Tuesday, 29 December 2020

Agreement with the EU ~ Overview ~ Post No.3 ~ Trade


Part TWO of the Draft EU-UK Trade and Cooperation Agreement sets out the arrangements for Trade, Transport, Fisheries and other arrangements. - (Direct Link to Part TWO).  There are Six HEADINGS

(1) Trade, (2) Aviation, (3) Road Transport, (4) Social Security Coordination and Visas for Short-term visits, (5) Fisheries, and (6) Other Provisions. 

The 6 Headings (plus Annexes) amount to a lengthy, detailed and complex document. This post first looks at Heading Six and then notes some of the features of Heading One (Trade). 

Heading SIX - Other Provisions: (LINK) - This begins

with two articles setting out Definitions and specifying how some 11 World Trade Organization (WTO) agreements are referred to in Part TWO. For example the term GATT 1994 means the General Agreement on Tariffs and Trade 1994, contained in Annex 1A to the WTO Agreement.

Article OTH.3 states that the Parties hereby establish a free trade area, in conformity with Article XXIV of GATT 1994 and Article V of GATS.

The parties affirm their rights and obligations with respect to eachother under the WTO Agreement and other agreements to which they are a party. Nothing in the TCA shall be construed as requiring either party to act in a manner inconsistent with its obligations under the WTO Agreement. Furthermore, interpretation of Part TWO will take into account interpretations in reports of WTO panels and the Appellate Body.

The Tasks of the Partnership Council with respect to Part TWO are set out in Article OTH.8. Here is a power to amend many aspects of the Agreement itself - e.g. Annexes FISH.1, FISH,2 and FISH.3. A further task of the Partnership Council is to adopt decisions relating to interpretation of Part 2.

The Georgraphical Application of Part TWO is set out in Article OTH.9.

Part TWO of the agreement may be terminated "at any moment" in accordance with Article OTH.10. Notice to terminate is to be via diplomatic channels and Part 2 would cease 9 months after the notice. However, Social Security Cooperation and Visas for short-term travels AND the Protocol on Social Security Coordination may not be terminated under Article OTH.10.

*** HEADING ONE - TRADE ***

Direct Link to Heading One

Heading One divides into 12 Titles dealing with various aspects of trade. The importance of trade in goods was graphically shown when cross channel journeys were recently stopped when a new variant of coronavirus was discovered in SE England. In general, the provisions relating to on-going trade in good should be welcomed but considerable complexity and restriction will be introduced from 1 January 2021 and it is likely to take some time before businesses are "up-to-speed" with the new requirements.

Many of the committees created by Article INST.2 will be concerned with specifc aspects of Trade - e.g. the Trade Specialised Committee on Goods etc.

Title I (Trade in Goods)

Chapter 1 of Title I (National treatment and market access for goods (including trade remedies) - this specifies (inter alia) Freedom of transit (Article GOODS.1), the absence of customs duties (with exceptions) (Article GOODS.5), the absence of export duties (GOODS.6) and import and export restrictions (with exceptions) (GOODS.10). 

Chapter 2 of Title I (Rules of Origin) - Article ORIG.1 to ORIG.31 lay down the provisions to determine the origin of goods for the purpose of application of preferential tariff treatment. See also Annexes ORIG-1 (Introductory Notes) and ORIG-2 (Product specific rules of origin).

Chapter 3 - Sanitary and Phytosanitary Measures - Articles SPS.1 to SPS.19 have the object of (a) protecting human, animal and plant life or health in the territories of the Parties while facilitating trade between the parties - (b) furthering the implementation of the SPS Agreement - (c) ensuring that the Parties' SPS measures do not create unnecessary barriers to trade - (d) promoting greater transparency and understanding of each Party's SPS measures - (e) enhancing cooperation between the Parties in the fight against antimicrobial resistance - (f) enhancing cooperation in the relevant international organisations to develop international standards, guidelines and recommendations on animal health, food safety and plant health - (g) promoting implementation by each Party of international standards, guidelines and recommendations.

Chapter 4 - Techical barriers to trade - Articles TBT.1 to 13 - The  objective  of  this  Chapter  is  to  facilitate  trade  in  goods  between  the  Parties  by  preventing, identifying and eliminating unnecessary technical barriers to trade.

