Free Trade Area

Regulatory frameworks draw a distinction between goods, which are physical products that tangibly cross a border, and services. The UK proposes the establishment of a free trade area for goods, including agri-food. This would avoid friction at the border, protect jobs and livelihoods, and ensure that the UK and the EU meet their commitments to Northern Ireland and Ireland through the overall future relationship.

The UK and the EU would maintain a common rulebook for goods including agri-food, with the UK making an upfront choice to commit by treaty to ongoing harmonisation with EU rules on goods, covering only those necessary to provide for frictionless trade at the border. This common rulebook would be legislated for by the UK Parliament, as set out in the section in institutions

The UK’s proposal for a free trade area includes:

  • the phased introduction of a new Facilitated Customs Arrangement that would remove the need for customs checks and controls between the UK and the EU as if in a combined customs territory, while enabling the UK to control tariffs for its own trade with the rest of the world and ensure businesses pay the right tariff;
  • the elimination of tariffs, quotas and routine requirements for rules of origin for goods traded between the UK and the EU;
  • a common rulebook for manufactured goods, alongside UK participation in EU agencies that facilitate goods being placed on the EU market;
  • a common rulebook for agriculture, food and fisheries products, encompassing rules that must be checked at the border, alongside equivalence for certain other rules, such as wider food policy; and
  • robust domestic market surveillance and cooperation between the UK and the EU to ensure the rules are upheld in both markets.

Facilitated Customs Arrangement

Upon its withdrawal from the EU, the UK will leave the Customs Union. The UK has been clear that it is seeking a new customs arrangement that provides the most frictionless trade possible in goods between the UK and the EU, while allowing the UK to forge new trade relationships with partners around the world. The arrangement must also allow the EU to protect the integrity of its Single Market and Customs Union.

The UK’s proposal is to agree a new FCA with the EU. As if in a combined customs territory with the EU, the UK would apply the EU’s tariffs and trade policy for goods intended for the EU. The UK would also apply its own tariffs and trade policy for goods intended for consumption in the UK.

Mirroring the EU’s customs approach at its external border would ensure that goods entering the EU via the UK have complied with EU customs processes and the correct EU duties have been paid. This would remove the need for customs processes between the UK and the EU, including customs declarations, routine requirements for rules of origin, and entry and exit summary declarations.

Together with the wider free trade area, the FCA would preserve frictionless trade for the majority of UK goods trade, and reduce frictions for UK exporters and importers. The UK’s goal is to facilitate the greatest possible trade, whether with the EU or the rest of the world.

This would mean:

  • where a good reaches the UK border, and the destination can be robustly demonstrated by a trusted trader, it will pay the UK tariff if it is destined for the UK and the EU tariff if it is destined for the EU. This is most likely to be relevant to finished goods; and
  • where a good reaches the UK border and the destination cannot be robustly demonstrated at the point of import, it will pay the higher of the UK or EU tariff.

Where the good’s destination is later identified to be a lower tariff jurisdiction, it  would be eligible for a repayment from the UK Government equal to the difference between the two tariffs. This is most likely to be relevant to intermediate goods.

Under the UK’s proposals, it is estimated up to 96 per cent of UK goods trade would be most likely to be able to pay the correct or no tariff upfront, with the remainder most likely to use the repayment mechanism.

The UK recognises that this approach would need to be consistent with the integrity of the EU’s Customs Union and that the EU would need to be confident that goods cannot enter its customs territory without the correct tariff and trade policy being applied. The UK therefore proposes a range of areas for discussion with the EU.

The UK and the EU should agree a mechanism for the remittance of relevant tariff revenue. On the basis that this is likely to be the most robust approach, the UK proposes a tariff revenue formula, taking account of goods destined for the UK entering via the EU and goods destined for the EU entering via the UK.

The UK is not proposing that the EU applies the UK’s tariffs and trade policy at its border for goods intended for the UK. The UK and the EU will need to agree mechanisms, including institutional oversight, for ensuring that this process is resilient and verifiable.

