Chapter 5: Non-tariff barriers
129.Non-tariff barriers can also pose significant obstacles to trade in goods. Box 5 provides an overview of different measures that can act as non-tariff barriers.
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Non-tariff barriers include all government-imposed and sponsored actions or omissions that act as prohibitions or restrictions on trade, other than ordinary customs duties, and other duties and charges on imports and exports.245 Examples include sanitary measures, labelling requirements, pre-shipment inspection and other formalities, countervailing and anti-dumping duties, subsidies, and rules of origin.246 Non-tariff barriers can and often do serve legitimate purposes such as the protection of the environment and of public health. However, they can also be misused.247 EU law addresses non-tariff barriers in various ways, including harmonisation, mutual recognition, and by prohibiting not just internal customs duties and quantitative restrictions such as quotas on imports and exports between Member States, but also national measures, which may have an equivalent effect.248 In a survey of European businesses by the International Trade Centre and the European Commission, the most burdensome non-tariff barriers faced in international business were identified as technical requirements, conformity assessment and export-related measures, followed by rules of origin and pre-shipment inspections and other entry formalities.249 |
130.All the sectors from which we took evidence were concerned about the possible increase of non-tariff barriers to trade after Brexit,250 which, according to Mr Mike Hawes, Chief Executive Officer, The Society of Motor Manufacturers and Traders (SMMT), “could be as punitive in cost as the tariff barriers.”251
Rules of origin
131.‘Rules of origin’ would apply to the UK both were it to agree a FTA with the EU, and if it were to trade under WTO rules, although the applicable rules of origin would differ in each case. Box 6 describes their nature and purpose.
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Goods imported into a customs territory must follow ‘rules of origin’, which determine where a product and its components were produced, in order to ensure that the correct customs duty is levied. The origin is also needed to compile trade statistics, assess anti-dumping and safeguard measures, and to fulfil labelling requirements.252 If goods consist of materials from more than one country, special rules apply to determine which country will be judged to be the country of origin. This is based on the origins of the materials, the value added in the process, and where the final substantial production phase took place.253 The rules may require that final processing results in a change to the commodity code of the final product. This is known as ‘sufficient transformation’. The rules may specify the percentage or value of non-originating materials that may be used.254 Such formalities are not necessary for goods manufactured and traded inside a customs union. The precise rule for determining origin differs from product to product. There are two types of rules of origin:
When importing goods, the importer has to present a proof of origin to the importing customs authority. This can either be an original movement certificate (such as a GSP Form A, EUR1, or EURMED form), which must be stamped and authorised by the exporting national authority, or an invoice declaration (made on a commercial document issued by the exporter that identifies the goods).258
Cumulation The concept of accumulation/cumulation, or ‘cumulative rules of origin’, allows originating products of one country within a free trade area to be further processed or added to products in another country of that free trade area, as if they had originated in the latter country. In this way, input materials from ‘Country A’ within a FTA can be included in domestic production within ‘Country B’ within the same FTA. This widens the definition of ‘originating products’, and provides flexibility to develop economic relations between countries within a free trade area. 259 This is referred to as bilateral cumulation and is the basic type of cumulation which is applied in all origin arrangements.260 There are two other forms of cumulation: diagonal and full:
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Impact of rules of origin on UK businesses
132.Dr Virginia Acha, Executive Director of Research, Medical and Innovation, Association of the British Pharmaceutical Industry (ABPI), said the introduction of rules of origin would generate “a considerable amount of work” for the pharmaceutical industry. There was a “phenomenal number of changes”, relating to thousands of products sold overseas, which “would be a burden to all the world’s regulatory systems”. This was “not an inconsequential piece of work”. 266
133.Mr Steve Elliott, Chief Executive Officer, Chemical Industries Association, agreed. Rules of origin added “a substantial level of bureaucracy, especially in the chemical sector”. Were the UK to agree a FTA with the EU after Brexit, “the cost of providing the technical proof that a chemical or any other manufactured product originates from the EU or the UK, bearing in mind that in our case there could be several stages of synthesis involved … would clearly outweigh the benefit of duty-free sales”.267
134.In the capital goods sector, Mr Fergus McReynolds, Director of EU Affairs, EEF—The Manufacturers’ Organisation (EEF), confirmed that members of the EEF were concerned about rules of origin.268 The Association of Manufacturers of Domestic Appliances (AMDEA) wrote: “Rules that differentiate market access based on country of origin are counter-productive and should be avoided”.269 We note that, outside the EU’s customs union, this is unavoidable.
135.Witnesses from the food and beverages sector did not provide detail on the impact of rules of origin, but the Agriculture and Horticulture Development Board (AHDB) included the UK establishing its own rules of origin as part of the “principal risk” of Brexit (alongside “labelling and other criteria”). It explained that divergence from EU standards as a result of establishing separate UK rules of origin would lead to “additional technical barriers and paperwork when exporting to the EU”.270
136.Mr Hawes said that the current absence of rules of origin in the EU was “part and parcel of why we have such an integrated automotive industry … the UK qualifies as Europe”.271 Professor Peter Wells, Professor of Business and Sustainability, Cardiff Business School, referred to a study, which found that the local value content of UK-produced cars was around 40% in 2015. This level of imported materials “would be contrary to EU rules of origin if the UK was outside the EU … as the EU requires at least 60% of the ex-works value of the car to be of local (i.e. EU) origin”.272 Mr Hawes said he would “struggle to see any scenario” in which the introduction of rules of origin would benefit the UK; rather, this prospect was “a threat” to future investment in the sector.273 The impact of Brexit on investment is discussed in Chapter 9.
