Trade Bill

Written evidence submitted by Dr. Holger Hestermeyer, Shell Reader in International Dispute Resolution, King’s College London (TB24)

This written testimony elaborates on the oral evidence given in committee. It will focus on clause 2 of the Trade Bill and its implications.

Executive Summary

1. The Bill falls short in two vital aspects that will cause problems both for the UK’s trade negotiators on the ground and to the legitimacy of UK trade agreements rolled over from current EU agreements the UK participates in: it does not provide for a consultation infrastructure to help negotiators take into account industry and civil society concerns and it fails to provide for sufficient parliamentary scrutiny.

2. The failure to provide for these elements results from the flawed assumption that a roll-over of the current EU agreements is a mere technical exercise. Future UK agreements resulting from the roll-over will not just differ because of required changes to e.g. rules of origin or tariff-rate quotas (TRQs) and possible demands by our partners. Roughly half of the UK trade under relevant EU agreements takes place under agreements that will have to be renegotiated, because these agreements are based on the four freedoms of the EU or a customs union with the EU. The Government has repeatedly stated that these arrangements will end. Agreements replacing the current EEA (with e.g. Norway), EU-Turkey and EU-Switzerland treaties will accordingly differ substantially from the current arrangements.

Detailed Statement

A) Introduction

1. I am the Shell Reader in International Dispute Resolution at King’s College London and an Executive Co-Vice-President of the Society of International Economic Law. In the past, I have served as specialist advisor to the House of Lords EU External Affairs Sub-Committee on trade and Brexit, I have been a Référendaire at the Court of Justice of the European Union and a research group leader at Heidelberg’s Max Planck Institute for Comparative Public and International Law. I have worked in the area of trade law and EU law for a decade.

2. I give this statement in a personal capacity as a researcher.

3. My statement is limited to the impact of clause 2 of the Trade Bill, the proposed Henry VIII power [1] and issues of scrutiny of trade agreements. I will not take a position on devolved powers.

B) The Rollover Exercise is Not Merely Technical – Scope of the Henry VIII Power

4. The Trade Bill, as proposed, contains a broad Henry VIII power to implement trade agreements to which the UK is a signatory, where these trade agreements are concluded with a country that has signed [2] a free trade agreement with the EU before "exit day". These agreements are referred to in the press as "rolled-over", as it is the stated intention of the UK government to "establish a UK trade agreement with each partner country based, as closely as possible, on the corresponding trade agreement that country has with the EU". [3] The conferred powers are to be exercised by Statutory Instrument under the negative procedure (schedule 2).

5. As the government explicitly states, the agreements that will be implemented under this power will be legally distinct, separate agreements from the ones currently in force. [4] This is true whether the new agreement will be concluded as a textual new agreement or by exchange of notes stating each side’s wish to continue with present arrangements to the extent possible. Even in the latter case the new arrangement constitutes a treaty under international law, as the term "treaty", defined by the Vienna Convention on the Law of Treaties, [5] refers to an international agreement "whether embodied in a single instrument or in two or more related instruments and whatever its particular designation".

6. The government correctly assumes that these new agreements cannot be utterly identical to the current agreements. As it explicitly states: "There will be textual changes to current agreements that ensure future operability." [6] The new Henry VIII power is, indeed, only granted for such changes, as the government assumes that the status quo will be implemented by the EU (Withdrawal) Bill. [7]

7. In practice, numerous changes have to be expected in these agreements. On the technical level, for example, rules of origin and TRQs will have to be negotiated, but also institutional provisions. Rules of origin define which products benefit from the preferential conditions granted by a free trade agreement. Often, these contain quantitative conditions – e.g. requiring a minimum national content of 55%. These conditions in EU agreements relate to EU content. Adapting them to the UK will not just require replacing "EU" with "UK", but also a reduction in the content required. TRQs – tariff-rate quotas – also contain quantitative conditions. Institutional changes will be required where EU institutions are given a role in the agreement, e.g. the EU-Ukraine Association Agreement provides for a role of the Court of Justice of the European Union in Art. 322 (2).

8. For some agreements (Switzerland, Turkey, Norway), the very structure of the agreement does not conform to the Government’s stated goals and accordingly a future trade agreement will look very different from the ones in force now. Turkey is in a customs union with the EU. Norway, Liechtenstein and Iceland are member states of the European Economic Area and thus of the single market respecting free movement of persons, goods, services and capital. The Swiss-EU relations are governed by a complex net of numerous agreements, including the bilateral I and II agreements, which allow, e.g., the free movement of people. Some of these (the bilateral I agreements) are linked by a guillotine clause, meaning if one agreement is to be terminated, all of them are terminated. Merely "rolling over" these agreements (if it would be technically possible) would violate stated Government policy. Accordingly, the agreements replacing them will largely have to be negotiated on a different model. These agreements are economically enormously significant: According to the Government’s impact assessment of the Trade Bill, the EEA constitutes 2% of UK trade, Turkey 1.3% and Switzerland 3.1%. The agreements thus account for 6.4% of total UK trade, or roughly half of the 13% of UK trade with countries which have EU agreements, according to the Government’s impact assessment. [8]

9. The Henry VIII power in the Bill as currently proposed allows the implementation also of such new agreements that differ fundamentally from the the EU agreements they roll over, as long as they "relate to trade".

