Brexit and Free Trade Agreements 3 October 2019 www.steptoe.com
The view from Brussels on Brexit Part One: The view from Brussels on Brexit 2 www.steptoe.com
The view from Brussels on Brexit The central question: the Irish border The EU’s aims: • Protect understanding of 1998 Good Friday Agreement (no physical infrastructure) • Protect the integrity of the EU 3 www.steptoe.com
The view from Brussels on Brexit The EU’s three basic solutions to achieve these aims: 1. The UK as a whole enters into a customs union with the EU and Northern Ireland adheres to aspects of the single market (the current backstop) 2. Northern Ireland alone enters into a customs union with the EU and adheres to aspects of the single market 3. The UK as a whole enters into both the customs union and those provisions of the single market as specified in the backstop Scepticism of the EU about technological solutions. 4 www.steptoe.com
The view from Brussels on Brexit The UK Government’s new proposal: • All-island regulatory zone on island or Ireland for all goods (checks on border of island or Ireland) • Elimination of level playing field clauses • Democratic consent for these arrangements before end of the transition period and every four years thereafter • UK (including NI) would be part of a single customs territory (checks not done at Northern Irish border) View from the Yves – likely EU may not like: Doing customs checks may work for registered businesses but it would not work for illicit trade and smuggling (i.e. would need to do checks at the border) 5 www.steptoe.com
The view from Brussels on Brexit What may happen: • A deal is struck • An extension is granted • No deal is struck and no extension is granted 6 www.steptoe.com
The view from Brussels on Brexit The need for FTA in all scenarios – but especially in the final one ‘no deal’ 7 www.steptoe.com
Free Trade Agreements Part Two: Free Trade Agreements 8 www.steptoe.com
What is a trade policy for? • Purpose: • Increase prosperity: wealth, manufacturing, jobs, etc. • Achieve foreign policy objectives • How? • Improving market access for domestic products: lowering tariff and removing barriers to trade on foreign markets. Requires leverage. • Protect domestic markets from foreign products. Requires autonomy 9 www.steptoe.com
What does leaving the EU mean for the UK’s trade policy and the existing EU FTAs the UK benefits from? • Before Brexit: the UK pooled its trade policy with 27 other countries • The EU’s common commercial policy • Increased leverage to open foreign markets • Not a UK trade policy: need to take the interests of the other Member States into account • After leaving the EU: • Autonomous UK trade policy • Reduced leverage (smaller domestic market, less to offer, less of a threat) • Focus on purely UK interest 10 www.steptoe.com
The UK’s free trade agreements today (1): the EU The UK’s free trade agreements today (1) 11 www.steptoe.com
The UK’s free trade agreements today (2) The UK’s free trade agreements today (2): the EU’s FTAs 12 www.steptoe.com
The UK’s free trade agreements after Brexit • If the withdrawal agreement is ratified: • the UK retains access to the EU market during the transition period (reduced access afterwards) • the UK will cease to be a member of the Union, and therefore won’t be a member of the EU’s FTAs. • If the withdrawal agreement is not ratified: • The UK loses preferential access to the EU market, and the markets of the EU FTA countries • EU and EU FTA products lose access to the UK market too. 13 www.steptoe.com
Preferential origin under EU FTAs and UK goods in the EU on Brexit day • Question: could some UK goods still be valid EU content for the purpose of calculating preferential origin under the EU’s FTAs? • How safe is it use UK goods (safest on top, least safe at the bottom): • finished goods with UK content are imported in third countries before Brexit • finished goods exported from the EU before Brexit • finished goods manufactured before Brexit • UK goods in inventory before Brexit. • UK goods in EU 27 territory before Brexit • UK goods at the port and not subject to customs declaration at the time of Brexit • UK goods in the territorial waters of the EU (12 Nautical Miles) on Brexit • The needs of business: as much UK goods as possible need to qualify for EU preferential origin • Practical consideration: customs cooperation for preferential origin verification 14 www.steptoe.com
New UK FTAs Who have UK signed FTAs with so far: Andean countries, CARIFORUM trade bloc, Central America, Chile, Eastern and Southern Africa (ESA) trade bloc , Faroe Islands, Iceland and Norway, Israel, Lebanon, Liechtenstein, Pacific states, Palestinian Authority, South Korea, Southern African Customs Union and Mozambique, Switzerland Who are UK still negotiating with: Albania, Algeria, Andorra, San Marino, Bosnia and Herzegovina (Western Balkans), Cameroon (Central Africa), Canada, Cote d’Ivoire, Egypt, Georgia, Ghana, Japan, Jordan, Kenya, Kosovo, Mexico, Moldova, Montenegro, Morocco, North Macedonia, Serbia, Tunisia, Turkey and Ukraine 15 www.steptoe.com
South Korean Model The UK Government has sought, as far as possible, to replicate the EU-South Korea FTA: • Tariffs : Commitments have largely been transitioned (though note TRQs) • Rules of Origin : EU materials and processing can be recognised in UK and Korean exports to one another for 3 years • Customs and trade facilitation : Commitments have been replicated (with minor amendments) • Other A practical way to create a trade agreement which creates certainty to business. UK and Korea have agreed to re-open negotiations within two years 16 www.steptoe.com
Other models • Japan will not proceed this way – will wait to negotiate a fuller, more comprehensive FTA. • What about the position of other countries (e.g. Canada)? • New FTAs (e.g. USA, EU etc…): challenges? 17 www.steptoe.com
Thank You ! Yongqing Bao and Danyal Arnold Steptoe & Johnson LLP ybao@steptoe.com and darnold@steptoe.com 18 www.steptoe.com
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