2EU trade-related agreements
EU trade agreements
5.Under WTO rules, member states, or groups of states (such as the EU), are permitted to conclude “preferential” trade agreements, which involve the granting of market access terms which are not available to countries that are not parties to the agreements. Such agreements most frequently take the form of Free Trade Agreements (FTAs). These provide for:
- tariff4 reduction or elimination (subject to provisos called rules of origin);5 and /or
- regulatory cooperation, which can involve recognising each other’s rules, accepting each other’s processes for testing against rules or adopting identical rules.
In a small number of cases, trade agreements (including certain agreements to which the EU is a party) go further than FTAs, entailing the establishment of: a single market with few-to-no regulatory barriers to trade;6 or a common approach to tariffs on goods from “third countries” (meaning countries which are not parties to the agreement). The latter type of agreement is known as a “customs union”.7
6.The exact number of EU trade agreements appears to be a matter of some uncertainty. The Secretary of State for International Trade, Rt Hon Dr Liam Fox MP, told us in December 2017 that there are “around 40” EU trade agreements, “covering over 55 countries”. The Government thought that “it would be misleading to attempt to provide a definitive figure”, given various “complexities”. These include: multiple agreements counting as single agreements; and the fact that some agreements “have only been partially or provisionally applied, or are signed but not yet in force”.8 The former Minister of State for Trade Policy Lord Price has referred to “36 treaties with 60 countries”.9 His successor, Mr Hands, referred in oral evidence to “40-plus agreements”10 with “70-plus”11 partners. Using the Design of Trade Agreements (DESTA) Database, Professor Andreas Dür of the University of Salzburg arrived at a figure of 41 EU-third country trade agreements. This included agreements that are “provisionally applied at the moment”, as well as those “that are basically concluded and will be implemented very soon”.12
7.A list of current EU trade agreements (those that have been initialled, are provisionally applied or are in force) is at Annex 1. As can be seen, EU trade agreements vary significantly in type and scope. A substantial number of EU FTAs have been concluded in the context of the EU enlargement policy (as part of the process of states moving towards applying for EU membership) or the European Neighbourhood Policy (which seeks to tie countries to the south and east of the EU closer to the Union).13 The Economic Partnership Agreements (EPAs), with African, Caribbean and Pacific countries (many of which are members of the Commonwealth), are FTAs which often seek to promote development goals.14 The EU also grants preferential trade access on a unilateral basis to other developing countries. Arrangements of this type fell outside the scope of this inquiry, but we will be examining them in our investigation of “Trade and the Commonwealth: developing countries”. EU Association Agreements (AAs) create a framework for cooperation across a range of areas, including trade; and some of them incorporate an FTA. Those with three eastern-European countries (Georgia, Moldova and Ukraine) include Deep and Comprehensive Free Trade Areas (DCFTAs).15 The EU’s trade agreements with the countries of the European Free Trade Association (EFTA)—Switzerland and the non-EU members of the European Economic Area (EEA)—involve a high level of regulatory convergence, giving access to the EU Single Market on terms similar to those enjoyed by EU members. In addition, a small number of the EU’s trade agreements take the form of a partial customs union, namely those with Turkey (as part of an AA) and the European “micro-states” of Andorra and San Marino.16
8.Ten of the UK’s top 50 export markets for goods in 2015 were covered by EU trade agreements.17 The Government estimates that the third-country (non-EU) parties to these agreements account for around 11% of UK trade; and that the counter-parties to those prospective EU agreements which are nearest completion or awaiting ratification account for another 25% of UK trade.18
9.Unless action is taken, these agreements will cease to apply to the UK, without exception, at the point of Brexit in March 2019.19 In consequence, barriers to trade will be imposed.