The limits of the power of implementation under the Bill are very broad. The Government states that the powers are sufficient to allow implementation of substantial amendments, "including new obligations". [9] The powers allow for the implementation of measures stemming from "international trade agreements" which, according to clause 2(2) refers to free trade agreements and "international agreement[s] that mainly relate to trade, other than a free trade agreement", which fall under the "rolled over" condition contained in clause 2 (3) and (4). Substantively, the power relates to non-tariff measures only, as tariff measures fall under the Taxation (Cross-border Trade) Act 2018 and would have to be implemented under that act (clause 2(5)).

10. The definition of trade-related measures would allow the Government to adjust and introduce substantial regulation. The WTO discussions on "trade-related" intellectual property (IP) rights demonstrates just how broad the term trade-related is. Concerns by developing countries voiced in the negotiations of the WTO Agreements that "trade related" IP rights can only be a sub-set of all IP rights did not prevail. The TRIPS Agreement negotiated as part of the WTO Agreements is a comprehensive agreement on IP rights. As many if not most regulations affect trade, the term "trade-related" can be interpreted very broadly. It may cover obligations such as intellectual property law, environmental law, labour standards, state aid and competition law. In all of these areas, the Henry VIII power would allow for regulations implementing the agreement.

11. Implementing regulations may, under clause 2(6) of the Bill, among other things modify primary legislation that is retained EU law, delegate functions and provide for penalties for failing to comply with the regulations.

C) Lack of Scrutiny as a Consequence

12. As a consequence of the decision to leave the European Union, the scrutiny process for EU Agreements that is currently provided for under EU and UK law will fall away.

13. The role of the UK Parliament in ratifying UK agreements is customarily limited. [10] The Bill removes the requirement for Parliament to implement an agreement (under Britain’s dualist approach to implementing treaties under public international law) and thereby also limits the scrutiny provided for under the UK constitutional arrangements. For more details on this aspect I refer to my writings elsewhere. [11]

14. The agreements that can be implemented under the Bill will thus lack scrutiny for two reasons.

15. Firstly, as demonstrated above, the new agreements will at times be substantially different from those they replace. Any scrutiny provided for with regard to the preceding EU agreement relates to a substantially different agreement, made under different circumstances.

16. Secondly, the Bill allows the implementation of EU agreements that were signed, but not ratified before exit day. These agreements have not benefitted from full EU scrutiny.

17. Given the breadth of the implementation power described above, the lack of scrutiny is particularly worrying.

D) Proposals

18. The trade bill provides an excellent opportunity to take the first steps towards puting in place a proper infrastructure for negotiating and concluding trade agreements.

19. The negotiation infrastructure in the US or the EU, for example, provides for a structured engagement process with civil society, even though this process is often criticized as insufficient. Such a process (as well as a thorough impact assessment) is important not just for the sake of legitimacy of the future agreement, but also for its effectiveness. Trade negotiators need to have access to a representative section of industry to be informed on issues such as local content, in order to draft rules of origin that allow British industry to benefit from the agreement to the extent that is intended, rather than raise the risk of negotiators being captured by special interest with better access, or the risk that they will negotiate provisions without adequate knowledge of the national interest in specific circumstances. Given that such negotiations will be undertaken also for "roll-over" agreements, the Trade Bill is the appropriate locus for at least a first attempt at setting up such an infrastructure.

20. As a first step, a trade advisory body should be set up that mirrors the structure of UK industry, includes labour and consumer interests as well as representation of identified growth industries. That body should be informed and consulted during the consultations, especially as regards amendments proposed by either side to the original agreement.

21. Before negotiations, a proper impact assessment should be conducted for each trade agreement and public consultations should be carried out.

22. As to parliamentary scrutiny, Parliament should have to endorse a mandate for trade negotiations, be kept abreast of all negotiations and, at the end of negotiations, the agreement should be put to debate and an up or down vote.

23. While the need for confidentiality with regard to the negotiation process is duly acknowledged, transparency has become a crucial requirement for the legitimacy of trade agreements, particularly where those agreements cover regulation. The UK should strive to not fall below the increased level of transparency shown in recent EU negotiations.

January 2018

[1] Delegated powers memorandum by the DIT, para. 2.

[2] Note that the Bill refers to signatories. According to a literal reading it hence does not require the agreements to be ratified.

[3] Explanatory notes to the Trade Bill, para. 38.

[4] Delegated powers memorandum by the DIT, para. 46.

[5] Art. 2 (1) (a) of the Vienna Convention on the Law of Treaties, concluded at Vienna on 23 May 1969.

[6] Delegated powers memorandum by the DIT, para. 46.

[7] Explanatory notes to the Trade Bill, para. 41.

[8] Impact Assessment, Trade Bill, p. 6 et seq.

[9] Delegated powers memorandum by the DIT, para. 46.

[10] House of Commons Library, Parliament’s role in ratifying treaties,

[11] Hestermeyer, Parliament and Trade Agreements,


Prepared 30th January 2018