137.In the aerospace and defence sector, Mr Paul Everitt, Chief Executive Officer, ADS Group, said that, because the UK had long been a member of the EU, rules of origin would be “a particular challenge; it is not something that we, as a sector, have had to track”.274 At present, “shipping a wing from Broughton to Toulouse for final assembly” was “no different” to moving a part across the UK. Introducing rules of origin would “add significantly to the administrative burden of shipping goods”. He added that this would be a particular burden for smaller businesses: “This would be a wholly new activity, certainly of a scale that they would not have had to deal with before, and both acquiring the expertise as well as the cost itself would be significant burdens for them”.275
138.A further impact of rules of origin was explained by Dr Ulf Sverdrup, Director, Norwegian Institute of International Affairs, who gave evidence to our previous inquiry, Brexit: the options for trade. He told us that rules of origin, besides increasing transaction costs for businesses, would also increase barriers for consumers, for instance in e-trading, where customs would have to be declared for ordering goods from within the EU.276
139.Asked about the frictions that the application of rules of origin between the UK and the EU might cause, Lord Bridges of Headley MBE, Parliamentary Under-Secretary of State, Department for Exiting the EU, said that “not every import needs to be inspected at its point of entry into the UK”. He also pointed out that “the EU’s Common External Tariff is already zero for about a quarter of tariff lines, so preferential origin requirements do not apply on those goods”. However, we note that while preferential rules of origin may be avoided, non-preferential rules of origin would still apply to UK trade with any trading partner (as discussed in Box 6).
140.Lord Price CVO, Minister of State for Trade Policy, Department for International Trade, gave the example of CETA, under which goods “will be tariff-free in accordance with the CETA tariff elimination schedule if they were wholly obtained there and produced exclusively from materials that originate there or have undergone sufficient production there”.277
141.Lord Bridges cited, as an example of the simplification of rules of origin procedures, the “Australian and the New Zealand Productivity Commissions’ 2012 report into strengthening trans-Tasman economic relations”, which, he told us, “waived rules of origin requirements on goods that would attract a tariff below a de minimis level of 5% in that case”.278 This recommendation has not, however, been implemented by either government. The report, by two independent research bodies, recommended that the countries “waive … Rules of Origin for all items for which Australia’s and New Zealand’s most favoured nation tariffs are at 5 percent or less”, and that they “consider reducing any tariffs that exceed 5 percent to that level”.279 In their reply, the Australian and New Zealand governments pointed to two previous simplifications of rules of origin, and agreed “that no action will be taken at this time”.280
142.Lord Price told us that DIT had talked to Switzerland, Norway, the US, and Canada about the application of rules of origin. In current FTAs “we have rules of origin that we have to apply outside. So there are already processes in the UK” to manage these. However, it was “very hard to answer” the question of UK-EU rules of origin, “until the full shape of a comprehensive FTA and the extent to which you want free and easy movement of goods on both sides are known”.281 Lord Price concluded:
“It is an issue that we do not have today on goods that go through Europe … It is a hurdle that would be there in the future, as not full members of the customs union, that is not there today. Our research, as the Prime Minister has said, is trying to guide us on how we make that as frictionless as possible. The more comprehensive and closer the FTA, the lower the hurdle will be.”282
143.Further costs relating to the administration of non-tariff barriers (as well as tariff barriers) are discussed in Chapter 6.
