activities carried out in the exercise of governmental authority. Audio-visual services should be excluded.
The high quality of the EU’s public services should be preserved taking account of the EU’s reservations in the area. The provisions on services and investment should cover sectors such as professional business services, telecommunication services coherent postal services, distribution services, environmental services, financial services and transport services
The agreement should include provisions on market access and national treatment by the host state rules for the other party’s service providers and investors. There should be provisions allowing for the entry and the temporary stay of persons for business purposes in defined areas.
The agreement should not prevent the EU and UK from applying their own national laws and requirements regarding entry and stay, provided that they do not impair the benefits accruing from the partnership. The laws, regulations and requirements existing in the EU regarding workers conditions and workers’ right should continue to apply.
Approaches to Regulation
While preserving regulatory autonomy, the partnership should promote approaches that are transparent efficient and compatible to the extent possible and which promote the avoidance of unnecessary regulatory requirements. There should be disciplines on domestic regulation. This should include provisions in line with the existing EU free trade agreement such some licensing procedures and regulatory provisions in specific areas in such agreements such as in relation to telecommunication services, financial services, delivery services, international maritime services and transport services.
The partnership should reaffirm the party’s commitment to provide to sectoral provisioning telecommunication services fair and equal access to public telecommunication services to each other suppliers and address anti-competitive practices. There should be cross-cutting disciplines on good regulatory practices and transparency for the development and implementation of efficient, cost-effective regulations for services and investment, including public consultations on significant new regulations or reviews of existing measures.
There should be a framework for negotiation on the conditions for domestic authorities to recognise professional qualifications necessary for the pursuit of specific regulated professions workers in the EU’s interest.
The EU envisages voluntary cooperation in areas of mutual interest. This will include opportunities for cooperation between regulators with a view to promoting the compatibility of measures to the extent possible while preventing unnecessary barriers to trade and investment.
Political Declaration (§§4-5, 17)
- Broad, deep and flexible partnership across trade and economic cooperation with a comprehensive and balanced free trade agreement at its core.
- The future relationship should be approached with high ambition with regard to its scope and depth, but it cannot amount to benefits of membership.
- Ambitious, wide-ranging and balanced economic partnership. The partnership will be comprehensive, encompassing a free trade agreement, as well as wider sectoral cooperation where it is in the mutual interest, insofar as there are sufficient guarantees for the level playing field and open and fair competition.
- It should facilitate trade and investment between the Parties to the extent possible while respecting the integrity of the EU’s Single Market and the Customs Union.
Initial targets under political declaration
The Withdrawal Agreement provided in relation to financial services that the EU and the UK will “endeavour” to complete their respective assessments of the equivalence of each other’s regulatory and supervisory frameworks for financial services by 30 June 20207 This exercise should be facilitated by the starting position today that the UK’s framework conforms in all 27 areas in which equivalence is judged against EU Directives and Regulations on financial service8 That could change, however, if UK regulations diverge in future from those of the EU (and vice versa, bearing in mind that the UK will no longer have any role in setting EU Directives and Regulations on financial services).
Recognition of equivalence can be withdrawn unilaterally, making it a less certain and predictable basis for trade to take place. Also, equivalence does not, in itself, guarantee market access or national treatment, e.g., there is no EU equivalence regime for core banking services, such as deposit-taking and loan business. According to the Political Declaration, these are to be negotiated separately.
The EU negotiation directives state that the envisaged UK EU partnership should reaffirm the party’s commitment to preserving financial stability, market integrity, investor and consumer protection and fair competition by respecting the parties; regulatory and decision-making autonomy and their ability to take equivalence decisions in their own interests. Parties should have the ability to adopt and maintain any measure for prudential reasons.
Cooperation and financial services should establish close and appropriately structured voluntary cooperation on regulatory and supervisory matters, including international bodies. It allows for the informal exchange of information bilateral discussion on regulatory initiatives in relation to other issues of interest such as equivalence.
Digital services the partnership should include provisions aimed at facilitating digital trade addressing unnecessary barriers to trade and ensuring an open, secure and trustworthy online environment for business and consumers. Services should not require prior authorisation only on the grounds that the services used by electronic means. There should be provision for consumer protection in the online environment and on spam marketing. The provision should address data flows were not affecting the EU’s personal data protection rules.
The partnership should include provisions to enable free movement of capital and payments related to transactions liberalised under the agreement. It should safeguard and carve out provisions related to balance of payment matters subject to and accordance with the treaty provisions and free movement of capital where applicable.
In relation to intellectual property, the agreement to provide for the protection and enforcement of intellectual property rights going beyond the standards in the WTO agreement (TRIPS) and the World Intellectual Property Organisation conventions where relevant.
The high levels of protection for intellectual property such as copyright trademarks and registered in registered designs geographical indications patents undisclosed information or plant variety right should be protected. It should preserve existing geographical indications as provided for in the Withdrawal Agreement provide a mechanism for protection of future geographical indications preserving the same level of protection.
The United Kingdom proposes to accede to the WTO government procurement agreement. The partnership should provide for mutual opportunities in the EU and UK in respect of public procurement markets based on the UK’s offer for accession to the agreement and go beyond the agreement’s commitments in particular areas. This should include procurement not covered by the government procurement agreement such as procurement in utility sectors not covered under it. National treatment should ensure treatment no less favourable than that accorded to locally established suppliers of service providers.
The partnership should commit the EU and the UK beyond existing GPA transparency of market opportunities. Public procurement rules procedures and practices. The partnership should address the risk of arbitrary behaviour when awarding contracts and make available effective and accessible remedies and review procedures including before judicial authorities.
Mobility arrangements including on visa-free travel for short-term stays should be based on non-discrimination between the EU states and on full reciprocity. The agreement should set out conditions for entry and stay for purposes such as research, study, training and youth exchanges.
The partnership should address social security coordination having appropriate regard to the future movement of people. It should be without prejudice to the common travel area arrangements which apply between the United Kingdom and Ireland
Fisheries A new fisheries agreement on, inter alia, access to waters and quota shares should be established by 1 July 2020. Although fisheries do not account for a significant share of bilateral trade, this is a highly charged issue and a political priority for several EU member states, which have stated that it will influence their attitude towards negotiations on the new trade agreement with the UK Broadly speaking, the less access these countries have to UK fisheries resources, the less access the UK can expect to have to the EU market for goods and services.
Data protection. The EU and the UK will “endeavour” to complete their respective assessments of each other’s data protection standards by the end-2020 in order to facilitate bilateral data flows. The freedom of data flows and exchanges is of considerable importance for digital trade in goods and services. The UK’s Data Protection Act 2018 complements the EU’s General Data Protection Regulation (2016) (GDPR) and provides for the GDPR to apply in the UK