The UK currently benefits from the terms of trade agreements, and other trade-related agreements, that the EU has with countries outside the Union. The Department for International Trade (DIT) has set as its second priority “to see a transition of [each of these] agreements to a UK agreement at the point that we leave the EU”. The exact number of EU trade agreements seems to be a matter of some uncertainty. There appear to be around 40 agreements with about 70 countries. Ten of the UK’s top 50 export markets for goods in 2015 were covered by these agreements. The third-country (non-EU) parties to the agreements account for around 11% of UK trade; and the prospective parties to those agreements which are nearest completion or awaiting ratification account for another 25% of UK trade. Unless action is taken, these trade agreements will cease to apply to the UK, without exception, at the point of Brexit in March 2019. In consequence, barriers to trade will be imposed.
The EU is also a party to a wide range of other trade-related agreements, covering areas such as regulatory cooperation, aviation, customs procedures, the nuclear industry and agriculture. The number of these too is uncertain, but a suggested total figure for all EU trade-related agreements is 759 (with 168 countries). There is an urgent need for clarity over the number, type, scope, extent and importance of the EU’s trade-related agreements. The Government must reassure us that it has a firm grasp of precisely which agreements will cease to have effect in respect of the UK at the point of Brexit if no action is taken, and what the consequences of that would be.
The Government intends to “provide a technical replication of the conditions” that exist under the trade agreements in order to prevent “disruption” at the point of Brexit, and until recently said this would be achieved by March 2019. The Government envisages these agreements potentially being renegotiated only in the longer term. The Government is right to seek to ensure the continuation after Brexit of the effects of the EU’s trade and other trade-related agreements, at least in the short term. There are considerable risks attached to not doing so.
The Government has been speaking to the third countries concerned about the “transitional adoption” of the EU’s trade agreements and says none has so far objected. However, DIT’s Chief Trade Negotiation Adviser cautioned that: “what people say today sometimes changes tomorrow”. DIT is to be commended for identifying this issue swiftly and deserves praise for making contact so quickly, and at ministerial level, with over 70 third-country parties to EU trade agreements. However, DIT, with support from Number 10, the Cabinet Office and the Department for Exiting the EU, still needs to show that it has a legally watertight and practically viable strategy for achieving “transitional adoption”at the point when it will need to take effect.
In February 2018, the Government stated that its preferred approach to ensuring the continued application of trade and other trade-related agreements during the post-Brexit transition / implementation period was: “by agreement of the parties to interpret relevant terms in these international agreements, such as ‘European Union’ or ‘EU Member State’, to include the UK.” We cautiously welcome the Government’s decision to pursue this approach while also continuing to seek to roll over these agreements. However, it is difficult not to see this as an admission that its policy of negotiating new agreements by March 2019 might not be achieved and may be failing. The Government should write to this Committee setting out why this is, and how it will change its future plans on these and other trade agreements to take account of the lessons learnt. It must also evaluate and set out the potential risks and benefits attached to this approach. If the EU’s agreement to the treating of the UK as a de facto EU territory for the purposes of the transition period is not agreed at the March 2018 EU Council meeting, the Government should publish a statement setting out its alternative approach for achieving continuity.
To achieve technical replication of free trade agreements, some substantive amendments will be necessary, requiring the agreement of the third countries involved, and in most cases, the EU. The Government should work with the EU to arrive at a consistent solution to the problem of dividing tariff rate quotas in rolled-over agreements. Regarding rules of origin, the Government will need to negotiate either a reduced threshold for domestic content or “diagonal cumulation” arrangements; in either case the consent of the third country will be necessary, and it is difficult to imagine a scenario in which the third country would not seek concessions in return. The Government should seek UK accession to the Pan Euro-Mediterranean Convention to facilitate diagonal cumulation and investigate the option of seeking full cumulation arrangements with the EU / EEA (at least on a temporary basis). While the trilateral method of negotiating may in many cases be aimed pragmatically at helping the EU and UK cumulate content for the purposes of rules of origin in agreements during a transitional period, it must not be undertaken at the expense of making bilateral agreements in case there ends up being a problem trilaterally. It makes sense for the UK to organise with the third countries to count EU inputs to UK exports to those countries as cumulated, and we would hope that if pursued in the right spirit the third countries and the EU would be amenable to treating UK input content of EU exports to those countries as cumulated also, at least during the implementation period of the UK-EU agreement.
In addition to technical issues, there are some more wide-ranging matters that the Government needs to take into account in rolling over EU trade agreements. It should consider the implications of the prospective UK-EU trade agreement for the rolling over of agreements with the EFTA states and Turkey, which currently entail close adherence to (respectively) the EU’s regulatory and customs regimes. Some recent EU agreements feature a “Most Favoured Nation clause” in respect of trade in services, such that, where a party to an agreement subsequently offers better terms to another third country, the existing agreement must be revised to incorporate those same terms. The Government should consider the potential impact of such clauses on provisions regarding services in rolled-over agreements. The Government also needs to consider the implications of rolling over the state-to-state and investor-to-state dispute-resolution provisions in some of the agreements. The Government must show that it has taken into account the need for all aspects of rolled-over agreements to sit coherently within the UK’s overall trade-policy architecture in the longer term.
Our evidence strongly suggests that substantive changes will be necessary when EU trade agreements are rolled over. The Government should set out provisions for both more extensive parliamentary scrutiny and enhanced involvement by the devolved administrations in situations where such changes do occur, particularly in the light of the fact that each of the four nations of the UK may differ in their priorities for trade deals.
DIT told us that “the Department for Exiting the European Union is leading cross-Government work to assess and act on the international agreements for which [ … ] there will need to be arrangements to ensure continuity for business and individuals.” DIT is focusing only “on the transition of trade-related agreements as part of this work”. The rollover of EU trade agreements is closely entwined with UK-EU trade relations and negotiations, touching upon several of DExEU’s areas of responsibility, as well as issues that will affect a number of other government departments. The Government must show what it is doing to foster a cross-departmental approach to the issue of rolling over trade, and other trade-related, agreements and to involve fully the devolved administrations.
Published: 6 March 2018