Summary
There remain substantive issues in the EU/UK Withdrawal Agreement which still need to be addressed. The most serious issue relates to the trade arrangement across the Irish border. While open to other viable solutions which the UK government may advance, the EU is insisting on a ‘back-stop’ arrangement which would ensure the same tariff and non-tariff regime in the Republic of Ireland and Northern Ireland in order to ensure the maintenance of a soft border. The UK government will not accept any arrangement it sees as compromising the integrity of the UK single market. Resolving this issue is intimately linked to the nature of the future EU27/UK trade arrangement. The EC has expressed major concerns about the UK’s proposals for future trade arrangements, particularly the UK’s proposals for a two tier tariff system with no EU rules of origin or fiscal controls on UK-EU trade. These issues could prevent the conclusion of a Withdrawal Agreement. This would then carry important consequences for ACP agro-food exporters. ACP governments and private sector operators need to start preparing for a ‘hard’ Brexit, while maintaining a close eye on the progress of the EU27/UK negotiations.
If the current Withdrawal Agreement were agreed and legally adopted this would defer any adverse effects on ACP agro-food exporters and could provide time for the negotiation of EU27/UK and trilateral arrangements which would reduce the negative effects of Brexit on ACP agro-food sectors.
The EU/UK discussions which took place in July 2018 following the release of the UK government White Paper on future UK/EU trade relations clarified the areas of agreement and continued disagreement within the Brexit process. It has also threw into sharper relief the likelihood of a ‘no-deal’ ‘hard’ Brexit from 30th March 2019 which would arise if a final agreement were not concluded.
In the 26th July joint press conference a strong emphasis was placed by EU chief negotiator Michel Barnier on the areas of agreement or ‘shared understandings’ within the Brexit process, both in regard to the Withdrawal Agreement and the future EU27/UK relationship. This included an acknowledgement of the shared EU and UK desire for ‘an ambitious Free Trade Agreement’, the need for ‘an ambitious customs arrangement’ and the importance of preserving the regulatory autonomy of both the EU and UK (1).
In terms of the Withdrawal Agreement while it was jointly acknowledged that 80% of the agreement was in place, these areas of agreement are unrelated to trade dimensions of the Withdrawal Agreement on border arrangements on the island of Ireland. Significantly the issue of the ‘backstop’ or ‘fall back’ arrangement for the Ireland/Northern Ireland border remains a point of contention.
The new UK Secretary of State for Exiting the EU, Dominic Raab, insisted that the ‘backstop’ arrangement ‘could only be for a time-limited period’, with a permanent future arrangement being required which did not require Northern Ireland having a different customs status to that of the rest of the UK (2).
The EU chief negotiator Michel Barnier for his part insisted that an ‘all weather insurance policy’ was required which avoided a ‘hard’ border on the island of Ireland. While the EU has no objection in principle to a wider UK-wide arrangement on the customs element of the backstop, the EU has serious doubts about how this can be achieved without putting at risk the EU customs union, the EU’s common commercial policy, the EU’s regulatory policy and EU fiscal revenue. It is felt these EU concerns need to be addressed. According to chief negotiator Barnier the UK is committed to coming back to the negotiations in August with ‘concrete proposals on how to address’ EU concerns (1).
Within the EU there are also concerns over the UK’s bilateral agreement with Spain over Gibraltar and Cypriot concerns over ‘the rights of EU citizens living on British military bases in Cyprus’ (3).
The final cloud hanging over the Withdrawal Agreement process is the UK’s insistence that ‘there is no deal until we have the whole deal’. According to Secretary of State Raab ‘there will need to be a clear timeframe and obligation, written into the Withdrawal Agreement, to move expeditiously’ from the political declaration on future trade relations ‘to the conclusion of the binding agreements that will give it effect during the course of the implementation period’ (2).
This UK position strongly implies that the agreement on the financial settlement on the UK’s outstanding obligations to the EU is ‘conditional on the EU progressing with a trade deal after March’ 2019, with Minister Raab, reiterating in the joint press conference that ‘there is no deal until we do the whole’, with the withdrawal agreement, the protocol on the Irish border and the political declaration on future relations being seen ‘as a package as a whole (4)’.
In contrast EU chief negotiator Barnier stressed how the EU considers the financial settlement agreement as something that was agreed in December and March and is something which ‘has been agreed for good’ (4).
It is unclear whether the UK position linking the financial settlement to the outcome of trade negotiations is a sincerely held position or whether it is simply political posturing for domestic UK political consumption.
