Chapter 1: Introduction
1.This report considers twelve international agreements, including three ‘rolled over’ trade agreements.1 These are the first Brexit-related trade agreements to be laid before Parliament, and in this chapter we make some general comments on the Government’s programme of roll-over trade agreements, and the issues it has thrown up.
The scale and sequencing of the agreements under consideration
2.In a letter to the Secretary of State for Exiting the EU, dated 6 February,2 we asked for an explanation of the sequencing of the agreements signed by the UK Government and other parties, noting that there could be trade-offs in rolling over specific agreements ahead of the commencement of wider, bilateral, negotiations with third parties post-Brexit.
3.The three trade agreements considered in this report cover UK trade with Chile, the Faroe Islands, and the Eastern and Southern Africa States. According to the reports prepared by the Department for International Trade, which accompany the agreements, they account for less than 0.3% of total UK trade.3 While agreements with Switzerland, Israel and the Palestinian Authority have been laid before Parliament, there is little sign that the Government will be able to ‘roll over’ the majority of EU trade agreements, including those with major economies such as Japan and South Korea, in time for a potential ‘no deal’ exit on 29 March 2019.4 This begs the question of whether these larger economies are reluctant to replicate in their agreements with the UK the terms that they have previously agreed with the EU.
4.While the UK trades extensively with countries with which the EU has not concluded free trade agreements (including the United States), we emphasise the importance of providing for continuity of the terms of trade where such agreements are currently in force. Moreover, in the absence of a Withdrawal Agreement we note that there would be no satisfactory arrangements for continuing frictionless trade with the UK’s biggest trading partner, the EU itself.
5.We welcome the fact that the Government has concluded roll-over trade agreements with Chile, the Eastern and Southern Africa states, the Faroe Islands, Switzerland, Israel and the Palestinian Authority. But we note with concern that some of the EU’s largest trading partners have not yet concluded agreements with the UK, and that in most cases there is no prospect that they will do so ahead of the UK’s scheduled exit from the EU. The risk of disruption to the terms of UK trade with many of its most important trading partners is now imminent and acute.
The use of ‘short form’ agreements and the mutatis mutandis principle
6.Two of the three trade agreements considered in this report have been published as ‘short form’ agreements. The Government explains that these incorporate “by reference the relevant provisions of the underlying EU-third country agreement with relatively few necessary modifications”.5 This is done by recognising the underlying agreement in the text of the rolled over agreement.6 The Government argues that the short form agreement has several advantages:
- Short form agreements are more easily adapted to accommodate different scenarios, such as the various possible outcomes of the UK’s ongoing negotiations;
- They send “a clear message to businesses, consumers and investors in both the UK and third countries that the aim is simply to secure continuity in existing trade arrangements”; and,
- They provide a “clear legal text, making rights and obligations unambiguous where they had by necessity changed, yet reducing the burden on both countries of legal scrubbing, translation, domestic procedures and, potentially, ratification”.7
7.The use of short-form agreements can also simplify scrutiny. Changes to existing agreements are readily apparent and it is easy to focus on those changes. Furthermore, they should also avoid the risk of errors as a result of oversight: because the short-form agreements contain a mutatis mutandis clause (see Box 1), any original clause still referring to EU-specific concepts will automatically be read to apply to the UK equivalent.
Box 1: Mutatis mutandis clauses
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The Latin term mutatis mutandis, literally “with those things changed that have to be changed”, is not uncommon in legal texts. The Cambridge Dictionary states that the term is “used when comparing two or more things to say that although changes will be necessary in order to take account of different situations, the basic point remains the same”. While the term is more commonly used in contract law to allow parties to integrate obligations from one instrument in another one in slightly different circumstances without having to rewrite these obligations, it is not uncommon in international law. Thus Article 19 of the Kyoto Protocol states: “The provisions of Article 14 of the Convention on settlement of disputes shall apply mutatis mutandis to this Protocol.”8 Article 30(1) of the UN Convention on Straddling Fish Stocks and Highly Migratory Fish Stocks integrates the provisions relating to the settlement of disputes in Part XV of the United Nations Convention on the Law of the Sea mutatis mutandis.9 Resorting to a mutatis mutandis clause has the advantage that it is unnecessary to rewrite the whole agreement. It can, however, result in disputes about the precise changes to the original text that the clause requires.10 |
8.Although the use of short form agreements may bring advantages, there are some trade-offs. First, those concluding as well as those scrutinising such agreements have to be sure that reliance on the mutatis mutandis clause will result in a well-defined outcome that will not lead to future disputes. We highlight some examples of potential issues in Chapter 2.
