1Introduction
1.We noted in our report on The progress of the UK’s negotiations on EU withdrawal: December 2017 to March 2018 that we have been undertaking scrutiny of the different types of trade and partnership agreements into which the EU had entered with third countries.
2.On 19 March 2018, the Draft Agreement on the withdrawal of the UK from the EU was published.1 The EU and the UK will now move onto detailed scoping of future relations with a view to reaching agreement on a political declaration on the framework for this future relationship in October 2018. This will be agreed alongside the Article 50 withdrawal agreement and the agreement on the transition period. The European Council agreed its guidelines for the forthcoming negotiations at its March meeting.2
3.The Committee has held several evidence sessions to examine a number of different EU-third country relationships, including those with Canada (the Comprehensive Economic and Trade Agreement), the Association Agreements with Ukraine and Georgia, the series of bilateral agreements with Switzerland, the participation of Norway in the European Economic Area (EEA) and the European Free Trade Area (EFTA), and the partial customs union with Turkey. We outline each of these in this report.
4.The public debate has largely focussed on the trading and economic relationship between the UK and the EU, but the future relationship will also involve much broader matters. Michel Barnier, the EU Commission chief negotiator, explained to us that he envisaged a future relationship based on four pillars—trade, areas of “thematic co-operation” such as aviation and research, justice and home affairs, and security and defence policy.
5.In her speech to the Conservative Party Conference in October 2016, the Prime Minister set out a number of “red lines” for the Government’s approach to the negotiations. These represented commitments to:
- end the freedom of movement for EU citizens into the UK;
- end the jurisdiction of the Court of Justice of the EU (CJEU);
- end “vast contributions” to the EU budget.
She acknowledged that these red lines would mean the UK leaving the Single Market and the Customs Union. In her Lancaster House speech in January 2017, the Prime Minister said that “full Customs Union membership” prevents the UK from negotiating its own comprehensive trade deals, whereas she wanted Britain to be able to negotiate its own trade agreements.3
6.Mr Barnier has interpreted the UK’s red lines on trade as dictating a Canada-style Free Trade Agreement (FTA). In September 2017, he said that the UK’s future relationship with the EU will not “combine the benefits of the Norway model with the weak constraints of the Canada model.”4 He has produced the following slide that demonstrates the current models of EU-third country trading relationships, and how each one matches the UK Government’s red lines.
7.The Prime Minister made clear in her Lancaster House speech that she would “not seek to adopt a model already enjoyed by other countries”.5 The White Paper on the United Kingdom’s exit from, and new partnership with, the EU, published in February 2017, noted that the UK would seek “a new strategic partnership with the EU, including an ambitious and comprehensive Free Trade Agreement and a new customs agreement”.6 In her Florence speech, she rejected what she termed as a “stark and unimaginative choice” between the EEA model and a Canada-style relationship.7 It was suggested to us in Brussels that the future relationship would be a unique arrangement.
The UK as a Member State
8.The EU is currently the UK’s largest trading partner. In 2016, trade between the UK and the EU accounted for 48% of the UK’s total trade with all countries. In 2016, the share of UK exports of goods and services going to the EU was 43%. This comprised exported goods worth over £144 billion and services worth £90 billion.8 The proportion of all UK exports that go to the EU has fallen to 43% from 54% in 2000.
9.Motor vehicles and parts is the largest product group by value of exports: the UK exported £18 billion of motor vehicles and trailers to the EU in 2016. The next largest product group exported to the EU is chemicals and chemical products, £15 billion in 2016. Meanwhile, 37% of UK service exports went to the EU in 2016, down from 40% in 2015. Financial services contributed more than a quarter of the UK’s services exports to the EU (£27 billion out of £90 billion).9 In 2016, 54% of all UK’s imports were from the EU.10
10.The UK’s economy is integrated into the Single Market which allows products and services from one EU Member State to be sold in another without the need for additional checks. The Single Market aims to make trade easier between Member States, through the free movement of goods, people, services and capital, and through the introduction of rules that remove barriers to trade, and harmonise national rules at EU level. The EU Customs Union is an agreement among EU Member States under which each country has agreed to be bound by the same common external tariffs on imports from third countries, and to remove tariffs from trade in goods between countries within the Union. The common external tariff is part of the EU’s Common Commercial Policy.
11.There are other legal requirements on Member States governing their ability to trade within the EU, such as rules on data protection and common product, environmental and labour standards. There are also broader programmes of economic importance that flank the trade relationship, such as co-operation on research and innovation, and rules on competition and state aid. Outside the Single Market, the UK and the EU will have to agree the level of interaction that the UK has with these institutions and structures.
1 Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community
4 Statement by Michel Barnier on the publication of the Guiding Principles for the Dialogue on Ireland and Northern Ireland, 7 September 2017
7 Florence speech: a new era of co-operation and partnership between the UK and the EU, 22 Sept 2017
8 House of Commons Library, Statistics on UK-EU trade, 19 December 2017
10 House of Commons Library, Statistics on UK-EU trade, 19 December 2017
Published: 4 April 2018