On the issue of the future UK-EU trade in goods arrangement at the joint press conference Secretary of State Raab reiterated the UK position on a UK-EU free trade area (FTA), outlined in the UK governments July 2018 White Paper (5) (for summary details see box below). Minister Raab deemed the UK proposals ‘ambitious, principled and pragmatic’ (2).
| The UK White Paper Proposal for Future UK-EU27 Trade in Goods Agreement
The UK proposal for a future goods only FTA with the EU27 would consist of: · the elimination of tariffs; quotas; and routine requirement for rules of origin verification on all goods traded between the UK and EU; · the establishment of a common rule book for manufactured goods including agriculture, food and fisheries products, with the UK committing to ongoing harmonization with EU rules on goods ‘covering only those necessary to provide for frictionless trade at the border’ (Ch. 1 pa 11), but with the UK Parliament retaining power to legislate (Ch. 1 pa 7a) by being able to accept or reject any EU proposed rule changes, in the full knowledge this could carry consequences for future access to the EU market; · continued UK participation in the decision making of EU agencies which regulate the placing of goods for sale on the EU market (Ch. 1 pa 7a); · robust market surveillance mechanisms to ensure the rules are upheld in both markets; · arrangements to facilitate ‘cumulation’ with current and future FTA partners, which would ‘allow EU content to count as local content in UK exports to its FTA partners for rules of origin purposes, and UK content to count as local content in EU exports to its FTA partners’. In addition ‘diagonal cumulation would allow UK, EU and FTA partner content to be considered interchangeable in trilateral trade’ (Ch. 1 pa 22); · the phased introduction of a Facilitated Customs Arrangement (FCA) which would remove the need for customs checks at borders ‘as if’ the UK and EU were ‘in a combined customs territory’ (Ch. 1 pa 12), thereby allowing for continued frictionless trade between the UK and the EU27. In terms of implementation of the Facilitated Customs Arrangement the UK would apply a two tier tariff arrangement, with the application of: a) autonomously determined UK tariffs on goods which stay in the UK; b) the EU tariff on goods which enter the UK and then cross a UK/EU27 border. This arrangement would be ‘policed’ by the UK authorities which would collect the higher EU tariff and pass it onto the EU authorities where required. The UK authorities would also be responsible for ensuring compliance with EU regulations for all goods crossing a UK/EU27 border. UK White paper, ‘The future relationship between the United Kingdom and the European Union’, July 2018 |
While seeking to remain upbeat and constructive about the UK proposals the chief negotiator Barnier highlighted how regulatory autonomy and respect for the sovereignty of institutions cuts both ways. He noted how the UK’s concern with ‘maintaining control of our money, law, and borders also applies to the EU’s customs policy’ (1). In this context he stressed how:
- ‘the EU cannot – and will not – delegate the application of its customs policy and rules, VAT and excise duty collection to a non-member, who would not be subject to the EU’s governance structures’, and how any future agreement ‘must respect this principle’;
- any ‘customs union, which would help to reduce friction at the border, would come with (the EU’s) Common Commercial Policy for goods’;
- ‘any customs arrangement will also have to be workable and must protect EU and national revenue, without imposing additional costs on businesses and customs authorities’
- these elements would provide the framework within which the EU would ‘work with the UK over the coming weeks’ (1).
At his first meeting with Secretary of Stater Raab in July chief negotiator Barnier had expressed concerns about the feasibility of the ‘facilitated customs arrangement’ and the UK’s implicit suggestion that regulatory alignment should only apply to goods which crossed UK/EU borders.
It was the details of the areas of disagreement in the UK’s White Paper which were the focus of most press coverage on the July 2018 UK-EU negotiation sessions. However press coverage also highlighted chief negotiator Barniers’ proposal that Prime Minister May should consider offering a customs union with the EU, but on the clear understanding this would prevent the UK from concluding its own trade deals with 3rd countries (4). Such a move on the part of Prime Minister May however would require a modification of the UK government’s current approach, which has ruled out a customs union with the EU (4).