9.Second, readers of the new ‘rolled-over’ trade agreements will have to read the short-form agreement together with the original agreement in order to understand its legal effect. Accordingly, access to the original documentation and clear referencing will be essential, particularly where rolled over agreements include by reference decisions of bodies of the State parties, which are not otherwise accessible. At the time of writing the Government had provided a link to the preceding EU-Faroe Islands agreement on its website, but not to the EU-Chile agreement.
10.We recommend that, when the Government makes use of ‘short form’ agreements, which only highlight amendments to the original underlying agreements with the European Union, it should ensure transparency by consistently publishing the original EU agreement, along with decisions by the Joint Committee pertaining to the agreement, and other documents included by reference, online alongside the new agreement.
Modification of free trade agreements
11.As we noted in our report, Scrutiny of international agreements: Treaties considered on 12 February 2019,11 agreements are likely to make provision for amendment and modification. This is particularly important in respect of trade agreements, where significant changes to the annexes, appendices, and protocols could bring new goods and services into their scope, or change applicable standards, diverging from the underlying agreement with the EU. Such amendments could be agreed by mutual consent, by a Joint Committee established under the agreements, subject to any domestic legal requirements and procedures that the parties may agree. We highlight some examples of these sorts of clauses in Chapter 2.
12.Informal communications between Committee staff and the Government Departments involved in negotiating these agreements suggest that references to “domestic legal requirements” in these agreements relate only to the fact that changes will have to be made via domestic legislation (usually secondary legislation). Thus it appears likely that significant amendments could be made to agreements without engaging the scrutiny procedures required by the Constitutional Reform and Governance Act 2010.
13.We call on the Government to state clearly, in respect of all international agreements, the circumstances in which, where significant amendments are made, they should be subject to the scrutiny procedures required by the Constitutional Reform and Governance Act 2010. While there may be a case for some minor and proportionate divergence to be agreed between the parties, subject only to the passage of any necessary domestic legislation, in other cases Parliament may wish to ensure that any changes are made in a more transparent fashion, and subject to appropriate scrutiny.
Consultation
14.We highlighted the question of consultation in our report Scrutiny of international agreements: Treaties considered on 12 February 2019.12 While international relations and trade are reserved matters, it is evident that free trade agreements also have an impact on many devolved matters. For example, the UK-Faroe Islands free trade agreement relates in large part to the trade in fish products, which has significant implications for the Scottish fishing and fish processing industries. For example, the UK-Faroe Islands free trade agreement relates in large part to trade in fish products, which has significant implications for the Scottish fishing and fish processing industries. Yet the Explanatory Memorandum makes no reference to formal consultation of the Scottish Government, stating merely that “DIT is … in close contact with the Devolved Administrations. The Devolved Administrations have been regularly updated on progress.”
15.We also understand that the Government’s current policy is that it will not automatically share draft texts of agreements with the devolved administrations before signature. Given that the general purpose of ‘roll over’ agreements is as far as possible to carry over pre-existing arrangements, we find this lack of transparency puzzling. It could also fuel tensions within the United Kingdom, at a time when, as we noted in our report on Brexit: devolution, “close cooperation between the UK and Scottish Governments is paramount”.13
16.On 25 February we received a letter from the Minister for Trade, Investment and Innovation in the Scottish Government, Ivan McKee MSP, in which he welcomed the Department for International Trade’s efforts to engage with the Scottish Government, and the progress towards formalising the future working relationship between the DIT and the devolved administrations on trade matters. At the same time, he expressed concern that the Scottish Government had had neither a role in negotiating the agreements, nor sight of draft texts. He concluded: “It is necessary to record that the level of involvement that the Scottish Government has had in the process to date is, in our view, insufficient; we certainly would not wish to see this process as precedent-setting for the handling of new agreements in the future.”14
17.We were concerned to discover that the Government had not shared draft texts of roll-over trade agreements with the devolved administrations prior to signature. This is a puzzling and potentially damaging approach. As we said in 2017, close cooperation between central and devolved Governments is paramount: this is not the moment for the Government to be insisting rigidly on the formal distinction between reserved and devolved matters. We therefore recommend that the Government share at least the relevant extracts of proposed agreements it is consulting on, prior to signature, to ensure that the devolved administrations have an opportunity raise concerns, and that those concerns can be properly considered.
