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Scrutiny of international agreements; Treaties considered on 26 February 2019 Contents

Chapter 2: Agreements drawn to the special attention of the House

Agreement establishing an Economic Partnership Agreement between the Eastern and Southern Africa States and the United Kingdom of Great Britain and Northern Ireland (CP 31, 2019)20

19.The UK-Eastern and Southern Africa States Economic Partnership Agreement was laid on 6 February 2019, and the scrutiny period is scheduled to end on 14 March. It was considered by the EU External Affairs Sub-Committee at its meeting on 21 February.

20.In 2009 Madagascar, Mauritius, Seychelles and Zimbabwe signed an Economic Partnership Agreement with the EU, which has been provisionally applied since 2012.21 The EU-ESA Economic Partnership Agreement is development-focused and, as such, is asymmetrical—in other words, it opens the developed market more than the developing one. The UK-ESA Economic Partnership Agreement seeks to ensure continuity of effect with the EU Agreement and, consequently, largely replicates it. It provides duty-free and quota-free access to the UK market for goods originating from ESA states and provides for a gradual reduction of duties in ESA states for goods imported from the UK. The Agreement replicates the provision contained in the Cotonou Agreement22 that allows for appropriate measures to be taken if human rights, democratic principles, the rule of law and good governance are violated. In doing so, the UK-ESA Agreement replicates the effect of the EU-ESA Agreement. It is envisaged that suspension of the Agreement would only be a last resort.

21.The Agreement—like all the other agreements with free trade provisions covered in this report—introduces an extended cumulation of origin (see Box 2). This requires both parties to recognise materials from the EU, or processed in the EU, as originating in the UK or an ESA state in exports to one another. The Government sets out that, without these provisions, products from the UK or an ESA state using EU content would no longer meet the origin requirements for preferential treatment by the other party.

22.We note that this approach represents an attempt to ensure continuity of effect with the existing EU-ESA Agreement. While there is uncertainty over whether the inclusion of a third party in cumulation arrangements (in this case, the EU) is fully compatible with the World Trade Organization (WTO) MFN rule, the extension of cumulation arrangements to third parties is not without precedent. For example, the EU-Vietnam Agreement provides for extended cumulation of cuttlefish and squid from ASEAN23 countries, as well as fabrics from South Korea. Free trade agreements between Canada-Colombia and Canada-Peru allow the use of some US parts for passenger vehicles, as well as yarn from the US and Mexico.24

23.The use of extended cumulation in these cases is narrow in scope—in other words, limited to specific sectors. So while the fact that there has hitherto been no challenge to the extension of cumulation suggests that the risk of challenge to the UK-ESA Agreement is low, that risk still exists. Nonetheless, the extension of cumulation arrangements seems to us a reasonable and pragmatic approach for the UK Government to take to seek to deliver continuity.

24.We observe that the report accompanying the Agreement states that it covers the UK and ESA states Madagascar, Mauritius, the Seychelles and Zimbabwe. However, the Agreement itself also lists Comoros and Zambia as parties to the Agreement.

25.These countries are not mentioned in the Government’s Explanatory Memorandum (EM) or accompanying report, which raises the question of what the UK Government’s next steps are for Comoros and Zambia signing the UK-ESA Agreement. Department of International Trade officials have confirmed the Government’s intention to approach Comoros in due course, given that Comoros only ratified the EU-ESA Agreement in February 2019, after the UK-ESA Agreement had been finalised. Zambia is in a different position in that it has not signed the precursor EU-ESA Agreement. It is not clear from the EM or report whether the Government intends to approach Zambia to sign the UK-ESA Agreement. It would be helpful if, in future, similar instances of a mis-match were explicitly covered in the explanatory materials.

26.Moreover, the EU has in place Economic Partnership Agreements with other Southern African Development Community (SADC) countries under the umbrella of the Cotonou Agreement. Several ESA countries are part of the SADC. It is unclear what the Government’s intentions are towards the continuity of the Agreements with other SADC states, and whether this would lead to overlap between the different Agreements.

27.We also note that while the EM explains that the UK-ESA Economic Partnership Agreement will apply to those territories for whose international relations the UK is responsible to the same extent as the precursor EU-ESA Agreement, it is not immediately obvious which territories these are. Provisions relating to the territorial application of EU agreements often involve several cross-references to other treaties, which may only apply in part or in certain circumstances to the Crown Dependencies and the British Overseas Territories. Department of International Trade officials have confirmed that the Agreement will only apply selectively in relation to the Crown Dependencies and the British Overseas Territories. It would be helpful if, in future, the explanatory material accompanying trade agreements included a list of those territories to which the agreements will apply.

