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Update on International Trade post-Brexit

Today the House of Commons International Trade Committee (ITC) published a report[1] on the continuing application of EU trade agreements after Brexit. The Department for International Trade (DIT) has set as its second priority the aim of a transition of these agreements to a UK agreement “at the point that we leave the EU”. Without an agreement these trade agreements will cease to apply to the UK, without exception, at the point of Brexit in March 2019 and in consequence, barriers to trade will be imposed.

The picture painted in the ITC report does not make easy reading: 

First, and notwithstanding evidence from a variety sources, no one is able to say how many agreements there are. 

Re trade agreements: 

“The exact number of EU trade agreements seems to be a matter of some uncertainty. There appear to be around 40 agreements with about 70 countries. Ten of the UK’s top 50 export markets for goods in 2015 were covered by these agreements. The third-country (non-EU) parties to the agreements account for around 11% of UK trade; and the prospective parties to those agreements which are nearest completion or awaiting ratification account for another 25% of UK trade.”[2] 

Re: other trade-related agreements:

“The EU is also a party to a wide range of other trade-related agreements, covering areas such as regulatory cooperation, aviation, customs procedures, the nuclear industry and agriculture. The number of these too is uncertain, but a suggested total figure for all EU trade-related agreements is 759 (with 168 countries). There is an urgent need for clarity over the number, type, scope, extent and importance of the EU’s trade-related agreements.”[3]

Second, the legal basis for “rolling over” these agreements during a transitional phase is unclear.

There appear to be three legally possible ways in which the UK might continue to benefit from the provisions of an EU trade agreement after Brexit: 

  • Option A: trilateralisation: the transformation, by means of an additional protocol, of the existing (EU-third country) bilateral agreement into a new (EU-third country-UK) trilateral agreement; 

  • Option B: trilateral roll-over: a new trilateral (UK-third country-EU) agreement which replicates the terms of the EU agreement; or 

  • Option C: bilateral roll-over: a new bilateral (UK-third country) agreement which replicates the terms of the EU agreement.[4] 

However, as the report recognises, Option C is not permissible until after Brexit which would be too late. Option A, which would involve taking the existing EU agreement and cutting and pasting it, changing the names of the EU institutions to the UK institutions, was not considered, by a witness, to be “realistic or feasible”. That leaves Option B i.e. a trilateral approach to rolling over agreements on a bilateral basis. 

The ITC concluded that: 

“…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.”[5] 

It would further appear that the Government is in any event not confident that the roll-over agreements will be concluded prior to Brexit Day in March 2019. Accordingly, during the “implementation period” the ITC notes that one solution would be to maintain the UK’s current trade relationships “by treating the UK as de facto EU territory for the purposes of international agreements during the transition period”.[6]  

Third, the substantive technical challenges are immense. 

These include: 

  • How to divide the Tariff Rate Quotas – for example even where this is in principle agreed between the UK and the EU, other countries may object as has happened in relation to agricultural products;[7] 

  • Rules of origin and cumulation – this is to do with the originating status of goods in order to qualify for preferential treatment in respect of customs duties and how to resolve it where a product, e.g. a car, is made in the UK using parts from elsewhere in the EU. 

  • How to keep the commitments the UK has made regarding no EU-UK hard border on the island of Ireland. The ITC conclude: 

“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.”[8] 

  • The implications of the prospective UK-EU trade agreement for the rolling over of agreements with the EFTA states and Turkey, which may have to include negotiations on the free movement of people in respect of the EFTA states. 

  • Most Favour Nation clauses in some agreements which would continue to apply if these clauses were left unchanged in the roll-over agreements. 

  • Dispute Resolution – some agreements provide for CJEU involvement. 

Overall this report provides a welcome update and analysis of the current position in this area. There is some good news (that quite a lot of work appears to be on-going) but if the overall aim of Brexit is to take back control and do things differently, the challenge of doing that in any meaningful way is immense and will not happen for many years yet, if at all.

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[1] https://publications.parliament.uk/pa/cm201719/cmselect/cmintrade/520/520.pdf

[2] Summary p3

[3] Ibid.

[4] Ch.3 p14 §28.

[5] Ibid p15 §33.

[6] Ch.4 p16 §39 – this has been termed “the Guernsey Model”.

[7] Ch.5 p20 §51.

[8] Ibid p23 §72