Terminology common to trade agreements
18.Some common issues arise in respect of the three trade agreements currently under consideration, which are likely to arise in respect of future agreements. These include the Government’s approach to the calculation of tariff-rate quotas, to geographical indications, and to rules of origin. These terms are explained in Box 2.
Box 2: Common terminology in trade agreements
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Tariffs and Tariff Rate Quotas Tariffs or customs duties are a state levy imposed on goods crossing from one customs territory to another. Tariffs impose a charge on the import of a product, usually expressed as a percentage of its value, with the percentage varying from product to product. By applying Tariff Rate Quotas (TRQs) a customs territory can allow a certain quota of a product to enter the market at a zero, or reduced, tariff rate. A higher tariff applies after that limit has been reached.15 TRQs were introduced to provide some market access, in the context of very high tariffs on some agricultural products. The rolled over trade agreements include TRQs for dairy, beef, lamb, poultry meat, sugar, fruit and vegetables. Geographical indications A geographical indication (GI) is a sign used on (agricultural) products that have a specific geographical origin and possess qualities, characteristics or a reputation that are essentially due to that place of origin. Since the qualities of the produce depend on the geographical place of production, there is a clear link between the product and its place of production.16 In the European Union, many items of food and drink are protected by GIs. In the UK these include certain varieties of cheese, ham, pork pies, and Scotch whisky.17 The legal protection of GIs is a controversial issue in international trade, as many countries (such as the United States) reject their protection beyond standards contained in the WTO’s TRIPS Agreement.18 Rules of origin and cumulation ‘Rules of origin’ are used to determine the economic nationality of goods. To qualify for the preferential tariff rates (below the WTO Most Favoured Nation (MFN) rate) fixed by a free trade agreement, goods must originate in one of the parties to the agreement, which legally means they must comply with the preferential rules of origin laid down in the agreement. If they consist of materials from more than one country, these rules will determine whether the product nevertheless counts as a product from one of the parties thus benefiting from preferential terms. Factors include the origins of the materials, the value added in the process, and where the final substantial production phase took place. ‘Cumulation’ allows a contracting party to a free trade agreement to source raw materials or components from specified other countries and still benefit from the terms of the free trade agreement. In its Rules of Origin handbook the World Customs Organization distinguishes three types of cumulation: bilateral cumulation, where components and raw materials from the other party to the free trade agreement can be counted that way; diagonal cumulation, where additionally components and raw materials from a list of other designated countries to which the same rules of origin apply can be counted; and full cumulation, where components from all countries to which the same rules of origin apply can be counted.19 |
1 Of the three agreements considered in this report, one (the agreement with the Faroe Islands) is described as a ‘free trade agreement’; the ESA and Chile agreements are described as an ‘economic partnership agreement’ and an ‘association agreement’ respectively. The term ‘trade agreement’ is nonetheless used for convenience, to describe those agreements with a substantial trade component that the Government has judged to engage the reporting requirement contained in clause 3 of the Trade Bill.
2 Letter from Lord Boswell of Aynho to Stephan Barclay MP, 6 February 2019: https://www.parliament.uk/documents/lords-committees/eu-select/scrutiny-brexit-related-treaties/treaty-scrutiny-letter-6Feb.pdf
3 Chile is the UK’s 65th largest trading partner, accounting for 0.1% of total UK trade; trade with the Eastern and Southern African Region also accounts for approximately 0.1% of total UK trade, trade with the Faroe Islands accounts for less than 0.1% of total UK trade.