| Comment and Analysis
With the EU having clearly set out its concerns over the proposals contained in the UK’s White Paper, it remains to be seen what new proposals the UK will come up with to address these concerns. This would appear essential to any substantive progress on the political statement on future UK-EU trade arrangements which is to accompany the Withdrawal Agreement. In regard to the Withdrawal Agreement itself, it remains to be seen whether a sufficiently vague compromise wording can be found on outstanding issues to allow the agreement to be finalized within the envisaged timeframe. Critical to this will be whether what appears to be UK political posturing for domestic UK consumption in fact represents a substantive UK position. Particularly important in this regard will be any sustained efforts by the UK to link the financial settlement to substantive progress before 30th March 2019 on bilateral trade negotiations in line with the UK’s White Paper proposals. The EU has made it clear that while a conventional FTA is possible, this would be without the type of Facilitated Customs Arrangement proposed by the UK which involves a two tiered tariff system and the delegation of EU official functions to a non-member state (the UK). Some new form of customs cooperation partnership to facilitate trade is certainly possible, but this will require far greater policy clarity in the UK and the establishment of detailed rules of origin and import control arrangements, which could take years to negotiate and effectively set in place. In this context any such substantive progress in line with UK expectations is unlikely in the short timeframe envisaged. The negotiation of provisions in the coming weeks and months which would ‘fudge’ arrangements on substantive issues of concern to the EU is made particularly difficult given the policy divisions and consequent political uncertainties in the UK. The Withdrawal Agreement is critical to the immediate impact of the UK’s withdrawal on ACP agro-food exports to EU28 markets. If the Withdrawal Agreement as currently agreed is finalized and legally adopted by both the UK and the EU then a number of immediate issues of concern to ACP agro-food exporters are favourably resolved until the 1st January 2021. These include: · maintaining existing duty free-quota free (DFQF) access to the UK market for ACP LDCs and EPA signatories until at least 1st January 2021 without any need to conclude bilateral trade agreements with the UK before the 30th March 2019; · ensuring bilateral trade negotiations on a long term trade arrangement with the UK address ACP concerns over the erosion of the value of existing preferential access to the UK market as a result of unilateral changes in UK trade policy – this includes: o securing less restrictive rules of origin in exchange for allowing continued o securing assurances on the maintenance of the current value of preferential o addressing triangular trade issues, including future SPS and food safety o constructively engaging with the apportionment of bilaterally negotiated · avoiding any disruption of triangular supply chains until at least 1st January 2021; · avoiding any divergence in SPS and food safety requirements until at least 1st January 2021; · ensuring the continued application of bilaterally negotiated TRQs with non-ACP · averting any disruption of EU27/UK agro-food sector trade and consequent However finalising the Withdrawal Agreement is likely to require the UK to modify its current position on the future UK-EU27 trade arrangement compared to its White Paper proposals. This is likely to remain the case despite the current efforts by the UK government to appeal over the head of chief negotiator Barnier to EU member states leaders for more flexibility in the EC’s approach. Whether such a shift in the UK position would prove politically sustainable given the polarised state of policy discussions within the Conservative Party and its Democratic Unionist Party allies remains highly uncertain. This is potentially a serious issue for ACP agro-food exporters since the absence of a Withdrawal Agreement would lead to the UK crashing out of EU trade arrangements without any alternative trade arrangements being in place. This would leave the EU27 with no choice to apply standard 3rd country tariffs and 3rd country controls on imports from the UK. This would be highly disruptive of the cross border movement of agro-food products from the UK to the territory of EU27 member states. If the UK were to reciprocate these EU measures with similar controls on imports of EU27 products into the UK then this would be profoundly disruptive of the cross border movement of agro-food products from the territory of EU27 member states to the UK. It is against this background that ACP governments and private sector operators should begin to intensify preparations for a ‘hard’ Brexit (see companion epamonitoring.net article ‘EC sets out framework for preparations for a ‘hard’ Brexit’, 20 August 2018). This could usefully include: · for non-LDC EPA signatories, an intensification of preparations to conclude · for ACP agro-food exporters involved in triangular supply chains, the initiation · preparations by ACP exporters who export to Ireland via the UK (e.g. West · a careful review of contracts concluded with UK importers to clarify who bears · for ACP agro-food producers which directly export to the UK the initiation · seeking urgent clarification from the UK authorities as to what SPS and food · for ACP banana and sugar exporters the initiation of preparation for intensified · Governments of ACP countries with poultry, beef and dairy industries reviewing Clarity on whether a negotiated Withdrawal Agreement will be in place by 29th March 2019 should begin to emerge by November 2018. If there is no clarity by November 2018 preparations for a ‘hard’ Brexit should certainly be intensified. There is however a distinct possibility that the negotiations on the Withdrawal Agreement could go down to the wire of the 29th March 2019 date of departure of the UK from the EU. If this were to be the case some ‘fudge’ arrangement may be possible whereby the Article 50 clock would be stopped at the 11th hour to allow time for the transitional arrangements to be legally set in place. However this would only be likely if an agreement was in sight. |
Sources:
(1) EC, ‘Statement by Michel Barnier at the press conference following his meeting with Dominic Raab, UK Secretary of State for Exiting the EU’, 26 July 2018
http://europa.eu/rapid/press-release_SPEECH-18-4704_en.htm
(2) Department for Exiting the European Union, ‘Secretary of State Statement following negotiation round Thursday 26 July’, 26 July 2018
https://www.gov.uk/government/news/secretary-of-state-statement-following-negotiation-round-thursday-26-july
(3) Guardian, ‘Gibraltar: Spain Warns UK over ‘cliff edge’ Brexit’, 24 July 2018
https://www.theguardian.com/world/2018/jul/24/gibraltar-spain-vents-frustration-with-uk-in-brexit-talks
(4) Guardian, ‘Barnier rejects customs plan set out in May’s Brexit white paper’, 26 July 2018
https://www.theguardian.com/politics/blog/live/2018/jul/26/brexit-not-too-late-for-uk-to-change-its-mind-and-stay-in-eu-on-same-terms-says-french-minister-politics-live
(5) UK White paper, ‘The future relationship between the United Kingdom and the European Union’, July 2018
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/724982/The_future_relationship_between_the_United_Kingdom_and_the_European_Union_WEB_VERSION.pdf