On 22 February 2018 ACT Alliance convened Seminar on the Implications of Brexit in the agro-food sector for ACP countries and for the forthcoming ACP-EU Post-Cotonou negotiations. A series of twelve 2 page summary notes were produced for the seminar covering both substantive issues arising within the Brexit process and the current state of play in the Brexit process. Note 9 explores the complications faced in ‘rolling-over’ current EPAs into ‘cut and paste’ bilateral ‘UK-only’ trade agreements.
Overview
The UK government has repeatedly reiterated its commitment to ‘rolling-over’ existing EU trade agreements into bilateral ‘UK only’ trade deals.
Initially the UK planned to simply ‘grandfather’ existing reciprocal preferences, outside of the framework of a WTO compatible free trade area agreement.
However it was soon realized this would face opposition from WTO members, with this giving rise to a proposal to ‘cut and paste’ existing EU EPAs into ‘UK-only’ WTO compatible trade agreements.
However this could face technical, administrative and political challenges.
Technical challenges
- An Overview
The UK government is currently adopting legislation which sets the legal framework for an independent UK trade policy, with the ‘Trade Bill’ setting the basis under UK law for the rolling-over of existing EU trade agreements into ‘cut and paste’ ‘UK only’ trade agreements. This is intended to facilitate a smooth transition in trade relations
However while much of the ‘cut and paste’ exercise is straight forward requiring a simple accommodation of the UK bilateral nature of the agreements and the absence of any EU dimension, there are 3 areas of complication, principally in regard to:
- the rules of origin to be applied to exports from the UK to ACP countries;
- the future of bilaterally agreed tariff rate quotas;
- the financing of EPA related adjustment measures which form an integral part of the EU EPAs in many ACP regions.
- The Rules of Origin Challenge
Currently UK producers can use EU27 inputs as much as they desire without losing ‘originating’ status for exported products. However once the UK leaves the EU these ‘cumulation’ arrangements will lapse, potentially creating problems given the integration of UK production with EU27 supply chains.
Gaining the status of ‘originating’ good is vital, for without ‘originating status’ tariff preferences cannot legitimately be claimed.
While the UK government has assumed ‘cumulation’ with EU27 suppliers will continue, it is unclear why this should be allowed when the UK is a 3rd country. Allowing a 3rd country, the UK, to cumulate with EU27 suppliers could complicate ACP trade relations with other third countries.
In addition if ’cumulation’ is not allowed on ACP exports to the EU which involve packaging and processing in the UK, why should ACP governments allow the UK to cumulate with EU27 suppliers under ‘UK-only’ trade agreements?
Therefore new rules of origin will be required stipulating local UK content requirements and the degree of processing required of non-originating inputs. These negotiations are likely to take considerable time given the UK’s capacity constraints.
- Tariff Rate Quotas
The specific problem of the future of existing TRQ obligations arise under the SADC-EU EPA.
The question arises as to how, if at all, these TRQ rights and obligations should be apportioned between the UK and EU27 under any refitted ‘UK-only’ EPA?
This is likely to be a politically charged issue, since TRQs are commonly used to protect ‘sensitive’ sectors. In this context given it would expand the overall level of market access granted to the current EU28 countries, creating new UK TRQs will require substantive discussion and negotiations with stakeholders in the concerned ACP countries on a product by product basis.
- Development Financing
A number of EU EPAs include development financing commitments to assist with EPA adjustments.
In a Brexit context the question arises: will the UK be prepared to continue to contribute to trade related adjustments under ‘UK-Only’ trade agreements?
EU member states governments’ may look on askance if the UK is allowed to benefit from these EU concluded EPAs without having to carry any of the financial obligations agreed as part of these trade and development agreements.
UK Administrative Constraints
The UK needs to ‘cut and paste’ over 40 EU trade agreements, but faces a serious shortage of trade negotiators to resolve the complex issues faced.
Parliamentary hearings in the UK have revealed that while negotiating a trade agreement requires ‘between 50 and 100 experienced individuals’, in March 2017 the DIT had around 145 trained officials with some 400 other officials across government undergoing some form of training on trade policy and trade negotiations.
This places serious constraints on how many existing EU agreements the UK can refit into ‘UK-Only’ trade agreement at any one time. This is particularly the case if the most experience negotiators are deployed in dealing with future UK-EU27 trade arrangements.
The Political Constraint
Many of the issues faced in ‘cutting and pasting’ EPAs into ‘UK-Only’ trade agreements will require consultations with the EU and acceptance by WTO members.
The EU has made it clear that during the transition the UK will not be able to conclude any trade agreement without authorisation from the EU.
While the EU now requires a binding commitment from the UK that it will ‘remain bound by the obligations stemming from the agreements concluded by the Union’ as part of the Article 50 agreement, it has been highlighted how the EU ‘cannot ensure in the Article 50 Agreement that the UK keeps the benefits from these international agreements’.
According to Michel Barnier the EU’s ‘partners around the world may have their own views on this’, including WTO member which are not party to preferential trade agreements.
Leading WTO members are insisting that post-Brexit the UK should be treated the same as any 3rd country, with it being made clear equivalent treatment will be sought if the UK is accorded any particular privileges.
If the same principle is to be applied by leading WTO members to post-Brexit ACP-UK trade relations, ACP governments will need to be very careful in just how they ‘cut and paste’ existing EPAs into bilateral ‘UK-Only’ trade agreements.