Other EU trade-related agreements
10.In addition to trade agreements, the EU is a party to a wide range of other trade-related agreements, covering areas such as regulatory cooperation, fisheries, aviation and other transport, customs procedures, the nuclear industry and agriculture. These include the separate Mutual Recognition Agreements (MRAs), concerning arrangements for conformity assessment in respect of product standards and regulations, which the EU has with several countries.20
11.As with EU trade agreements, the number of agreements falling into this category is not clear. The Financial Times estimated in May 2017 that at the point of Brexit the UK would cease to be a party to at least 759 EU trade-related treaties with 168 countries.21 Hosuk Lee-Makiyama, the Director of the European Centre for International Political Economy, told us that this figure appeared correct—albeit only on the basis that there are “almost 200 countries in the world and we have signed some form of agreement with almost every one of them”.22 Professor Dür told us that “overall the number looks plausible”, although he was unable to “exactly replicate the number of 759” using the DESTA Database.23 According to a rough calculation made for us by Professor Dür, 759 agreements would amount to somewhere in the order of 36,400 pages of text (including annexes and appendices).24
12.The First Permanent Secretary at the Department for International Trade (DIT), Antonia Romeo, stated that the number of these agreements was in the “multiple hundreds”.25 However, the Department was subsequently unable to provide us with a precise figure. The Secretary of State told us that this was because “some treaties have been superseded by later agreements, as countries have joined the EU over time, and when amendments and new protocols have been added to existing Treaties”.26
13.Dr Joris Larik, of the University of Leiden, reported to us on his work attempting to clarify which treaties are currently in force between the EU and just one third country, the USA. He found a concerning lack of congruence between supposedly definitive databases maintained by the EU and the US Government, as well as between these two and the list used by the Financial Times. He recommended that the UK Government “should urgently compare databases and compendia of treaties with its most important trading partners”, with a view to drawing up “joint lists of items of concern”, “consisting of those treaties and other instruments which at least one side deems binding”. He also urged the establishing of “continuity road maps”, to facilitate maintaining the effects of the agreements.27
14.While it does seem that most of these agreements will, like the EU’s trade agreements, cease to apply to the UK at the point of Brexit, this may not be the case for some multilateral treaties. Mr Lee-Makiyama told us that: “in many cases the UK is a signatory on its own accord together with the European Union, because in certain agreements the European Union is not a legal entity”.28
The Government’s policy to roll-over the agreements
Introduction
15.The Government’s policy objective in relation to the EU’s free trade agreements is to “provide a technical replication of the conditions that exist today, so there is no disruption at the point at which we leave the European Union.”29 The Minister of State emphasised that this was a short-term objective, and that replicating agreements “in no way precludes the UK and [a trading partner] from returning in the future to change those trading arrangements and enter into an entirely new independent [ … ] agreement at some point in the years to come.”30
16.Almost no one who contributed to our inquiry suggested that the Government’s policy objective of seeking continuity was the wrong one. Professor Dür told us that if the 41 EU trade agreements that he had identified were to cease to apply to the UK, “Definitely trade would not vanish”; but there would be an effect on the “15% to 17% of UK trade” covered by the agreements.31 In the case of deep trade agreements, the reduction in trade could be as high as 30%—although this description did not apply to all of the agreements concerned.32 Countries varied in their importance for the UK as trade partners; it was most important to ensure continuity of the agreements with Switzerland, Norway, the European countries, South Korea, Japan, Singapore, South Africa, Canada and Turkey.33
17.Dr Anamaria Nicolae and Michael Nower, of Durham University Business School, calculated that “[n]ot grandfathering any of the EU’s FTAs and any of the other trade-related treaties to which the EU is a party, will reduce GDP long term by 1.1% and short term by 2.7%”.34
18.Regarding other trade-related agreements, Professor Dür was asked to rate these on a “traffic-light” scale regarding the importance of maintaining their continuity. He told us that he would put “[a]viation agreements […] on the red scale” as “there needs to be certainty that the flights can take place at the moment that the UK drops out of the single market in 2019.”35 Mr Lee-Makiyama added that there were:36
critical agreement[s] in almost every one of the sectors, not just from transport, not just aviation in the transport sector. We have land transport, which is essential for the nitty-gritty of trade, the really granular aspect of frictionless trade, to operate.
