UK proposals for future customs arrangements with the EU seek to subvert the sequencing of negotiations laid in the EU Council instructions to the European Commission for the conduct of the Brexit negotiations. The UK proposals have been criticized as ‘a fantasy’ in some political quarters of the EU. The proposals nevertheless include elements which could be built on in protecting ACP interests within the Brexit process. The UK’s reiteration of assurances of continuity in access to the UK market for ACP exporters leaves unaddressed how this is to be achieved. The UK’s ambitious aspirations for trade agreements with non-EU countries encompassing services, digital trade and trade in goods, suggest concluding such agreements could be a lengthy process. This highlights the need for transitional arrangements to ensure continuity of ACP access to the UK market under current terms and conditions from day 1 of the UK’s formal departure from the EU.
On the 15th August the UK government posted a discussion paper on future customs arrangements for UK-EU27 trade. While leaving the EU customs union the UK government is looking to secure ‘a new customs arrangement that facilitates the freest and most frictionless trade possible in goods between the UK and the EU’, while at the same time allowing the UK ‘to forge new trade relationships with our partners in Europe and around the world’.
In terms of relations with non-EU member states the paper notes the UK government will ‘seek continuity in our existing trade and investment relationships, including those covered by EU Free Trade Agreements or other EU preferential arrangements’.
Specifically with regard to the ACP the UK paper states ‘as we leave the EU, we will maintain current access for the Least Developed Countries (LDCs) to UK markets and aim to maintain the preferential access of the remaining (non-LDC) developing countries, including those countries with which we have Economic Partnership Agreements’.
In addition the UK will look for ‘ambitious new trade arrangements and comprehensive trade deals that play to the strengths of the UK economy of today and the future, including in areas such as services and digital trade, as well as trade in goods’.
In terms of relations with the EU27 the UK government is keen to ‘explore with the EU a model for an interim period which would ensure that businesses and people in the UK and the EU only have to adjust once to a new customs relationship’. This, it is held, could be achieved through ‘a continued close association with the EU Customs Union for a time-limited period after the UK has left the EU’.
The UK is proposing two possible approaches to achieving this objective:
- ‘a highly streamlined UK-EU27 customs arrangement’, aimed at reducing and removing barriers to trade and implementing technology based solutions to simplify customs procedures to achieve as ‘frictionless a customs border as possible’ (1), to achieve this it would ‘continue some existing arrangements’ and create some new arrangements, by extending existing best practices and utilising IT systems to simply and facilitate cross border trade (2);
- ‘a new customs partnership with the EU’, aligning approaches to third party trade in ways which ‘removes the need for a UK-EU customs border’, this it is held could involve ‘the UK mirroring the EU’s requirements for imports from the rest of the world where their final destination is the EU’, however it is acknowledged that such an approach is ‘unprecedented’ and ‘could be challenging to implement’.
Implicitly these approaches assume a continuation of free trade in goods between the UK and EU27.
Either of these options it is held could provide a transitional arrangement which would avert a cliff edge in mutual trade relation. The proposal envisages the UK government pursuing new trade negotiations with third countries once the UK leaves the EU, but commits the UK government to not bringing into effect new arrangements where these ‘were not consistent with the terms of the interim agreement’ with the EU27.
Overall the UK is proposing ‘a new and time-limited customs union between the UK and the EU Customs Union, based on a shared external tariff and without customs processes and duties between the UK and the EU’. The length of the interim period would depend on how long it took to set in place new arrangements (1).
In the longer term the UK is looking to ‘establish a new customs arrangement with the EU outside of the EU Customs Union’ with this constituting ‘a new deep and special partnership’ with the EU27 (1).
The UK position paper states ‘regardless of the outcome of the negotiations, the Government will need to legislate for a new customs regime to be in place by March 2019, and make changes to the VAT and excise regimes’ (1).
The UK position paper acknowledges that ‘without any further facilitations or agreements, the UK would treat trade with the EU as it currently treats trade with non-EU countries. Customs duty and import VAT would be due on EU imports. Traders would need to be registered’. While on the side of the EU customs rules and VAT on imports from the UK would be applied, as would be the case with any third country. While seeking to avoid this outcome the UK is beginning planning for this contingency (1).
