Negotiation of a UK/EU Trade Agreement

By Richard Eccles

03-2020

The UK and EU negotiating teams have commenced negotiations of a possible free trade agreement.  The UK published a position paper on the 25th February and the EU published its negotiation mandate on the 27th. Whilst these papers show agreement on overall objectives of maintaining liberalised trade, there is fundamental disagreement on the key issue of any alignment of UK law and regulations with those of the EU going forward. The EU sees this as the price of a tariff elimination deal whilst the UK refuses to contemplate relinquishing control of its laws.

The EU mandate is set out in an Annex to a Council Decision authorising the opening of negotiations, and is based on the content of the UK/EU Political Declaration. It proposes an "ambitious, wide-ranging and balanced economic partnership, in so far as there are sufficient guarantees for a level playing field so as to uphold corresponding high levels of protection over time". This would include a free trade area with no tariffs or equivalent charges for UK/EU imports or exports, with a prohibition of any further restrictions on trade which are not justified by specific rules and exceptions to be provided for in the agreement. The mandate also provides for optimisation of customs procedures by using available "facilitative arrangements and technologies" which could embrace trusted trader programmes.

In relation to services, the mandate refers to ambitious, comprehensive and balanced provisions on trade and investment in services, respecting each party's right to regulate, with the aim of delivering a level of liberalisation in services beyond the parties' WTO commitments, and covering all modes of supply.  In relation to financial services, each party would be entitled to take equivalence decisions in respect of services originating from the other party, by reference to regulatory standards in the host state, though equivalence decisions for the EU would be made on a unilateral basis by the EU.

The UK position paper, by contrast, is substantially based on the structure and content of the EU/Canada Comprehensive Economic and Trade Agreement (CETA), with a short opening section covering its overall policy framework and the timing of the negotiations. On trade liberalisation, the UK paper proposes liberalised market access for trade in goods with no tariffs, fees or quantitative restrictions on UK/EU trade, together with provisions to support customs simplification, transparency, advance rulings and other measures to minimise delays at borders.

In relation to trade in services, the UK proposes provisions on market access and national treatment, to ensure non-discriminatory treatment between UK and EU services suppliers.

Level playing field provisions

The EU proposals regarding "level playing field" provisions go further than those in the Political Declaration. The Political Declaration in essence provided for non-regression on the part of the UK in relation to EU standards in competition, State aid, environment, climate change, employment and relevant tax matters. The current EU mandate, however, proposes obligations to uphold common high standards "over time" with EU standards as a reference point, in these areas. Further more specific provisions contain non-regression commitments on the UK not to lower its standards as compared to EU standards as at the end of the transition period (31st December 2020).

The UK government is totally opposed to any obligation which would involve giving up control of its own laws, the UK position paper stating expressly that the UK will not agree to any obligations for its laws to aligned with the EU's, or for the EU's institutions (including the Court of Justice), to have any jurisdiction in the UK. This means that the UK would not be willing to agree such non-regression or alignment obligations.

The UK agrees that all the areas of policy set out in the Political Declaration will be relevant to the UK's future co-operation with the EU, but that not every area needs to be incorporated into a Treaty or free trade agreement.

Fisheries

Fisheries are an economically small sector, but a politically significant aspect of the negotiations.  Here there is a head-on conflict between the EU and UK proposals. The EU mandate proposes upholding existing reciprocal access conditions, quota shares and "the traditional activity of the Union fleet".  The UK, by contrast, proposes that future fishing opportunities be based on the principle of "zonal attachment" and that this better reflects where the fish are. Under the UK proposal, any EU vessels granted access to fish in UK waters in annual negotiations would be required to comply with UK rules and would be subject to licensing requirements including reporting obligations.

The EU proposes that provisions on fisheries should be established by 1st July 2020. The UK starts with a strong case on regaining control of its fishing waters whereas the EU is determined to retain the access that it currently has, and appears willing to withhold agreement on the wider trade liberalisation measures unless its proposals are first satisfied on fisheries.

Northern Ireland

It must also be remembered that various important practical arrangements regarding the "border in the Irish Sea", pursuant to the Northern Ireland Protocol of the Withdrawal Agreement, remain to be finalised by the UK/EU Joint Committee during the transition period.  These include the criteria for determining when goods transiting from Great Britain to Northern Ireland will be considered to be at risk of onward movement to the EU (in practice the Republic of Ireland) so as to give rise to a customs charge on entry into Northern Ireland, and the working arrangements for the exercise of EU controls on products moving from Great Britain to Northern Ireland. If the UK government declines to acknowledge the need for practical working arrangements on these lines to be negotiated and introduced, this will inevitably sour the negotiations of any future UK/EU trade agreement.

Timing

Timing is tight, with negotiations having started in March and needing to complete in November to allow time for ratification prior to entry into force of any new trade agreement as from the end of the transition period.  However given the fundamental disagreement on the "level playing field" provisions, quite apart from the Northern Ireland working arrangements and also fisheries, it is difficult at present to see how the positions of both parties can be accommodated into a meaningful trade agreement.  

Moreover the UK has stated in its position paper that the broad outline of an agreement should be clear by the parties' June high level meeting, with a review to rapid subsequent finalisation by September, and that if that does not seem to be the case at the June meeting, the government will need to decide "whether the UK's attention should move away from negotiations and focus solely on continuing domestic preparations to exit the transition period in an orderly fashion". Taking into account also the EU's proposals for fisheries provisions to be established by 1st July 2020, it remains to be seen whether the negotiations will still be continuing on a meaningful footing from July onwards.

See also: Continued negotiation of a UK/EU trade agreement

This article is part of our Brexit series.