Laws and regulations, standards and EU agencies
144.The regulatory environment is itself an important factor in trade and can act as a non-tariff barrier. There are three ways to address this barrier. First, harmonisation of standards. For example, the UK and French authorities may apply precisely the same regulatory standards. Mr Koji Tsuruoka, Ambassador of Japan to the UK, explained that the current harmonised EU system for drug approvals was helpful—in the case of Japanese companies operating in the UK—because it reduced the procedural requirements for firms.283
145.Second is mutual recognition. For example, the UK authorities may apply one set of standards, and the French another; the standards are not identical, but each admits a product once it has been approved in the other country.284 Lord Price acknowledged that: “mutual recognition of standards” was one of the elements that “help business perform better” and that “reduce the costs of doing business … to the benefit of consumers and businesses”.285 Mr McReynolds agreed that “membership of a single regulatory and legal environment reduces the cost of doing business”.286 Third is equivalence. Equivalence means that it is determined that different standards suffienctly address a regulatory objective—such as sanitary or phytosanitary protection—through different means.287
146.The sectors of UK industry represented by our witnesses have benefited from many EU-wide regulations, and in most cases have influenced their shape. Witnesses also said that it would be important for the UK to seek to retain membership of standard-setting bodies after Brexit. As we noted in our previous report Brexit: the options for trade, the EU plays an important role in setting global standards and has convinced third countries to accept its standards.288
147.The Prime Minister’s speech on 17 January sets out the Government’s intention to negotiate a FTA with the EU. As we noted in our report, Brexit: the options for trade, “modern FTAs involve extensive regulatory harmonisation in order to eliminate non-tariff barriers”. This entails a trade-off between the liberalisation of trade and the exercise of regulatory sovereignty—a high degree of liberalisation requires a high level of common regulation, which entails a loss of regulatory sovereignty on each side.289
Laws and Regulations
148.Currently, EU laws are automatically part of the UK domestic legal framework. The Government has stated its intention to introduce a Great Repeal Bill (see Box 7), maintaining this existing body of law in place. But Brexit means that the UK will have the opportunity to diverge from EU regulatory standards.290
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In October 2016, the Prime Minister announced the Government’s intention to introduce a Great Repeal Bill. It will repeal the European Communities Act 1972, which makes EU law part of the UK legal system, and will convert existing EU law into domestic law, wherever practical. The aim of the Bill is to ensure a “calm and orderly” exit from the EU. It will be open to Parliament in the future to keep or change these laws. |
Source: HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, February 2017: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/589191/The_United_Kingdoms_exit_from_and_partnership_with_the_EU_Web.pdf [accessed 7 March 2017]
149.Reflecting on the pharmaceutical industry, professional services firm Deloitte LLP told us:
“The harmonisation of regulations applicable to the industry [is] probably the most important element of UK-EU relations. This is irrespective of whether one takes a narrow view of ‘trade’ (i.e. limiting the definition to the marketing and sale of medical products), or a broader definition of trade (i.e. one that includes all of the activities that a life sciences company undertakes, such as R&D).”291
150.Deloitte noted that while “the UK could create its own” rules and standards, the UK market for pharmaceuticals was “relatively insignificant”. Thus UK standards “would need to be recognised as equivalent by the EU as a pre-requisite for ongoing EU trade”. Moreover, changes to the rules on mutual recognition and regulatory harmonisation, and to common labelling requirements, “would increase the costs of production” for pharmaceuticals. Qualifying this point, it added that this would be “inflationary rather than being significant in changing buying decisions”.292
151.Mr Elliott highlighted the importance of the Control of Major Accident Hazards (COMAH) Regulations for the chemicals industry.293 The purpose of the 2015 COMAH Regulations is to prevent major accidents involving dangerous substances and to limit the consequences to people and the environment of any accidents which do occur.294
152.He also highlighted the importance for the chemicals sector of the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) Regulation. The REACH Regulation requires industry to manage the risks from chemicals and to provide safety information on the substances used. The information has to be registered in a central database in the European Chemicals Agency (ECHA). While leaving the EU might be a “potential opportunity” to look at a “more risk-based, more proportionate, and more pragmatic” system, for instance US legislation on chemicals,295 the level of UK-EU trade was such that he expected that “we would need to continue” to comply with REACH.296
153.For the food and beverages sector, Mr Peter Hardwick, Head of Exports, AHDB, said that there was a possibility for the UK to “create two-tier markets”.297 This would enable UK exporters to produce goods to different standards, depending on the eventual destination of the goods. This could involve adhering to more stringent regulations for one set of countries than for another: “We do not necessarily need the same type of factories supplying [West African] markets as we have to supply the European Union.”298
154.Mr Hardwick acknowledged, though, that there were difficulties with such an approach. First, he stressed that, for trade to continue, it was important for the food and drink sector to “maintain the same or similar standards to those in the European Union” after Brexit.299 Agra Europe agreed: in areas such as food labelling and pesticide residues, “any significant divergence from EU standards in these areas could make UK goods illegal on EU markets”.300
155.A second problem was that in a meat plant, for example, “parts of that animal will probably go to one system and other parts will go to another … If you want to sell your carcass meat to the European Union and your offals to West Africa, you cannot have two plants—you can have only one for the European Union.”301 In addition, Professor Tim Lang, Founder, Centre for Food Policy, City, University of London, said that creating different standards for different export zones would be “catastrophic for Brand Britain”, the promotion of which was “Defra’s current top-line thinking”.302 For all these reasons, a ‘two-tier’ approach to regulation of the food and beverages sector post-Brexit appears undesirable and unlikely.