Operation

The UK and the EU should agree a new trusted trader scheme to allow firms to pay the correct tariff at the UK border without needing to engage with the repayment mechanism. This is most likely to be relevant to finished goods.  The UK and the EU should agree the circumstances in which repayments can be granted, which is most likely to be relevant to intermediate goods.

To support UK and EU businesses, particularly smaller businesses, the UK proposes that repayment should occur as soon as possible in the supply chain – for example, at  the point at which the good is substantially transformed into a UK product, rather than at the point of final consumption. The UK proposes to explore an approach with the EU using existing concepts such as those within the Regional Convention on pan-Euro-Mediterranean preferential rules of origin.

The UK recognises that the rules and processes governing eligibility for repayment, including risk profiling and effectively targeted audit and assurance activity, must be sufficiently robust to ensure the mechanism cannot be used to improperly evade EU or UK tariffs and duties, through methods such as re-exporting of goods from the UK to the EU, or vice versa.

Steps to Ensure Facilitation I

The UK would maintain a common rulebook with the EU, including the Union Customs Code and rules related to safety and security, and would apply and interpret those rules consistently with the EU. The UK already applies the Union Customs Code, and the new Customs Declarations Service (CDS), due for implementation by 2019, is fully compatible with it.

There will need to be appropriate mechanisms for the UK to implement new rules related to customs with the EU, to provide for the proper functioning of the arrangement. There will need to be mechanisms to ensure that rules are applied appropriately, interpreted and enforced consistently, and that disputes between the UK and the EU related to those rules are resolved effectively. Further detail in other sections

To ensure that new declarations and border checks between the UK and the EU do not need to be introduced for VAT and Excise purposes, the UK proposes the application of common cross-border processes and procedures for VAT and Excise, as well as some administrative cooperation and information exchange to underpin risk-based enforcement. These common processes and procedures should apply to the trade in goods, small parcels and to individuals travelling with goods (including alcohol and tobacco) for personal use.

Steps to Ensure Facilitation II

The UK is seeking to be at the cutting edge of global customs policy. In addition to the mechanisms set out above, the UK also proposes a range of unilateral and bilateral facilitations, to reduce frictions for UK trade with the rest of the world, and  promote the greatest possible trade. In particular, the UK will look to:.

  • accede to the Common Transit Convention: the UK has already begun the application process for accession;
  • agree mutual recognition of Authorised Economic Operators (AEOs);
  • introduce a range of simplifications for businesses, including implementing self-assessment over time to allow traders to calculate their own customs duties and aggregate their customs declarations;
  • speed up authorisations processes, for example through increased automation and better use of data; and
  • make existing simplified procedures easier for traders to access.

The FCA is designed to ensure that the repayment mechanism is only needed in a limited proportion of UK trade, and to make it as simple as possible to use for those who need to use it.

The UK will take into account the views of third countries, to ensure that the UK’s tariff offer is as valuable to them as possible and to continue to explore options to use future advancements in technology to streamline the process. This could include looking to make it easier to allow traders to lodge information in one place. This could include exploring how machine learning and artificial intelligence could allow traders to automate the collection and submission of data required for customs declarations.

This could also include exploring how allowing data sharing across borders, including potentially the storing of the entire chain of transactions for each goods consignment, while enabling that data to be shared securely between traders and across relevant government departments, could  reduce the need for repeated input of the same data, and help to combat import and export fraud.

There will need to be a phased approach to implementation of this model, which the UK and the EU will need to agree through discussions on the future economic partnership.

Tariffs and rules of origin

A necessary underpinning of a UK-EU free trade area, in addition to the FCA, would be an agreement not to impose tariffs, quotas or routine requirements for rules of origin on any UK-EU trade in goods. This would recognise that goods coming into the UK would have faced the same treatment at the border as goods coming into EU Member States, so there would be no need for further restrictions between the UK and the EU.

To ensure the trade in goods between the UK and the EU remains frictionless at the border, the UK proposes:

  • zero tariffs across goods (including manufactured goods, agricultural, food and fisheries products), with no quotas;
  • no routine requirements for rules of origin between the UK and EU; and
  • arrangements that facilitate cumulation with current and future Free Trade Agreement (FTA) partners with a view to preserving existing global supply chains.