Chapter 5 - Customs and Trade Facilitation - Articles CUSTMS.1 to CUSTMS.21 - The objective here is 

(a) to reinforce cooperation between the Parties in the area of customs and trade facilitation and to support or maintain, where  relevant, appropriate levels of compatibility of their customs legislation  and  practices with  a  view to ensuring that relevant legislation and procedures, as well as the  administrative capacity of  the relevant  administrations, fulfil  the  objectives  of promoting  trade   facilitation  while  ensuring  effective  customs  controls  and  effective enforcement of customs  legislation and trade related laws and regulations, the  proper protection of security and safety of citizens and the respect of prohibitions and restrictions and financial interests of the Parties; 

(b)  to  reinforce administrative cooperation  between  the  Parties  in  the  field  of  VAT  and  mutual assistance in claims related to taxes and duties;

(c) to ensure that the legislation of each Party is non-discriminatory and that customs procedures are based upon the use of modern methods and effective controls to combat fraud and to promote legitimate trade; and

(d) to ensure that legitimate public policy objectives, including in relation to security, safety and the fight against fraud are not compromised in any way.

Title II (Services and Investment) - A House of Commons Research Briefing shows that (a) the EU, taken as a whole is the UK's largest trading partner and (b) Services accounted for 42% of the UK’s exports to the EU in 2019. Financial services and other business services (a category which includes legal, accounting, advertising, research and development, architectural, engineering and other professional and technical services) are important categories of services exports to the EU.

The 5 Chapters of Title II contain various commitments relating to services. These include a Most Favoured Nation Clause as well as special provisions for delivery, telecommunications, and maritime transport services. Short-term business visits to the EU will be permitted (subject to restrictions) - e.g. to negotiate contracts. 

There is a framework for recognition (via the Partnership Council) of professional qualifications. However, from 1 January 2021, UK nationals planning to service clients in the EU, and EU citizens holding UK qualifications, will typically need to have these qualifications recognised on a state by state basis in the EU - see the article by Professor Sarah Hall - The Brexit deal and services.

Financial services - a vital part of the UK modern economy - does not come out too well in the agreement. There is a Joint Declaration on Financial Services which states that the EU and the UK have agreed to establish structured regulatory cooperation on financial services. There is a commitment to producing a Memorandum of Understanding by March 2021.  The Parties will discuss, inter alia, how to move forward on both sides with equivalence determinations between the Union and United Kingdom, without prejudice to the unilateral and autonomous decision-making process of each side.

As pointed out by Professor Sarah Hall - What does the Brexit trade deal mean for financial services? - "from the 1 January 2021, UK financial services firms will lose their passporting rights. Passporting has allowed firms to sell their services into the EU from their UK base without the need for additional regulatory clearances."

"Equivalence" is not formally part of the TCA but the agreement "offers the possibility that favourable equivalence decisions for UK financial services firms may be made relatively quickly by the EU. Certainly, one might have expected far more problems in the event of a no deal outcome."

Further Titles - Part TWO of the TCA contains a further 10 Titles.  III (Digital Trade), IV (Capital movements, payments, transfers and temporary safeguard measures), V (Intellectual Property), VI (Public Procurement), VII (Small and Medium-sized enterprises), VIII Energy, (IX (Transpaency), X (Good regulatory practices and regulatory cooperation), XI (Level playing field for open and fair competition and sustainable developoment, and XII (Exceptions). These Titles are not examined further in this post.

All of the Titles must be read along with applicable Annexes which contain very detailed provisions.

This amounts to a very complex trading relationship which is going to take a considerable time to settle down. Matters are made worse by the fact that the Agreement was not published until Christmas 2020. 

The Trading relationship will be overseen by the powerful Partnership Council and that will be advised by the many committees created by the Institutional Framework.

That the trading relationship can be cancelled "at any moment" with just 9 months notice is a concern. Nonetheless, there are many positive points such as non-tariiff access for goods and the absence of quotas. Taken in the round, the agreement should be welcomed as a way of maintaining trade with the UK's largest trading partner but it comes with the price-tag associated with additional restrictions and the need to meet formal requirements. The largest "hit" appears to be financial services and it is to be hoped that good progress can be made with the framework for cooperation. That is definitely an area to be watched with care!

Other materials:

Institute for Government - Future relationship -Goods etc.

UK in a Changing Europe - HERE. At the time of writing (29 December) this website offers the following:

Professor Sarah Hall - The Brexit deal and services .. and .. What does the Brexit trade deal mean for financial services?

Professor David Bailey - The Brexit deal and the UK automotive sector

Dr Bryce Stewart - What does the Brexit trade deal mean for fisheries? Fishing is the subject of Heading Five of Part One and was perhaps the most difficult aspect of the trade negotiations. See also the UK Fisheries Act 2020.

Politico 27 December  - Ten key details in the UK-EU Trade deal

UK Government -  

Brexit transition: new rules from January 2021

Transporting goods between Great Britain and the EU from 1 January 2021: guidance for hauliers and commercial drivers.  Road transport is addressed by Heading Three of Part Two. From 1 January 2021 a panoply of rules, documents, licences and permits will apply. See the reaction of the Road Haulage Association

UK Parliament - Committee on the Future Relationship with the EU - The UK-EU furure relatonship: the Trade and Cooperation Agreement (pdf)

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