156.So far as the downstream petroleum sector is concerned, Mr Hunt told us that it would “be very keen to ensure that we stick with the Control of Major Accident Hazards (COMAH) Regulations”.303
157.For the upstream sector, Mr Michael Tholen, Director of Upstream Policy, Oil and Gas UK, told us that the EU had “no direct remit over the precise activities of oil and gas extraction offshore”. The EU did, however, influence the upstream industry through environmental standards and energy market standards.304
158.Norton Rose Fulbright LLP also highlighted the EU’s influence over product quality. There were “a number of European laws and standards which relate to the quality of downstream products, which are important for trading”. These included Directive 2015/1513 (relating to the quality of petrol and diesel fuels) and Directive 2009/30 (on the specification of petrol, diesel and gas-oil to be used by cars and ships). Norton Rose Fulbright LLP commented:
“At present, EU customers have certainty that when they purchase UK-produced products they will not be in breach of the obligations imposed on them to use a certain specification of fuel. However, if existing EU customers were to lose faith that UK-produced fuels were compliant with these rules, the EU export market might be in danger of disappearing.” 305
159.Mr Tholen therefore argued that “the ability to influence [EU] standards in a positive way post-Brexit for a very interrelated and complicated energy market will be vital”. The UK’s potential to influence EU standards from outside was, though, mixed at best. Norway had “a great degree of soft influence”, but also “a large measure of frustration about the ability to influence specifics”. The UK’s influence would depend on “the nature of the separation of the upstream market post-Brexit from the European market”, and “on how energy policy and the UK’s own energy policy will emerge in that new world”.306
160.Regarding common standards, Lord Bridges reiterated that “the Great Repeal Bill will take EU law and regulation and import it into UK law”, and argued that “we are starting from a good base in terms of conformity”.307 He pointed to mutual recognition provisions for conformity assessment of standards in the EU-Swiss FTA as a precedent. Similar provisions could be found in CETA, and the EU and Canada had a regulatory co-operation forum.308
EU agencies and standards
161.Witnesses highlighted the UK’s role in a number of different standardisation bodies, some of which are EU agencies, and other bodies in which the EU plays a major role. While the Prime Minister’s speech on 17 January made no mention at all of EU agencies, the Government’s White Paper stated: “As part of exit negotiations the Government will discuss with the EU and Member States our future status and arrangements with regard to these [EU] agencies.”309 While little detail has been provided by the Government on its objectives in this regard, it is clear that this will be a key part of the negotiations under Article 50 on a withdrawal agreement.
162.For the pharmaceuticals industry, the European Medicines Agency (EMA), based in London, is a major EU regulatory agency. The EMA is responsible for the scientific evaluation, supervision and safety monitoring of medicines developed by pharmaceutical companies for use in the EU and in the countries of the EEA.310
163.Dr Acha and Deloitte LLP told us the UK Medicines and Healthcare Products Regulatory Agency (MHRA) had contributed heavily to the development of standards through the EMA.311 Deloitte LLP explained that for the pharmaceuticals sector, standards were “very significant and are a pre-requisite for the licencing of drugs and devices across the EU, as well as being a requirement in many operational areas of the business”.312 Moreover, standards were converging globally.313
164.Dr Acha said that there would be the opportunity for the UK to continue participating in the EMA after Brexit, if it chose to remain part of the EEA. Non-EU EEA countries “can participate under the EEA arrangements, but they do not have voting rights and they do not lead on policy”.314 The Prime Minister’s speech on 17 January, ruling out membership of the Single Market or joining the EEA after Brexit, means that ongoing participation in the EMA would require a bespoke, and unprecedented, agreement between all sides to the forthcoming negotiations.
165.We note that EU agencies are subject to EU law. If the UK were to retain membership of the EMA, it would probably have to comply with EU law in the areas covered by the EMA. The Court of Justice of the European Union (CJEU) has jurisdiction over proceedings against any EU agency.315 It is unclear how the UK could co-operate with the EMA after Brexit,316 and whether the UK would be able to influence decisions taken by the EMA. It is also unclear whether a different oversight or dispute settlement mechanism could apply to the UK’s co-operation with the EMA.
166.Discussions have already begun about moving the EMA to one of the EU-27. As Deloitte LLP noted, this will be “a disadvantage for the UK life sciences industry, both in terms of status as host nation but also there is likely to be a reduction of research and other work contracted to the MHRA by the EMA”.317
167.More broadly, Dr Acha noted that the Government would have to “think about how we are going to align with the standards that have been arranged after so many years of careful thought”.318 There was a “need to have continued alignment, as far as possible, with the global process, to which the European Medicines Agency has been a significant contributor”.319 Deloitte wrote that the UK had three options. It could either continue to align with the EMA (particularly given the “potential disadvantages of losing mutual recognition with the EU”), align with another regulatory framework (such as the US Food and Drug Administration (FDA), or “create a new/enhanced UK regulatory body”. Aligning with another regulatory body such as the FDA might be “time-consuming and costly”, while the “size and complexity” of the task of creating a new regulatory body and supporting a new regulatory framework meant that this was “unlikely to be feasible in the time available”.320
168.Dr Acha told the Committee that the ABPI “would like the role the MHRA plays”—as an important voice in the EMA and in international groups on harmonisation—“in the future to be no smaller than in the past”. She hoped that “the British voice” would “continue to weigh importantly in the scientific developments on standards”, and she looked to the Government “to ensure that … we are directly represented at the ICH [International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use] and other relevant bodies”.321 The UK is currently represented at ICH only as a member of the EU, and the Government will need to establish itself as an independent member.322