4 The Department for International Trade published an updated list of existing trade agreements if the UK leaves the EU without a deal on 21 February 2019. See Department for International Trade, ‘An update on existing trade agreements if the UK leaves the EU without a deal’, 21 February 2019: https://www.gov.uk/government/news/trade-agreement-continuity [accessed 25 February 2019].
5 See for example Department for International Trade, Continuing the UK’s Trade Relationship with The Faroe Islands, February 2019, para 8: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/777022/continuing-the-uks-trade-relationship-with-the-faroe-islands.pdf [accessed 21 February 2019]
6 For example, Article 4 of the Free Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and the Kingdom of Denmark in respect of the Faroe Islands [CP 32] provides that “The EU-Faroe Islands Agreement, in effect immediately before it ceases to apply to the United Kingdom, is incorporated into and made part of this Agreement, mutatis mutandis, subject to the provisions of this agreement”: https://www.gov.uk/government/publications/cs-denmark-no12019-ukdenmark-free-trade-agreement-in-respect-of-the-faroe-islands [accessed 19 February 2019]
7 Department for International Trade, Continuing the UK’s Trade Relationship with The Faroe Islands, February 2019, para 8: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/777022/continuing-the-uks-trade-relationship-with-the-faroe-islands.pdf [accessed 21 February 2019]
8 Kyoto Protocol to the United Nations Framework Convention on Climate Change, 11 December 1997, 2303 UNTS 162: https://treaties.un.org/doc/Treaties/1998/09/19980921%2004–41%20PM/Ch_XXVII_07_ap.pdf [accessed 22 February 2019]
9 Agreement for the Implementation of the Provisions of the United Nations Convention on the Law of the Sea of 10 December 1982 relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks, 4 August 1995, 2167 UNTS 3 https://treaties.un.org/doc/Treaties/1995/08/19950804%2008–25%20AM/Ch_XXI_07p.pdf [accessed 22 February 2019]
10 See e.g. US–Corrosion-Resistant Steel Sunset Review, in which Japan and the United States did not agree about the changes the mutatis mutandis clause in Art. 12.3 of the Anti-Dumping Agreement required. Barbosa, ‘Untangling the Mutatis Mutandis Principle in Free Trade Agreements’, SIEL Online Proceedings Working Paper No. 2012/28
11 European Union Committee, Scrutiny of international agreements: Treaties considered on 12 February 2019 (29th Report, Session 2017–19, HL Paper 287)
12 European Union Committee, Scrutiny of international agreements: Treaties considered on 12 February 2019 (29th Report, Session 2017–19, HL Paper 287), paras 5 and 6
13 European Union Committee, Brexit: devolution (4th Report, Session 2017–19, HL Paper 9), para 210
14 Letter from Ivan McKee MSP to the Principal Clerk of the European Union Committee, 25 February 2019: https://www.parliament.uk/documents/lords-committees/eu-select/scrutiny-brexit-related-treaties/scotland-international-agreements-letter.pdf
15 Holger P. Hestermeyer & Edith Brown Weiss, ‘Article XIII GATT’ in WTO—Trade in Goods, by Rüdiger Wolfrum, Peter-Tobias Stoll & Holger P. Hestermeyer (eds), para 52 (Leiden: Brill, 2011)
16 World Intellectual Property Organization, ‘What is a geographical indication’: https://www.wipo.int/geo_indications/en/ [accessed 21 February 2019]
17 See Department for Environment Food & Rural Affairs, ‘Protected food name scheme: UK registered products’ 19 February 2018: https://www.gov.uk/government/collections/protected-food-name-scheme-uk-registered-products [accessed 21 February 2019]
18 The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights. See https://www.wto.org/english/docs_e/legal_e/27-trips_01_e.htm [accessed 26 February 2019]
19 See World Customs Organization, ‘Rules of Origin Handbook’: http://www.wcoomd.org/~/media/wco/public/global/pdf/topics/origin/overview/origin-handbook/rules-of-origin-handbook.pdf [accessed 25 February 2019]