This would allow EU content to count as local content in UK exports to its FTA partners for rules of origin purposes, and UK content to count as local content in EU exports to its FTA partners. Diagonal cumulation would allow UK, EU and FTA partner content to be considered interchangeable in trilateral trade.

Manufactured Goods

The UK and the EU are both home to strong manufacturing sectors such as automotive, aerospace, chemicals, electronics, machinery and pharmaceuticals. The production of manufactured goods rarely takes place in one location, with modern manufacturing seeing increasingly specialised firms, with complex supply chains that stretch across multiple countries and operate on a ‘just-in-time’ basis.Both the UK and the EU will want to ensure that European manufacturing continues to thrive in an increasingly competitive global market.

The UK’s proposal for a common rulebook would underpin the free trade area for goods. It would cover only those rules necessary to provide for frictionless trade at the border. In the case of manufactured goods, this encompasses all rules that could be checked at the border, as they set the requirements for placing manufactured goods on the market, and includes those which set environmental requirements for products, such as their energy consumption.

Certainty around a common rulebook would be necessary to reassure the UK and the EU that goods in circulation in their respective markets meet the necessary regulatory requirements, removing the need to undertake regulatory checks at the border. It would also ensure interoperability between UK and EU supply chains, and avoid the need for manufacturers to run  separate production lines for each market. As now, UK firms would be able to manufacture products for export that meet the regulatory requirements of third countries.

A common rulebook for manufactured goods is in the UK’s interests. It reflects the role the UK has had in shaping the EU’s rules throughout its membership, as well as the interests of its manufacturers, and the relative stability of the manufactured goods acquis.

The Common Rulebook

The UK would also seek participation – as an active participant, albeit without voting rights – in EU technical committees that have a role in designing and implementing rules that form part of the common rulebook. This should ensure that UK regulators could continue to contribute their expertise and capability to EU agencies, including preparing expert opinions that facilitate decisions about individual products.

The UK has long advocated a convergence of rules and standards for goods, whether as a member of the EU or on the global stage. The adoption of a common rulebook means that the British Standards Institution (BSI) would retain its ability to apply the “single standard model” – so that where a voluntary European standard is used to support EU rules, the BSI could not put forward any competing national standards.

This would ensure consistency between UK and EU standards wherever this type of standard is adopted, with input from businesses, by the European Standards Organisations (ESOs). It would ensure consumers do not face multiple standards for the same products. It would also enable the UK to continue playing a leading role in the ESOs, and with the EU on a global stage, for example in the  International Organization on Standardization (ISO), to ensure that there is greater convergence at the international level.

In the context of a common rulebook, the UK believes that manufacturers should only need to undergo one series of tests in either market, in order to place products in both markets. This would be supported by arrangements covering all relevant compliance activity, supplemented by continued UK participation in agencies for highly regulated sectors including for medicines, chemicals and aerospace. This would be underpinned by strong reciprocal commitments to open and fair trade and a robust institutional framework.

In order to achieve this, the UK’s proposal would cover all of the compliance activity necessary for products to be sold in the UK and EU markets. This includes:

  • testing products to see if they conform to requirements, including conformity assessments and type approval for vehicles, as well as other tests and declarations. It would also apply to labels and marks applied to show they meet the regulatory requirements;
  • accreditation of conformity assessment bodies – testing the testers within a jointly agreed accreditation framework, to provide mutual reassurance that UK and EU conformity assessments are robust;
  • manufacturing and quality assurance processes, such as Good Laboratory Practice and Good Manufacturing Practice, which ensure production methods are being respected, and that declarations are made during manufacturing;
  • the role of nominated individuals, such as the “responsible persons” for certain high-risk products, who interact with authorities or perform a specific role during and after production;
  • bespoke provisions for human and animal medicines which reflect their unique status, including the release of individual batches by a qualified person based in the UK or EU, and the role of the qualified person for pharmacovigilance,
  • responsible for ongoing safety monitoring of potential side effects; and
  • licensing regimes and arrangements, such as export licenses, for the movement of restricted products.

