The UK Government's Planned Regimes on Trade and Customs

12 October 2017

Richard Eccles

The UK government has published two papers setting out details of two pieces of legislation to be introduced into Parliament in autumn 2017, a Customs Bill and a Trade Bill. Both of these Bills will be necessary to establish a UK legislative framework to be implemented following Brexit, whatever the outcome of the Brexit negotiations. At present, trade and customs are essentially a matter of EU law, dealt with under the EU Common Customs Union. Intra-EU trade is free of customs duties and customs processes by virtue of the Customs Union and trade between the EU and third countries is subject to the Common External Tariff pursuant to the EU Customs Union and to trade agreements negotiated by the EU on behalf of the member states, so as to ensure uniformity across the EU in relation to external trade. Meanwhile, trade defence measures are dealt with, within the WTO rules, by the EU as the Customs Union representing all the member states collectively. The UK will need to establish its own regime and infrastructure for dealing with trade measures when it becomes an active WTO member in its own right following Brexit.

The Customs Bill

A standalone UK customs regime will be necessary as from Brexit. The UK government's intention is that its new customs legislation will provide continuity for businesses by being mostly based on the EU Customs Code and by keeping the administration of VAT and excise regimes largely the same as at present. The legislation will enable the UK to charge its own customs duties on goods (including goods imported from the EU), set quotas, vary the rates of duties, specify when goods are relieved from duties, determine when additional territories may form part of a customs union with the UK, and provide for preferential tariffs, for example in relation to developing countries. In addition, the UK will establish a new body to conduct trade remedies investigation. 

The practical operation of the UK customs regime needs to be agreed with the EU, in particular as regards EU trade, and this will be addressed in the UK-EU relationship agreement negotiations as and when they commence. The government has issued a Future Partnership Paper on Future Customs Arrangements setting out its proposals regarding the logistics of UK customs arrangements for UK-EU trade, which we have explained in a separate briefing note: Customs arrangements following Brexit: the UK's and the EU's positions. In essence, the UK is proposing the implementation of a very streamlined customs arrangement (using digital solutions) or a new UK-EU customs partnership (based on the EU's customs arrangements with third countries). A corresponding EU discussion paper could be expected in due course. 

The government states that irrespective of the outcome of the UK-EU discussions, i.e. whatever the shape of a UK-EU deal or even if there is a "no deal" scenario, the UK will in any event need to establish its own customs regime. The government states in its paper that a "no deal" scenario is not its preferred outcome, but that the new customs legislation will establish the customs regime that will be needed whatever the result of the EU negotiations.

The proposed Trade Bill

The Trade Bill will enable the UK to operate independently to protect the UK's trading interests, in the context of the WTO agreement. We have summarised the WTO regime with an explanation of how this will be affected by Brexit in relation to the UK, in a separate briefing note: WTO and Future Trading Arrangements.  The Trade Bill will implement the UK government's commitment to a transparent, rules-based international trade policy, and will enable the following:

  • Implementation of free trade agreements between the UK and other countries;
  • the implementation of obligations arising from plurilateral agreements such as the WTO Government Procurement Agreement (once the UK joins this Agreement as an independent member outside the EU);
  • a system of UK trade preferences to enable the UK to provide support to economic and sustainable development in poorer countries as part of a wider development agenda; and
  • the creation of a UK trade remedies framework that addresses unfair and injurious trade practices by other countries, including the setting up of an authority to investigate trade disputes and a system for enforcing the outcome of such disputes.

Transitioning EU third country trade agreements

The government intends to legislate to allow full implementation of EU trade agreements and preferential arrangements with third countries. The UK government seeks continuity in trading relationships by adopting and continuing existing new agreements as an independent party with those other countries.

Negotiating and implementing new trade agreements

The legislation will establish a framework to enable future trade agreements to be implemented and to be ratified by Parliament. 

Participation in plurilateral agreements

The new legislation will enable the UK to make changes to domestic legislation to the extent necessary to comply with plurilateral agreements to be entered into in a WTO context, including the Government Procurement Agreement. In addition to government procurement being open to competition, this is expected to enable UK businesses to gain non-discriminatory access to a public procurement market estimated to be worth over £1.3 trillion annually.

The UK intends to become a member of the Trade in Services Agreement, which is being negotiated outside the WTO framework. This is intended to extend the liberalisation of trade and services globally.

Establishing a UK unilateral trade preference scheme

The UK government seeks continuity in trading arrangements with developing countries. It aims to support economic and sustainable development in such countries in the context of the WTO rules. The paper seeks the views of stakeholders on the appropriate element of a UK unilateral trade preference scheme to maximise the development impact.

Trade remedies

The new legislation will establish a UK system for implementing and applying anti-dumping, anti-subsidy (or countervailing) measures and safeguards, within the WTO framework, with a view to ensuring fair competition and avoiding or addressing injury to domestic producers.  An independent UK trade remedy framework will be needed following the UK's exit from the EU, because trade remedies are currently an EU competence. Legislation will enable the creation of a new, independent trade remedies investigating authority. This new UK authority will be required to operate under transparent and objective processes with requirements to achieve efficiency through, for example, developing a digital service to support its investigation processes. The new framework will include the application of a UK-specific threshold for initiating cases in addition to the basic WTO threshold, the application of an economic interest test prior to the application of (provisional or definitive) trade remedy measures, and the application of duties based on the level of injury caused by the relevant dumping or subsidy. 

In addition, the UK government will seek a transition to the UK of existing EU trade remedy measures that affect or protect UK industries. The government aims to ensure continuity and will where appropriate adapt such EU measures to the needs of the UK economy.

Conducting trade disputes

The new legislation will establish a system for the UK to refer trade disputes involving the UK economy to the WTO dispute settlement procedure, in place of the European Commission which currently manages trade disputes on behalf of the EU and its member states. 

Conclusions

The Trade Bill will establish a framework for the implementation of an independent UK trade policy following Brexit, but within the WTO framework. This has not been necessary whilst the UK has been in the EU Customs Union; the negotiation and implementation of external (third country) trade agreements has been the exclusive competence of the European Commission, pursuant to the Customs Union. 

The government's Trade Policy paper expressly takes account of changes in global trading patterns. The Trade Policy white paper shows that the share of global exports accounted for by developed economies has fallen, from 69% in 1980 to 54% in 2013. This is offset by growth in developing countries' share of global trade, including that of China and other developing economies across Asia. The paper quotes EU-sourced data indicating that approximately 90% of global economic growth in the next 10-15 years is expected to be generated outside Europe. The white paper further indicates that the Commonwealth is home to a third of the world's population, many of its fastest growing economies and half of the world's top 20 emerging cities. This network is stated to provide opportunities for UK business and for the UK to promote multilateral free trade. The government's well-publicised aims of achieving free trade agreements with specific Commonwealth countries as from Brexit can be seen in this context. 

This article is part of our Brexit series

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