28.Finally, the EM indicates that the Government is engaging with and has consulted those territories for whose international relations the UK is responsible and to which the Agreement will apply, even if it does not provide a list of these. The EM does not, however, confirm if specific consultations on the Agreement have taken place, including with the devolved administrations. In relation to the devolved administrations, the EM simply states that “DIT is also in close contact with the Devolved Administrations”. We have received information from the Welsh and Scottish Governments suggesting that they regard the level of consultation as inadequate. We are disappointed by this, and the lack of detail provided in the explanatory materials on consultations. We highlight the importance of consultation, particularly with the devolved administrations, on matters where they have an interest.

29.We draw special attention to the UK-ESA Economic Partnership Agreement, on the grounds that:

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, 2019)25

30.The UK-Denmark Free Trade Agreement between the United Kingdom and the Kingdom of Denmark in respect of the Faroe Islands (see Box 3) was laid on 6 February 2019, and the scrutiny period is scheduled to end on 14 March. It was considered by the EU Energy and Environment Sub-Committee at its meeting on 20 February.

Box 3: The Faroe Islands

The Faroe Islands is an autonomous nation within the Danish Kingdom. While the Danish Government remains responsible for specific areas of competence, including the constitution, citizenship, foreign, security and defence policy, and monetary and currency matters, the Government of the Faroe Islands has full legislative and administrative responsibility for external trade relations. The UK-Faroe Islands FTA is signed “for the Kingdom of Denmark in Respect of the Faroe Islands” by Poul Michelsen, Minister of Foreign Affairs and Trade in the Faroese Government.

Unlike Denmark, the Faroe Islands is not part of the European Union, and its citizens do not hold EU citizenship.

Source: Government of the Faroe Islands, ‘The constitutional status of the Faroe Islands’, https://www.government.fo/en/foreign-relations/constitutional-status/ [accessed 21 February 2019]

31.This Free Trade Agreement (FTA) seeks to maintain the effect of the existing FTA between the EU and the Faroe Islands.26 The Faroe Islands is the UK’s 114th-largest trading partner. In 2017 UK exports to the Faroe Islands (mostly machinery and waste) totalled £6m, while imports (mostly fish and crustaceans) totalled £23m. The Government calculates that maintaining tariff-free trade with the Faroe Islands will avoid approximately £11m of additional duties each year.

32.The amendments made to the terms of the existing EU-Faroe Islands FTA are minimal and in general do not change the effect of the Agreement.

33.One potential exception is the removal of a paragraph from the preamble of the EU-Faroes FTA, which stated that the FTA did not affect the Fisheries Agreement in place between the EU and the Faroe Islands, and consequently “mutual fisheries possibilities … should continue to be maintained at a satisfactory level”. The paragraph was removed on the grounds that the UK will no longer be party to the EU-Faroes Fisheries Agreement, but it is notable that it was not replaced by alternative text. Even though preambular text does not normally create legal obligations, but only serves as context for the interpretation of the rest of the agreement, this is significant, given the disputes between the Scottish and Faroese fishing sectors regarding extensive catches of mackerel in Scottish waters by Faroese fishers,27 and the contentiousness, in Brexit debate, of the question of whether fishing opportunities and the trade in fish products should be linked.28 The Government does not comment on this change in either its EM or the accompanying parliamentary report, so it is not clear whether it intends it to alter the link between fishing access and trade.

34.As we noted in Chapter 1, the Government’s engagement with the Scottish Government while negotiating these rollover agreements has been limited, and it did not share draft text with the Scottish Government prior to signature. It is unclear how far it has consulted other stakeholders about the impact of this agreement, including the Scottish fishing industry or the fish processing sectors: although the EM refers to ‘town-hall’ type meetings, and to “a series of regional roundtables in collaboration with the British Chambers of Commerce”, there is no indication that these events included relevant industries or addressed this particular agreement.

35.This is a short-form agreement, and Article 2 states that the mutatis mutandis principle applies, thereby making “the technical changes necessary to apply the EU-Faroe Islands Agreement as if it had been concluded between the United Kingdom and the Faroe Islands”. The accompanying parliamentary report provides a generalised example of changing “EU” to “UK”, but it is disappointing that specific examples are not written into the Agreement itself, which would increase its clarity.

36.The Agreement establishes a Joint Committee to oversee its implementation, and states that decisions adopted by the EU-Faroe Islands Joint Committee “before the EU-Faroe Islands Agreement cease[s] to apply to the United Kingdom” will also be deemed to have been adopted under the Agreement.29 The exception to this is a decision which requires the Faroe Islands to comply with EU veterinary standards in relation to import inspection and notification. It is not yet clear whether the UK will apply those standards, so instead of applying this decision, a sub-group is established under the Joint Committee to “cooperate on veterinary matters and … make recommendations to the Joint Committee on resolving any issues between the parties on veterinary matters”.30 This alteration explicitly allows for the possibility of the UK diverging from the EU’s veterinary standards post-Brexit.