Mutual recognition of Vehicle Type Approvals

The common rulebook would include the type-approval system for all categories of motor vehicles. The UK and the EU would continue recognising the activities of one another’s  type approval authorities, including whole vehicle type approval certificates, assessments of conformity of production procedures and other associated activities.

Member State approval authorities would continue to be permitted to designate technical service providers in the UK for the purpose of EC approvals and vice versa. Both the UK and the EU would continue to permit vehicles to enter into service on the basis of a valid certificate of conformity.

Once in production, the UK and the EU would continue to recognise the ongoing role of type approval authorities, including monitoring of a manufacturer’s conformity of production procedures and issuing any extensions or revisions to existing type-approval certificates. UK and EU type approval authorities would continue to uphold their current obligations, including working closely with other authorities to identify non-conformities and ensure appropriate action is taken to rectify them.

EASA EMA & ECA

In some manufactured goods sectors where more complex products have the potential to pose a higher risk to consumers, patients or environmental safety, a greater level of regulatory control is applied. The European Medicines Agency (EMA), the European Chemicals Agency (ECHA) and the European Aviation Safety Agency (EASA) facilitate part of these regulatory frameworks.

In line with the UK’s objective of ensuring that products only go through one approval mechanism to  access both markets, the UK is seeking participation in these EU agencies, as an active participant, albeit without voting rights, which would involve making an appropriate financial contribution. The UK would want to secure access to relevant IT systems, ensuring the timely transfer of data between UK and EU authorities.

In addition, it would seek:

  • for EASA, becoming a third country member via the established route under Article 66 of the EASA basic regulation, as Switzerland has;
  • for ECHA, ensuring UK businesses could continue to register chemical substances directly, rather than working through an EU-based representative; and
  • for the EMA, ensuring that all the current routes to market for human and animal medicine remain available, with UK regulators still able to conduct technical work, including acting as a ‘leading authority’ for the assessment of medicines, and participating in other activities like ongoing safety monitoring and the incoming clinical trials framework.

To ensure that there is no market disruption as the UK and the EU transition from the implementation period to this new free trade area, the UK proposes that all manufactured goods authorisations, approvals, certifications, and any agency activity undertaken under EU law (for example, to register a chemical), completed before the end of the implementation period, should continue to be recognised as valid in both the UK and the EU. Moreover, any such processes underway as the UK and the EU transition from the implementation period should be completed under existing rules, with the outcomes respected in full.

Market surveillance

As now, all products that enter the UK market will need to comply with the UK’s regulations and standards. The new free trade area for goods, including agri-food, would need to be supported by robust domestic market surveillance and cooperation, to ensure that rules are upheld in both markets.

Following its withdrawal from the EU, the UK intends to maintain its robust programme of risk-based market surveillance to ensure that dangerous products do not reach consumers. This includes the ability to intercept products as they enter the UK, check products already on the market, and gather information through a variety of intelligence sources.

UK regulators propose establishing cooperation arrangements with EU regulators to ensure that authorities on both sides can take appropriate, consistent and coordinated action to prevent non-compliant products from reaching consumers or patients, or harming the environment. This should be complemented by the exchange of intelligence, including information received directly from businesses and consumers, and reporting mechanisms.

In order to support these cooperation arrangements, the UK is seeking access to the EU’s communications systems, such as the Rapid Alert System for Food and Feed (RASFF), Rapid Alert System for Serious Risk (Rapex), and the Information and Communication System for Market Surveillance (ICSMS). This would ensure that UK and EU authorities could issue alerts to one another to respond in an effective and timely manner when they had identified unsafe or non-compliant products.

This Article draws on the White Paper The Future Relationship between the United Kingdom and the European Union Presented to Parliament by the Prime Minister July 2018 Cm 9593. UK public sector information is reproduced pursuant to the Open Government Licence  The Legal Materials contain UK public sector information licensed under the Open Government Licence v3.0. The Licence is available  at http://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/ (the UK Licence).

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