169.In the food and beverages sector, the UK Food Standards Agency participates in the EU’s Rapid Alert System for Food and Feed (RASFF). RASFF enables information to be shared efficiently between EU Member States and agencies and the EFTA countries when risks to public health are detected in the food chain.323 Mr Hardwick told us that after Brexit, “there are options to remain in”, though in so doing he was reflecting the fact that the EFTA states are members—an option now ruled out by the Government.324 It is therefore not yet clear whether ongoing UK participation in RASFF will be possible after Brexit. Prof Lang presented the options in stark terms: “One is that you do not leave it, and the other is that you duplicate it.”325
170. For the downstream petroleum sector, technical standards are determined by the European Committee for Standardisation (CEN). CEN brings together the national standardisation bodies of 34 European countries, including EU Member States, the Former Yugoslav Republic of Macedonia, Turkey, Iceland, Norway and Switzerland. CEN provides a platform for the development of European Standards and other technical documents in relation to various kinds of products, materials, services and processes.326
171.Mr Chris Hunt, Director General and Company Secretary, UK Petroleum Industry Association, said that CEN was open to non-EU members, and that Brexit “should make no difference” to the UK’s membership and influence. He thought that the UK’s standards body, the British Standards Institution (BSI) “will maintain its role in maintaining [international] standards, as now”.327
172.The automotive sector raised the issue of vehicle approvals after Brexit. Through the Whole Vehicle Type Approval system, the EU sets standards for road vehicles.328 The Automobile Association and the RAC noted that these allowed car manufacturers to obtain approval against a set of standards that permit cars to travel or be sold across the EU without further inspections.329 The SMMT wrote that “the validity of existing type approvals issued by the Vehicle Certification Agency (VCA)330 once the UK has left the EU” required “urgent legal clarification”. It added that the UK had an “influential and respected voice”, which “must continue to participate in [standard-setting] discussions”.331
173.Turning to the aerospace industry, the European Aviation Safety Agency (EASA) is an EU agency and the main regulator of civil aviation in Europe. As well as, in the words of Mr Simon Whalley, Head of External Affairs, Royal Aeronautical Society, creating “common standards and common requirements” for its members, 332 Mr Everitt said it was “our route to market … it is through EASA that we gain access to all of our major markets, whether that is the US, China, Japan or elsewhere”. For this reason, membership of EASA was “our number one ask of the UK Government”.333
174.Mr Whalley told us that the UK had been “very positively influential within EASA”, and that it “should try to maintain [its] position within EASA and retain as much influence as possible.”334 Mr Everitt noted that current membership of EASA cost the UK around £1 million per annum, whereas building these functions into the existing UK Civil Aviation Authority “would cost tens if not hundreds of millions”.335
175.Mr Everitt noted “existing examples of countries outside the EU which are part of EASA”,336 namely the four EFTA states.337 He also believed that the UK should retain membership of EASA post-Brexit,338 though we note that, as for other agencies, the Government’s decision to rule out EEA or EFTA membership means that it is not yet clear whether this will be possible.339 As is the case with the European Medicines Agency, if the UK were to remain a member of EASA, it might have to comply with EU law (and possibly accept the oversight of the Court of Justice of the European Union) in the areas covered by it.340 It is unclear in which ways the UK could co-operate with the EASA after Brexit, and whether the UK would be able to influence decisions taken by the EASA. It is also unclear whether an oversight or dispute settlement mechanism other than the CJEU could apply to the UK’s co-operation with the EASA.
176.Mr Whalley told us that it would be important to maintain access to the European Space Agency’s (ESA) flagship programmes, Galileo and Copernicus.341 ESA is not a European Union agency, but an intergovernmental organisation with membership beyond the EU,342 so continued membership appears feasible.343 Nevertheless, as Mr Whalley said, it implements EU space programmes, and, thanks to the EU’s role as a research funder, legislator and regulator, there are “overlaps with the EU”.344 Some 20% of the funds managed by ESA originate from the EU budget,345 and Mr Whalley said that a key issue for the UK was “having the influence to direct where that money is spent”.346 After Brexit, the UK should “maintain, as other non EU countries are able, access to EU space programmes for UK firms to be able to tender for future space programmes”. He was concerned, however, that non-EU countries “are not always able to tender for all projects because, even though there are WTO rules that say that all countries can tender for European Union space projects, there are exclusions for non-Member States due to certain research and security clauses.”347 This meant that companies in the UK that were “heavily involved in EU-funded space programmes would not necessarily be able to enjoy the same benefits in the future”.348
177.Asked about participation in the EMA and EASA, Lord Bridges told us: “We are very much looking at all the agencies … in terms of what is in our national interest and therefore of what will be in the long-term interests of a partnership between this country and the European Union.” While the UK might wish “to continue to play some sort of role” in some of the agencies, it might not wish to do so in others. The UK’s approach to such bodies was “not going to be a one-size-fits-all rule, so the role that we play is not a binary choice that can be made right now”.349 We note that this statement did not provide a great deal of clarity or detail on the UK’s potential participation in EU agencies after Brexit.
Conclusions and recommendations
178.Non-tariff barriers can pose as significant or a greater barrier as tariffs to trade in goods.