37.Rules regarding how a product’s origin is defined are largely maintained in the new FTA. There is, however, a new feature that allows for EU materials to be recognised in the UK and Faroe Islands’ exports to one another, and for EU processing to be recognised in UK exports to the Faroe Islands: this is known as ‘cumulation’ (see Box 2). This feature would be applied only if the UK, Faroe Islands and the EU have “arrangements on administrative cooperation”. The Government explains that cumulation is being applied with respect to product origin to “provide maximum continuity for businesses”, as without the measure, exporters in the UK and Faroe Islands who rely on EU content or processing might be subject to higher tariff rates. As noted above, the cumulation provisions in the trade agreements are not unproblematic under WTO rules. Even though the prospect of “arrangements on administrative cooperation” may mitigate such problems, we note that the Government has not explained what “arrangements” would be required between the UK, Faroe Islands and EU for this measure to take effect.

38.It is also unclear whether the continued use of EU movement certificates will be compatible with the new import notification system that the Government intends to develop to take the place of TRACES, the EU trade control and notification system, before the UK leaves the EU.31

39.We draw special attention to the Free Trade Agreement between the United Kingdom and the Faroe Islands, on the grounds that:

Agreement establishing an Association between the United Kingdom of Great Britain and Northern Ireland and the Republic of Chile (CP 35, 2019)32

40.The UK-Chile Association Agreement was laid on 6 February 2019, and the scrutiny period is scheduled to end on 14 March. It was considered by the EU External Affairs Sub-Committee at its meeting on 21 February.

41.In 2002 the EU and Chile signed an Association Agreement to foster closer relations between the parties.33 The Agreement contains high-level provisions on political dialogue and provides for cooperation on economic, scientific, institutional and social matters, as well as on specific areas such as the fight against illegal migration, drugs and organised crime. It also includes a Free Trade Agreement (FTA) covering goods and services.

42.The UK-Chile Association Agreement is a short form treaty, based on the EU-Chile one. This means that it contains an overarching provision under which any references to the “European Union”, “European Community”, “EU”, “EU Party” and “Member States” in the EU-Chile Association Agreement are replaced by references to the UK. In the report accompanying the Agreement, the Government argues that this approach ensures legal clarity and continuity. Further modifications are listed in the Annex to the Agreement and explained in more detail in the Government’s report.

43.The Agreement—like all the other agreements with free trade provisions covered by this report—introduces an extended cumulation of origin (see Box 2). This requires both parties to recognise materials from the EU as originating in the UK or Chile in exports to one another. Moreover, working or processing carried out in the EU is recognised in UK exports to Chile. The Government states that, without these provisions, products from the UK or Chile using EU content would no longer meet the origin requirements for preferential treatment by the other party.

44.This approach represents an attempt to ensure continuity of effect with the existing EU-Chile Agreement. While there is uncertainty over whether the inclusion of a third party in cumulation arrangements (in this case, the EU) is fully compatible with the WTO’s MFN rule, the extension of cumulation arrangements to third parties is, as we noted above (paragraph 21) not without precedent. As mentioned in paragraph 23, this reduces the risk of challenge, without fully eliminating it. Nonetheless, this seems to us a reasonable and pragmatic approach in the interests of ensuring continuity.

45.In the context of the ongoing debate over the future role of Parliament in the scrutiny of international agreements, it is notable that, while many institutional provisions are retained ‘mutatis mutandis’, the Agreement does not automatically establish a UK-Chile successor to the Association Parliamentary Committee and Joint Consultative Committee,34 which is provided for by the EU-Chile Association Agreement. In its report, the Government argues that these committees would not be “immediately operable in a bilateral context”. While this may hold true for the Joint Consultative Committee, the impediments to an Association Parliamentary Committee between the UK Parliament and the Chilean Congress are not explained in the explanatory material.

46.Department of International Trade officials have since confirmed that the reason for not automatically re-establishing the Association Parliamentary Committee was that it was deemed inappropriate to bind the UK Parliament in the same way as the EU Parliament had been without prior consultation. The effect, however, could be to reduce the role of Parliament with regard to the Agreement.

47.Article 8 of the Agreement provides that an Association Council will ensure that the Agreement operates properly. We note that this Association Council may decide to amend the Annexes, Appendices, Protocols and Notes to the Agreement. The Government’s Explanatory Memorandum (EM) states that these decisions must be adopted by the Parties “except where otherwise provided in the Agreement”, but it is unclear what those exceptions are. It also appears unclear whether the decisions of the Association Council to amend the Agreement would be subject to parliamentary scrutiny under the Constitutional Reform and Governance Act 2010. We call on the Government to state clearly the circumstances in which, where significant amendments are made, they will be subject to the scrutiny procedures required by the Constitutional Reform and Governance Act 2010.

