Continuing application of EU trade agreements after Brexit Contents

Conclusions and recommendations

EU trade-related agreements

1.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. (Paragraph 21)

2.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. (Paragraph 22)

3.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. (Paragraph 23)

The Government’s approach to rolling over EU trade agreements

4.DIT is to be commended for identifying this issue quickly and designating it as the Department’s second-highest priority. DIT also deserves praise for making contact so quickly, and at ministerial level, with over 70 third-country parties to EU trade agreements. (Paragraph 32)

5.However, there is a disturbing lack of precision and clarity about the legal mechanism whereby the Government envisages EU trade agreements with some 70 countries being rolled over. DIT must show, Number 10 and the Cabinet Office must support, and DExEU must allow, that DIT has a legally watertight and practically viable strategy for achieving “transitional adoption” at the point when it will need to take effect, so that UK trade with around 70 countries does not face a “cliff edge”, even if no withdrawal or transition arrangements with the EU should have been agreed or ratified. (Paragraph 33)

6.The Government must treat the roll-over of EU trade agreements as an urgent priority. UK businesses, consumers and investors, as well as developing countries benefitting from EU trade agreements, all need certainty about future trade arrangements. DIT should publish a detailed timetable for this work, and this should be explicitly backed by Number 10 and the Cabinet Office. (Paragraph 34)

7.The Government should produce a ‘risk register’, identifying clearly the agreements to be rolled over, with an assessment of how important each agreement is to UK trade. If resources allow within the time given, this should be compiled in consultation with Parliament, businesses and civil society. If resources do not allow for this, the Government should reassure us that this register exists internally. (Paragraph 35)

8.The Government would risk appearing naïve if it assumed that assent-in-principle to roll over an agreement constitutes a guarantee that roll-over is actually certain to occur at the point of Brexit. It must be realistic about the steps that are necessary to get new agreements in place—and have contingency plans for the eventuality that the third countries concerned change their minds. This must include the pursuit of bilateral arrangements with each party with whom the UK currently has arrangements by virtue of its membership of the EU. (Paragraph 36)

Post-Brexit “implementation” period

9.We cautiously welcome the Government’s new policy to seek agreement of all parties to interpret relevant terms of EU free trade agreements, such as “European Union” or “EU Member State”, to include the UK during transition, while continuing to seek to roll over those agreements. While we welcome the Government’s willingness in this respect to be pragmatic, 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. We seek urgent reassurance that the Government is allocating appropriate resources not only to this objective but to all its policy objectives, including the bilateral strand of negotiating these agreements, and that it is being realistic about how achievable those objectives are. The Government should write to this Committee setting out why it might not achieve and may be failing to achieve this policy objective in the time it originally set, and how it will change its future plans on these and other trade agreements to take account of the lessons learnt. 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. (Paragraph 42)

10.In addition, it is still far from clear that it will be possible to secure continued application of EU trade agreements during the post-Brexit transition period. The Government must urgently clarify the nature and form of the trilateral (UK-EU-third country) agreements whereby it is intended that the UK will remain a de facto party to the EU’s trade agreements during a transition period. It must also evaluate and set out the potential risks and benefits attached to this approach. (Paragraph 43)

11.Meanwhile, the Government must still address the issues that we have raised in respect of its pursuit of “transitional adoption” and act on the assumption that this could still need to be in place at the point of Brexit in March 2019. Even if the new approach does prove successful, it will only buy the Government a limited amount of extra time in which to achieve roll-over and it would still need to redouble its efforts in that respect. (Paragraph 44)

The terms of rolled-over trade agreements

12.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, just as it already has in respect of establishing separate UK schedules at the World Trade Organization. The Government should set out its approach to overcoming the objections made to its TRQ proposals at the WTO. (Paragraph 53)

13.Rules of origin provisions in treaties between the EU and third countries cannot simply be copied and pasted. In order to maintain the status quo, 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. It is difficult to imagine a scenario in which the third country would not seek concessions from the UK in return. (Paragraph 66)

14.The Government should consider seeking an agreement on “diagonal cumulation” in third-country agreements with the EU and the third country concerned in each case. 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. (Paragraph 67)

15.The Government should seek UK accession to the PEM Convention after Brexit, in order to facilitate diagonal cumulation. It should also investigate the option of seeking full cumulation arrangements with the EU / EEA (at least on a temporary basis). DIT must show that it is liaising closely with DExEU on this matter. The Government should publish as a matter of urgency those sectors where it expects rules of origin issues could most significantly harm UK exporters and prevent industries benefitting from tariff-free trade. (Paragraph 68)

16.It may be more difficult for the UK to keep the commitments that it has made in Phase 1 of the Brexit talks with regard to what will be the EU-UK border on the island of Ireland if it does not roll over third-party agreements as they currently apply to the UK. The Government should, therefore, take account of the implications of these Phase 1 Brexit commitments for the roll-over of third-party trade agreements. The UK’s continued participation in a customs union and the single market with the EU would be the approach least likely to risk a return to a hard border between Northern Ireland and the Republic of Ireland. (Paragraph 72)

17.The Government 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 the EU’s regulatory and customs regime. It should also consider the degree to which the rolled-over agreements might also entail negotiations and commitments on the free movement of people in respect of the EFTA states. (Paragraph 75)

18.Given the importance attributed by the Government in its overall trade policy to trade-in-services liberalisation, it should consider the potential impact of Most Favoured Nation clauses on services in rolled-over agreements. (Paragraph 78)

19.Investor-state dispute settlement or Investment Court System provisions in existing Free Trade Agreements have been controversial in the past. The Government should fully consider and explain the implications of rolling over these provisions in the agreements concerned. The appropriate time to do this may be when the Government lays a new agreement before the House under the provisions for treaty ratification in the Constitutional Reform and Governance Act 2010. (Paragraph 81)

20.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. (Paragraph 82)

The implementation of rolled-over agreements

21.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. We look forward to reading the proposals for a new ratification process for trade agreements to which the Minister of State for Trade Policy referred in his evidence, and expect to be consulted formally on those proposals while they are in draft. (Paragraph 91)

A cross-government approach

22.The roll-over of EU trade agreements is closely entwined with UK-EU trade relations and negotiations, touching upon several of DExEU’s areas of responsibility. Relevant cross-departmental issues in this respect include:

23.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. In particular, it must show how DIT and DExEU are working together in this regard and, in particular, clarify their respective roles as regards rolling over trade-related agreements other than trade agreements. In particular also, it must demonstrate how the trade negotiating expertise in DIT is actually and actively being used by the negotiating teams in Number 10, DExEU and the UK Permanent Representation to the EU. (Paragraph 98)

24.In respect of these agreements, just as with trade agreements, a comprehensive “risk register” is urgently needed. (Paragraph 99)

Published: 6 March 2018