The EU-27 and the UK have exchanged draft negotiating texts on their future trading relationship following the UK’s decision to leave the EU, indicating a polarity about how both sides see this future relationship.
The EU-27, for its part, envisages a comprehensive trading relationship in goods and services underpinned by extensive commitments towards regulatory coherence to ensure a level playing field for keeping the UK tied to equal social, environmental and competitive set by the bloc.
The UK sees things very differently but has refused to publish the actual detailed draft of its proposals, insisting that its proposals are only seen by its counterparts in the European Commission’s direct negotiation team lead by Michel Barnier. The EU-27, on the other hand, has published the full, extensively detailed, text of its proposal based on the Political Declaration agreed by both sides prior to the UK’s departure.
From the general, and extremely broad, schematic published by the UK government, its focus seems very much on trade in goods between the two sides, with cross-border trade in services, investment and regulatory harmonization taking very much a back seat. Going further, the UK will never apparently agree for its national laws to be aligned with those of the EU-27, nor for the EU-27’s institutions, including the Court of Justice, to have any jurisdiction in the UK in law-making or judicial review.
What has clearly emerged from the UK’s negotiating position is that it wishes to regain complete sovereignty over its own laws and judicial independence. In short, it is seeking to reset that relationship with the EU-27 along the lines of the FTAs already agreed by the EU-27 in recent years with Canada, Japan, Singapore and other key trading partners. In all of these agreements, both respective sides agreed to significantly reduce customs duties and measures having equivalent effect for trade in goods, But in all of these agreements, both sides pulled back from more deep, or one might say, more effective commitments to trade in intangible economic activities.
As far as trade in goods is concerned, both sides seem to agree on some things. In terms of eliminating customs duties, the UK requests the elimination of customs duties for manufacturing or agricultural goods, while the EU-27 is slightly more reticent about sectors that might not benefit from tariff-free access. As some examples, the UK suggests using ‘equivalence’ in some areas of agri-food citing agreements between the EU and New Zealand and CETA and that any agreement should contain “modern rules of origin” based on the EU-27–Japan Economic Partnership Agreement. For its part, the EU-27 appears to be insisting on its “standard” approach to rules of origin, likely because of the impact of special concessions to the UK that might have a knock-on effect on its agreed commitments to bilateral and triangular cumulation in its own FTA with other trading partners.
Both the UK’s proposal and the EU’s draft text contain broadly comparable provisions on technical barriers to trade (TBT) and sanitary and phytosanitary measures (SPS) drawing down on the WTO’s regulations in those fields. The UK seems clear that it intends to maintain a robust system in line with existing high standards, particularly where SPS measures are concerned. On the other hand, it wants to adopt its own rules and regulations in these areas, and aspires to the hope that these can be seen as broad equivalence to those of the EU-27. What is not addressed in the UK position is the idea of “dynamic equivalence”, meaning adapting and aligning these means going forwards after the UK ceases to apply the EU-27’s acquis communataire in those sectors.
In terms of dispute settlement mechanisms and procedures, the UK clearly states that any agreement should respect the judicial and regulatory autonomy of the country as an independent sovereign nation and that accordingly there is no role for the Court of Justice of the European Union in the dispute resolution mechanism. The EU, on the other hand, attempt to facilitate this through the provision for consultation and arbitration where disputes arise, but clearly states that referrals to the European Courts for a preliminary reference should be enabled, where a question of Union law is in issue, or where any part of the agreement is governed by Union law.
While both the UK’s position and the EU’s draft text do converge in terms of the parties’ desire for liberalization in trade in goods and specifically the bilateral elimination of customs duties and similar measures, it remains to be seen whether true regulatory cooperation can be eventually agreed.
Time is short. Currently the UK’s relationship with the EU-27 is frozen under the Withdrawal Agreement meaning that the UK remains a de facto member of the Union until the end of this year. So, as far as trade in goods between both partners is concerned, not much has really changed legally or practically speaking. The UK government decided to enshrine in UK law the exclusion any extension of the negotiations so creating a fixed point in time for the relationship to be finally cemented.
With the global COVID-19 pandemic continuing, and both sides’ negotiating teams constrained by the mandated social distancing, progress on a final agreement is faltering at a rapid pace within that time frame. The open question is how will this all end. Neither side wishes for trade in goods to be impaired but that is certainly a distinct possibility in the absence of any formal agreement reached by the end of this year.
Please contact us at InternationalTradeCompliance@squirepb.com with any questions.