Development-related agreements
19.In the case of trade agreements with developing countries, views were more mixed. We did hear the view that EPAs, should not be continued but replaced with “a unilateral trade preference scheme” that better prioritises development goals.37 Dr Peg Murray-Evans told us that “if we grandfather or otherwise replicate [EPAs] in the short term, there is a danger that we just get locked into that model of doing this”.38 The EU’s EPAs with African, Caribbean and Pacific (ACP) states have been controversial for a number of reasons.39 These include:
- Most Favoured Nation (MFN) clauses;40
- restrictive rules of origin;41
- the level of economic “liberalisation” required from the ACP parties;42 and
- the failure to address EU sanitary and phytosanitary measures that restrict agricultural imports (such as a ban on “citrus black spot”).43
South Africa, one of the most economically significant ACP states, has already stated it is seeking improved terms in its agreement with the UK.44
20.Other critics of EPAs, however, support ensuring their continuity in the short term. Dr Clair Gammage, of the University of Bristol, stressed that:45
A transitional agreement has to be in place for these countries. We cannot just go off the cliff-edge on exit day and have nothing in place, because there have been statistics out from the Oxford Group [the Oxford Global Economic Governance Programme] that for say Bangladesh, if we reverted to MFN tariffs,46 the cost for Bangladesh to export to us would be phenomenally huge.
21.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. If this continuation does not occur, there is likely to be an economic price to pay.
22.Regarding those agreements which promote development goals, notwithstanding the criticisms that have been made of them as they presently stand, the valuable preferential access to UK markets which they provide for developing countries must not be allowed to lapse at the point of Brexit. The Government should bring forward proposals for a mechanism whereby rolled-over Economic Partnership Agreements will be subject to review in respect of issues such as Most Favoured Nation clauses, rules of origin, requirements for economic liberalisation, and sanitary and phytosanitary measures, with a view to potential renegotiation in due course.
23.With this in mind, 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.
4 A tariff is a tax, or “duty”, which is paid on imports or exports. It is typically (but not always) paid by importers.
5 On rules of origin, see Chapter 5 below.
6 The EU Single Market is a very highly developed agreement of this type.
7 A customs union is an association of two or more countries that operate a common external tariff, typically while also having no tariff barriers among themselves. The EU is a customs union in its own right (as well as a Single Market).
8 Letter from Rt Hon Dr Liam Fox MP to Angus Brendan MacNeil MP, 19 December 2017
9 Lord Price, Twitter post, 26 October 2017
13 European Commission, European Neighbourhood Policy And Enlargement Negotiations
14 European Commission, Economic partnerships
15 European Commission, Trade - Agreements
16 European Commission, Customs Unions
18 House of Lords, Brexit: the options for trade, Fifth Report of the Select Committee on the European Union, Session 2016–17, HL Paper 72, para 158
20 European Commission, Mutual Recognition Agreements. Many MRAs are incorporated into FTAs, rather than being freestanding agreements in their own right.
21 “After Brexit, the UK will need to renegotiate at least 759 Treaties”, Financial Times, 30 May 2017
25 Oral evidence taken before the International Trade Committee on 1 November 2017, HC (2017–19) 436-ii, Qq 157–158
26 Letter from Rt Hon Dr Liam Fox MP to Angus Brendan MacNeil MP, 19 December 2017
29 Oral evidence taken before the International Trade Committee on 1 November 2017, HC (2017–19) 436-ii, Q 160 [Rt Hon Dr Liam Fox MP]
42 Traidcraft (EUT0001), Dr Stephen R Hurt (EUT0003), Dr Mark Langan (EUT0008), Fairtrade Foundation UK (EUT0017)
45 Q 139. See also Fairtrade Foundation UK (EUT0017).
46 Under WTO rules, a member country must, in the absence of preferential arrangements (trade agreements and unilateral preference schemes for developing countries), impose the same tariff regime in respect of all countries’ goods. This is often referred to as the MFN tariff.
Published: 6 March 2018