Press reports suggest some European leaders are dismissing the UK’s proposals as ‘a fantasy’ (4), while the ‘the Czech secretary of state for EU affairs, Aleš Chmelař, suggested his government would not tolerate the UK being able to make trade deals during a transition period’, making the point it was not possible for the UK to ‘have the same advantages and less obligations in general’. The EU’s chief Brexit negotiator Michel Barnier meanwhile is insisting the UK must make ‘sufficient progress’ on the three divorce settlement issues before the EC will open talks on trade and the future relationship. Barnier is scheduled to report to the EU Council in October on the progress made on the ‘divorce settlement’ issues (3).
According to a former EU trade negotiator, the UK is seeking ‘an exceptional relationship which has never been agreed with any other country’, with this likely to raise a lot of issues. A major shortcoming in the UK’s proposals is that they are ‘not directly addressing how the British proposals could be made acceptable to the EU’ and its approach to trade negotiations established over the past 40 years (3).
The EC is reportedly working on its own proposals on customs issues (3).
|Comment and Analysis
The first point to note about the UK paper is that it is an attempt to force the hand of the European Commission to start trade negotiations before the ‘divorce’ settlement has been concluded. This is contrary to the guidelines for the conduct of the negotiations which the EC received from the EU Council. In the absence of any formal revision of these Council guidelines the EC would appear to have only a small margin of manoeuvre on this issue of sequencing. Substantive progress on the principles to underpin the ‘divorce’ settlement would appear to be required before the EC can give serious consideration to the UK proposal. In addition, the UK appears to want to extend, or ‘cherry pick’, certain aspects of the existing arrangements, something which EU member states are not generally in favour of.
Nevertheless during the transition period, the concept of ‘the UK mirroring the EU’s requirements for imports’ could usefully be applied to imports from ACP countries and could potentially provide a way forward for ACP exporters who serve the UK market via an EU27 member state or an EU27 market via the UK. This needs to be seen in a context where these supply chains were developed on the basis of a trade deal negotiated in good faith with the EC on behalf of all EU28 member state governments.
While the UK government commits to aims for ‘continuity in … existing trade and investment relationships’, including those covered by EU FTAs and other EU preferential arrangements, how this is to be achieved is not stipulated.
For example it is unclear whether this would entail:
a) negotiating with the EU27 for the UK to become an associate member of the existing EPAs and other trade arrangements as an integral part of the proposed transitional arrangements, thereby allowing reciprocal tariff preferences to be extended automatically during the transition period.
b) ‘grandfathering’ existing reciprocal preferences outside of a formal WTO compatible FTA;
c) the UK unilaterally extending existing market access arrangements with developing countries agreed under EU trade agreements on a transitional basis while longer term trade agreement are negotiated and ratified.
What is clear is that since the UK wants ‘ambitious new trade arrangements and comprehensive trade deals’ with non-EU partners covering services, digital trade and trade in goods, these agreements are likely to take considerable time to negotiate. While the ambition is to ensure that such agreements play to the UK’s strengths the UK government’s proposals singularly ignore the sensitivities which third country governments may have in these new areas and hence the challenges this may pose to the early conclusion of such agreements.
This is particularly the case given the MFN clauses in existing EU trade agreements, which would require any new concessions negotiated in any trade agreement with the UK (a developed economy) to be extended automatically to the EU27. In an ACP context the question arises: why would ACP governments agree to include such comprehensive provisions in new bilateral agreements with the UK, when they have consistently resisted the inclusion of such provisions in agreements with the EU and when they are fully aware the inclusion of such provisions in agreements with a developed economy such as the UK, would require their immediate extension to EU27 member states as a result of the MFN provisions included in all EPAs?
(1) UK Government, ‘Future customs arrangements: a future partnership paper’, 15 August 2017
(2) UK Government, ‘New customs proposals laid out by Government in new paper on future relationship with the EU’, 15 August 2017
(3) The Guardian, ‘’A fantasy’: EU leaders dismiss UK’s post-Brexit customs plan’, 15 August 2017
(4) CAP reform, ‘UK publishes proposals on customs arrangements with the EU’, 21 August 2017
(5) Professor Alan Mathews, ‘UK publishes proposals on customs arrangements with the EU’, 21 August 2017
|Key words: Brexit, MFN clause, trade in services, digital trade,
Area for Posting: BREXIT