48.The Agreement differs from its precursor in relation to tariff rate quotas (TRQs)—the maximum amounts of products that may benefit from preferential duty rates in a given period (see Box 2). TRQs have been resized to account for differences between the UK and the EU as an import/export market for Chile.

49.Finally, the EM indicates that the Government is engaging with and has consulted those territories for whose international relations the UK is responsible and to which the Agreement will apply. It does not, however, confirm if specific consultations on the Agreement have taken place, including with the devolved administrations. In relation to the devolved administrations, the EM simply states that “the Government is also in close contact with the Devolved Administrations” and that they “have been regularly updated on progress”. We have received information from the Welsh and Scottish Governments suggesting that they regard the level of consultation as inadequate. We are disappointed by this and the lack of detail provided in the explanatory materials on consultations. We highlight the importance of consultation, particularly with the devolved administrations, on matters where they have an interest.

50.We draw special attention to the UK-Chile Association Agreement, on the grounds that:

20 Agreement establishing an Economic Partnership Agreement between the Eastern and Southern Africa States and the United Kingdom of Great Britain and Northern Ireland CP 31, 2019: https://www.gov.uk/government/publications/ms-no42019-agreement-establishing-an-economic-partnership-agreement-between-the-eastern-and-southern-africa-states-and-the-uk [accessed 19 February 2019]

21 Council Decision of 13 July 2009 on the signing and provisional application of the Interim Agreement establishing a framework for an Economic Partnership Agreement between the Eastern and Southern Africa States, on the one part, and the European Community and its Member States, on the other part, OJ L 111 (24 April 2012), p 1

22 The EU-ESA Agreement was established within the framework of the Cotonou Agreement, which contains a human rights clause. This clause was replicated in the EU-ESA Agreement. The Cotonou Partnership Agreement was signed in 2000 and is a legally binding agreement between the EU and 78 African, Caribbean and Pacific countries. It was designed to establish a comprehensive partnership with three pillars: development cooperation, political cooperation, and economic and trade cooperation. It is set to expire in February 2020. Subject to an implementation period, the Cotonou Agreement would cease to apply to the UK on exiting the EU.

23 The Association of Southeast Asian Nations

24 Anna Jerzewska, ‘Brexit and Origin: A Case for the Wider Use of Cross-Cumulation’, RTA Exchange (2018): http://e15initiative.org/wp-content/uploads/2015/09/RTA-Exchange-Rules-of-Origin-Jerzewska-Final-3.pdf [accessed 21 February 2019]

25 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, 2019: https://www.gov.uk/government/publications/cs-denmark-no12019-ukdenmark-free-trade-agreement-in-respect-of-the-faroe-islands [accessed 19 February 2019]

26 Council Decision (EC) of 6 December 1996 concerning the conclusion of an agreement between the European Community, of the one part, and the Government of Denmark and the Home Government of the Faroe Islands, of the other part, OJ L 53 (22 February 1997), p 1

27 For example, this disagreement regarding fishing for mackerel near Shetland, ‘Scottish anger as EU, Faroese agree 2019 fishing deal’, Undercurrent News (13 December 2018) : https://www.undercurrentnews.com/2018/12/13/scottish-anger-as-eu-faroese-agree-2019-fishing-deal/ [accessed 20 February 2019]

28 The European Union Committee addressed this issue its report Brexit: fisheries (8th Report, Session 2016–17, HL Paper 78), paras 165–170.

29 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, 2019, Article 8(2): https://www.gov.uk/government/publications/cs-denmark-no12019-ukdenmark-free-trade-agreement-in-respect-of-the-faroe-islands [accessed 22 February 2019]

30 Ibid., p 22

31 Animal and Plant Health Agency, ‘Guidance, Importing animals, animal products and high-risk food and feed not of animal origin after EU Exit’, 20 February 2019: https://www.gov.uk/government/publications/importing-animals-and-animal-products-if-theres-no-brexit-deal/importing-animals-and-animal-products-if-theres-no-brexit-deal [accessed 26 February 2019]

32 Agreement establishing an Association between the United Kingdom of Great Britain and Northern Ireland and the Republic of Chile, CP 35, 2019: https://www.gov.uk/government/publications/cs-chile-no22019-ukchile-agreement-establishing-an-association [accessed 19 February 2019]

33 Council Decision (EC) of 18 November 2002 on the signature and provisional application of certain provisions of an Agreement establishing an association between the European Community and its Member States, of the one part, and the Republic of Chile, of the other part, OJ L 352 (30 December 2002), pp 1–1440

34 The Association Parliamentary Committee comprises representatives of the European Parliament and the Chilean Congress. It has visibility over the decisions made by the Association Council, which is responsible for addressing major issues in relation to the EU-Chile Association Agreement. The Joint Consultative Committee brings together the EU’s Economic and Social Committee and the equivalent Chilean institution, with a view to promoting cooperation on social and economic matters.



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