179.Were the UK to agree a FTA with the EU, rules of origin (which determine where a product and its components were produced) would apply. They would also apply were the UK and EU to trade under WTO rules. Applying rules of origin will generate significant additional administration, and therefore costs and delays, to UK businesses.
180.If the UK and the EU were to agree a FTA, compliance with preferential rules of origin might be so administratively burdensome for some sectors, such as chemicals, as to outweigh the benefit of tariff reductions. It will be important for the Government fully to assess the benefit, sector by sector, of preferential rules of origin under a FTA as compared to non-preferential rules of origin under WTO terms.
181.Some industries with an integrated EU supply chain and high levels of both imports and exports, notably the automotive sector, might be unable to comply with the local content requirements contained in the EU’s preferential rules of origin. In this scenario, WTO most favoured nation tariffs would be imposed, increasing costs and disrupting the UK’s place within the EU supply chain.
182.Regulatory standards are a significant non-tariff barrier. If the current level of EU-UK trade is to be maintained, ongoing harmonisation or mutual recognition of regulatory standards may be required. We welcome the Government’s decision—by means of the Great Repeal Bill—to preserve existing EU regulations in domestic law as a first step towards regulatory co-operation with the EU.
183.As we stated in our report Brexit: the options for trade, the Government will have to make a trade-off between its desire to determine UK laws and regulations, and how far-reaching a FTA it can agree with the EU (and other partners).
184.Operating to two separate regulatory standards—for the domestic and EU markets—would be costly for UK businesses.
185.We urge the Government to maintain close dialogue with the EU over the development of UK and EU standards post-Brexit, to avoid unnecessary divergence.
186.But a comprehensive FTA is likely to require more than just such dialogue: it is likely to require a legal commitment by the UK to maintain a high level of harmonisation or mutual recognition of regulations and standards with the EU. This would require the UK Government to limit its exercise of regulatory sovereignty, in order to secure liberal conditions for trade. It might also require the UK to agree with the EU a new arrangement for oversight and dispute resolution.
187.As part of this regulatory alignment, there may be significant benefits in the UK continuing to participate, where legally possible, in EU agencies. We regret the lack of information in the Government’s White Paper regarding the UK’s strong and abiding interest in continued membership of such agencies.
188.The UK has in particular benefited from hosting and participating fully in the European Medicines Agency (EMA). The Government’s decision to rule out membership of the Single Market means that the UK may be unable to maintain its membership of this body. We regret this, and urge the Government to bring forward proposals for future collaboration with the EMA.
189.We call on the Government to confirm whether vehicle type approvals issued by the Vehicle Certification Agency will remain valid after Brexit.
190.The European Aviation Safety Agency is the civil aviation industry’s ‘route to market’. We urge the Government to confirm whether the Government intends to seek continuing membership of the EASA after Brexit, and if so on what terms.
191.The Prime Minister has stated the Government’s intention to leave the jurisdiction of the Court of Justice of the European Union. Full UK participation in EU agencies after Brexit would be likely to require some form of oversight and dispute resolution, in the specific areas covered by these agencies. We urge the Government to clarify whether it would accept such conditions for co-operation with specific EU agencies, and if so on what terms.
245 Peter Van den Bossche & Werner Zdouc, The Law and Policy of the World Trade Organization, 3rd edition (Cambridge: Cambridge University Press, 2013), p 480
246 A taxonomy of non-tariff measures was developed under the leadership of UNCTAD. UNCTAD, International Classification of Non-Tariff Measures (2012), p 3: http://unctad.org/en/PublicationsLibrary/ditctab20122_en.pdf [accessed 10 February 2017]
247 Peter Van den Bossche & Werner Zdouc, The Law and Policy of the World Trade Organization, 3rd edition (Cambridge: Cambridge University Press, 2013), p 480
248 HM Government, Review of the Balance of Competences between the United Kingdom and the European Union: the Single Market (July 2013), p 22: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/227069/2901084_SingleMarket_acc.pdf [accessed 7 March 2017]
249 International Trade Centre and the European Commission, Navigating non-tariff measures—insights from a business survey in the European Union (2016), p 5: http://trade.ec.europa.eu/doclib/docs/2016/december/tradoc_155181.pdf [accessed 10 February 2017]
250 For example, Q 67 (Mike Hawes); Q 20, Q 23 (Fergus McReynolds); Q 3 (Steve Elliott); Q 43 (Peter Hardwick); Q 88 (Paul Everitt)
252 WTO, ‘Technical Information on Rules of Origin’: https://www.wto.org/english/tratop_e/roi_e/roi_info_e.htm [accessed 17 February 2017]
253 European Commission, ‘Non-Preferential Origin—Introduction’: http://ec.europa.eu/taxation_customs/business/calculation-customs-duties/rules-origin/nonpreferential-origin/introduction_en [accessed 17 February 2017]
254 World Customs Organisation, Rules of Origin—Handbook: http://www.wcoomd.org/en/topics/origin/overview/~/media/D6C8E98EE67B472FA02B06BD2209DC99.ashx [accessed 17 February 2017]
