Brexit Summit, EU-UK Trade Deal & Non-EU Agreements
A high-level meeting (BREXIT Summit) took place virtually on Monday, 15th of June 2020, between the UK PM Boris Johnson and EU counterparties: EU Commission President Ursula von der Leyen, European Council President Charles Michel and EU Parliament President David Sassoli to run an assessment of the EU-UK future relationships and agree on the next steps.
No Intention on Extension
Amid Covid-19, the Cabinet Office has officially announced not to seek extending the BREXIT transition period, even if the EU is be open to the possibility. In the provision of the Withdrawal Agreement, the deadline to decide on an extension is 1st of July 2020.
After 47 years of membership, the UK has left the EU but Britain will trade with the rest of the World as an EU member until the end of the year, while having the possibility to negotiate new trade arrangements. As an EU Member State, the UK was automatically been part of around 40 trade deals the EU had with more than 70 countries. In the past three years, the UK has been trying to copy these arrangements, and 19 deals covering 50 countries or territories have been rolled over, representing just over 9% of total UK trade.
The race against time
The UK BREXIT negotiator, Sir David Frost, and EU counterpart Michael Bernier, have completed the four rounds of negotiations despite Covid-19 challenges and texts have been exchanged. However, specialists, UK and EU press, Euronews, agree that not much has been achieved. More intensified talks are scheduled by the EU for the followings months, especially in July.
The UK will need an agreement with the EU to stop new tariffs and other trades barriers coming into force when the transition period ends on 31 December 2020. The new trade deals for selling goods and services around the world should encourage trade both by making it cheaper through the reduction or elimination of tariffs, trading across borders and through the removal of quotas that could limit the amount of goods that can be traded.
The deal-breakers
The UK and the EU negotiating papers: The Future Relationship with the EU and respectively, Draft text of the Agreement on the New Partnership with the United Kingdom are available for consultation and to achieve a trade deal in autumn, it is imperative that both sides compromise on some aspects that have been seen as deal-breakers before, especially:
· The Level Playing Field and Sustainability requirements of compliance with the EU State aid control, social and environmental rules,
· The UK implementation of the Northern Ireland Protocol, which keeps Northern Ireland in the EU’s customs union and asks for checks on goods going from the rest of the UK to Northern Ireland,
· The EU fishing vessels access to the UK waters,
· The law enforcement and security partnership.
An agreement must be made on the deal-breakers to access further discussions on the financial services sector significantly important to the UK economy, outlined in chapter 16 of the UK negotiating paper and in chapter 6 of the EU negotiating paper.
Trading goods in a Free Trade Area
In the EU negotiating paper, chapter 4 “Trade in Goods” are proposed the rules of a Free Trade Area (FTA) in trade in goods, with aspects that apply to the fashion industry. The Draft UK-EU Comprehensive Free Trade Agreement (CFTA) is the equivalent proposal. In the UKnegotiating paper, the CFTA scope is to provide liberalised market access for trade in goods, with comprehensive provisions to ensure “there are no tariffs, fees, charges and quantitative restrictions on trade in manufactured and agricultural goods between the UK and the EU, where goods meet the relevant rules of origin”. In fact, the UK is seeking to achieve a similar type of Free Trade Agreement that the EU has recently established with Canada, the EU-Canada Comprehensive Economic and Trade Agreement (CETA), and which would facilitate trade with non-tariff barriers for UK exports to the EU and vice versa.
In regard to customs procedures, CFTA requires Customs and Trade Facilitation (CTF) to be drawn based on WTO Trade Facilitation Agreement, the World Customs Organization (WCO) Revised Kyoto Convention, and other international precedents on CTF, to achieve legitimate goods trade between the Parties while the customs authorities protect their regulatory, security and financial interests. The measures in the Agreement should include provisions for customs documentary clearance, customs simplifications, transparency, advance rulings, non-discrimination and ease and efficiency in customs declarations over time.
Both EU and UK Trade in Goods (Free Trade Agreement) proposals seem to have a common understanding of the principles and the methods to be put in place for Customs and Trade Facilitation (CTF) based on WTO and WCO rules.
Textiles, clothing and footwear in the EU-UK Trade Agreement
The Harmonised System (HS) codes, also called “tariff codes”, are international standards, introduced by the WCO since 1844 and are used to calculate import duty tax. The HS describes a particular trade product and allows governments to charge the right tariffs. 180 countries use HS to track trade goods. Section 11 category “Textiles and textile articles” has chapters from 50-66. For example, man-made staple fibres of nylon and other polyamides tariff code is 5501100000.
For a product that is fabricated with non-originating components to still be compliant with the Rules of Origin, the EU Agreement proposal states that for Section 11 category “Textiles and textile articles” the non-origination materials shall not exceed 10% of the total weight of the product. Tolerances quotas for textile and fashion articles should be described in “Annex Orig-1 Introductory Notes “of the EU’s Free Trade Area proposal and in the “Annex 3-C of the UK’s Comprehensive Free Trade Agreement, but both of these sections are blank at the moment in agreement proposals. If products produced in each Parties do not comply with the Rules of Origin, then an additional third-country duty might apply.
The Department of International Trade (DIT) should review and strengthen the Free Trade Agreement negotiating papers by adding the missing parts in the papers, and shall pursue more flexibility in the tolerance quotas to benefit UK and EU textiles and fashion producers and traders.
Trading services in a Free Trade Area
The UK negotiating paper once again emphasises on a Trade Agreement similar to the existing EU FTAs with other third-country partners such as the CETA and EU-Japan EPA. This should deliver liberalisation of trade between both Parties service providers and investors.
Strategically, if the UK is seeking an EU Trade Deal of a similar type of to the Trade Agreements that the EU has with other countries such as Canada and Japan, there should be no reason for the EU not accepting while based on alike principles and measures.
UK’s non-EU Trade Agreements
The UK has already signed trade agreements with: Andean Countries, CARIFORUM trade bloc, Central America, Chile, Eastern and Southern Africa (ESA) trade bloc, Faroe Islands, Georgia, Iceland and Norway, Israel, Jordan, Kosovo, Lebanon, Liechtenstein, Morocco, Pacific states, Palestinian Authority, South Korea, Southern Africa Customs Union and Mozambique (SACUM) trade bloc, Switzerland, Tunisia.
The UK and US have signed a Mutual Recognition Agreement (MRA), in which the two countries recognise each other’s conformity assessments in which products meet specified legal requirements. The US is already the UK’s biggest destination for goods, sending 13% of its exports in 2018. The total value of trade between the UK and US will increase by 15.3 billion, adding 1.8 billion to wages across the UK.
In the meanwhile, Japan is the world’s 3rdlargest economy and the UK’s 4thlargest non-EU trading partner. Total trade between the two countries was worth around 29.5 billion in 2018 with over half being goods trade. The UK is currently party to the EU-Japan Economic Partnership Agreement (EPA), which entered into force in February 2019. The UK and Japan have agreed to use the EPA as the basis for a future UK-Japan Free Trade Agreement.
The UK is still discussing trade agreements with: Albania, Algeria, Bosnia and Herzegovina, Cameroon, Canada, Côte d’Ivoire, East African Community (EAC), Egypt, Ghana, Mexico, Moldova, Montenegro, North Macedonia, Serbia, Singapore, Ukraine.
In conclusion, after a historic relationship, an EU-UK Trade Deal is essential. Whilst on short time frame and with gaps in both paperwork and in common understanding on the “deal-breakers” aspects, we will follow-up the outcome of the intensified discussions set for July.