255 Ibid.
256 European Commission Export Helpdesk, ‘Rules of origin’: http://exporthelp.europa.eu/thdapp/display.htm?page=cd%2Fcd_RulesOfOrigin.html&docType=main&languageId=en [accessed 10 February 2017]
257 European Commission, The EU-Korea Free Trade Agreement in practice (2011), p 6: http://trade.ec.europa.eu/doclib/docs/2011/october/tradoc_148303.pdf [accessed 10 February 2017]
259 World Customs Organisation, ‘Accumulation / Cumulation’: http://www.wcoomd.org/en/topics/origin/instrument-and-tools/comparative-study-on-preferential-rules-of-origin/specific-topics/study-topics/cum.aspx [accessed 10 February 2017]
260 European Commission, ‘Taxation and Customs Union—common provisions’: http://ec.europa.eu/taxation_customs/business/calculation-customs-duties/rules-origin/general-aspects-preferential-origin/common-provisions_en#cumulation [accessed 22 February 2017]
261 There are 23 contracting parties to the PEM Convention. European Commission. ‘Taxation and Customs Union—The pan-Euro-Mediterranean cumulation and the PEM convention’: http://ec.europa.eu/taxation_customs/business/calculation-customs-duties/rules-origin/general-aspects-preferential-origin/arrangements-list/paneuromediterranean-cumulation-pem-convention_en [accessed 22 February 2017]
262 Commission notice concerning the date of application of the Regional Convention on pan-Euro-Mediterranean preferential rules of origin or the protocols on rules of origin providing for diagonal cumulation between the Contracting Parties to this Convention, OJ C 214/5 (30 June 2015); The Stabilisation and Association Process is the EU’s policy towards the Western Balkans.
263 World Customs Organisation, ‘Cumulation in European Origin Models’: http://www.wcoomd.org/en/topics/origin/instrument-and-tools/comparative-study-on-preferential-rules-of-origin/specific-agreements/agreement-topics/cum-eur.aspx [accessed 10 February 2017]
264 World Customs Organisation, ‘Accumulation / Cumulation’: http://www.wcoomd.org/en/topics/origin/instrument-and-tools/comparative-study-on-preferential-rules-of-origin/specific-topics/study-topics/cum.aspx [accessed 22 February 2017]
265 Open Europe, The impact of Brexit on the UK’s key export sectors (March 2015): http://openeurope.org.uk/wp-content/uploads/2015/03/150309_Open_Europe_Briefing.pdf; Further information is in Canadian Council of Chief Executives, Made in the world—defragmenting rules of origin for more efficient global trade (June 2014): http://www.ceocouncil.ca/wp-content/uploads/2014/06/Made-in-the-world-Dawson-and-Staples-June-2014.pdf [accessed 7 March 2017]
272 Written evidence from Peter Wells (FTG0013); Automotive Council UK, Growing the Automotive Supply Chain, Local Vehicle Content Analysis (September 2015): http://www.automotivecouncil.co.uk/wp-content/uploads/2015/09/UK-local-sourcing-content-research-September-20151.pdf [accessed 16 February 2017]
275 Ibid.
276 Oral evidence taken before the EU External Affairs and Internal Market Sub-Committees, 15 September 2016 (Session 2016–17), Q 20 (Dr Ulf Sverdrup)
278 Ibid.
279 Australian Government Productivity Commission and New Zealand Productivity Commission, Strengthening trans-Tasman economic relations (November 2012): http://www.pc.gov.au/inquiries/completed/australia-new-zealand/report/trans-tasman.pdf [accessed 10 February 2017]
280 Government of Australia, Australia and New Zealand government response to the joint productivity commissions’ report on economic integration (2014): http://jbh.ministers.treasury.gov.au/files/2014/05/Aus-NZ-Joint-Response-Productivity-Report.pdf [accessed 13 February 2017]
282 Ibid.
284 European Commission, ‘Mutual recognition’: http://ec.europa.eu/growth/single-market/goods/free-movement-sectors/mutual-recognition_en) [accessed 16 February 2017]
285 Oral evidence taken before the EU External Affairs and Internal Market Sub-Committees, 13 October 2016 (Session 2016–17), Q 52 (Lord Price)
287 Trans Atlantic Consumer Dialogue, TACD Briefing Paper on Mutual Recognition Agreements (March 2001) p 1: http://test.tacd.org/wp-content/uploads/2013/09/TACD-TRADE-2001-Briefing-Paper-on-Mutual-Recognition-Agreements.pdf [accessed 8 March 2017]
288 European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)
289 Ibid.
290 This is also considered in our report Brexit: environment and climate change (12th Report, Session 2016–17, HL Paper 109)
292 Ibid.
294 The COMAH Regulations 2015 implement the majority of the Seveso III Directive (2012/18/EU) in Great Britain (Northern Ireland produces its own regulations). The Seveso III Directive aims at the prevention and control of large-scale accidents involving dangerous chemicals. The land-use planning requirements from the Directive are implemented through planning legislation.
298 Ibid.
299 Ibid.
300 Written evidence from Agra Europe (FTG0005) Agra Europe added that regulation which is unrelated to trade, “(for example, those related to habitats, or rules on how to claim for subsidies) could, on the other hand, be changed in the UK without any trade impact”. This issue is further discussed in our report, Brexit: environment and climate change (12th Report, Session 2016–17, HL Paper 109)
302 Ibid.
304 Ibid.
308 Ibid.
309 HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, February 2017, p 46: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/589191/The_United_Kingdoms_exit_from_and_partnership_with_the_EU_Web.pdf [accessed 13 February 2017]
310 The EEA includes all EU Member States and Norway, Iceland, and Liechtenstein.
315 The Court of Justice of the European Union, ‘Jurisdiction’: http://curia.europa.eu/jcms/jcms/Jo2_7024/en/#competences [accessed 23 February 2017]
316 We are confident that agreement on co-operation in general can be reached: the EMA co-operates with regulators outside the EU, and has agreements in place with regulators in the US, Canada, Japan, Switzerland, Australia, New Zealand and Israel. However, these countries do not participate in the management of the EMA. EMA, ‘Regulators outside the European Union’: http://www.ema.europa.eu/ema/index.jsp?curl=pages/partners_and_networks/general/general_content_000214.jsp&mid=WC0b01ac058003176d [accessed 2 March 2017]
320 Written evidence from Deloitte LLP (FTG0004); Deloitte cited the example of Australia and New Zealand, which had “tried to align on two previous occasions, ultimately deciding to cease efforts in favour of New Zealand introducing a new scheme”.
321 Q 9 (Dr Virginia Acha) ICH brings together the regulatory authorities and pharmaceutical industry to achieve greater harmonisation worldwide to ensure the safety, effectiveness and quality of medicines. ICH, ‘Current Members and Observers’: http://www.ich.org/about/membership.html [accessed 17 January 2017]
322 ICH, ‘Current Members and Observers’: http://www.ich.org/about/membership.html [accessed 17 January 2017]
323 European Commission, ‘RASFF—Food and Feed Safety Alerts’: https://ec.europa.eu/food/safety/rasff_en [accessed 6 March 2017]
326 CEN supports standardisation activities in relation to a wide range of fields and sectors including: air and space, chemicals, construction, consumer products, defence and security, energy, the environment, food and feed, health and safety, healthcare, ICT, machinery, materials, pressure equipment, services, smart living, transport and packaging. CEN, ‘Who we are’: https://www.cen.eu/about/Pages/default.aspx [accessed 17 January 2017]; CEN, ‘Our role in Europe’: https://www.cen.eu/about/RoleEurope/Pages/default.aspx [accessed 16 February 2017] and CEN, ‘CEN Members’: https://standards.cen.eu/dyn/www/f?p=CENWEB:5 [accessed 17 January 2017]
329 Ibid.
330 The VCA is an Executive Agency of the United Kingdom Department for Transport and the United Kingdom’s national approval authority for new road vehicles, agricultural tractors and off-road vehicles. It is also responsible for enforcement of vehicle safety and environmental standards.
333 Ibid.
335 Ibid.
336 Ibid.
337 The EFTA states are Iceland, Liechtenstein, Norway, and Switzerland. EASA, ‘EASA by Country’: https://www.easa.europa.eu/easa-and-you/international-cooperation/easa-by-country?easa_relationship[0]=field_easa_country_mbmo_target_id [accessed 17 January 2017]
339 We note that Switzerland participates in EASA, although it is not a member of the EEA. It is not clear whether the UK’s participation would depend on its joining EFTA, signing a FTA with the EU, or on separate negotiations.
340 It should be noted that the four EFTA countries that are EASA member states are not subject to the CJEU, but to the EFTA Court (Iceland, Liechtenstein, and Norway) or no court system (Switzerland). It should further be noted, however, that the EU has stated that “a precondition for further developing the sectoral approach remains the establishment of a common institutional framework for existing and future agreements through which Switzerland participates in the EU’s Single Market, in order to ensure homogeneity and legal certainty for citizens and businesses.” Council of the European Union, Press release—Council conclusions on EU relations with the Swiss Confederation (28 February 2017): http://www.consilium.europa.eu/press-releases-pdf/2017/2/47244655317_en.pdf [accessed 3 March 2017]
341 Q 91; Galileo is Europe’s own global navigation satellite system, providing an accurate and guaranteed global positioning service under civilian control. Copernicus is a European system for monitoring the earth by collecting data from satellites and in situ sensors such as ground stations, airborne and sea-borne sensors. It provides information on environmental and security issues.
342 ESA, ‘ESA and the EU’: http://www.esa.int/About_Us/Welcome_to_ESA/ESA_and_the_EU2 [accessed 23 January 2017]; 20 EU Member States are members, plus Norway and Switzerland. Canada takes part in some projects under a co-operation agreement.
345 ESA, ‘ESA and the EU’: http://www.esa.int/About_Us/Welcome_to_ESA/ESA_and_the_EU2 [accessed 23 January 2017]
348 Ibid.