The Trade Bill and rolled-over agreements
One of the main purposes of the Trade Bill is to give the UK government the tools it needs to maintain the UK’s trading relationships with countries, such as Canada, with which the EU currently has trade agreements.
Constitutionally, the government is able to sign and ratify international agreements with minimal reference to Parliament. Normally, however, legislation would be required to implement those treaties in domestic law. The Trade Bill is designed to shortcut this process and authorise the government to implement the new agreements directly by executive act.
It sounds uncontroversial. The devil, however, is in the detail. Here, we look at two: which agreements will be covered and whether their rolled-over replacements will really maintain current relationships.
It is surprisingly difficult to know exactly what the Trade Bill covers. Clause 2, entitled “implementation of international trade agreements”, seems straightforward enough. However, an “international trade agreement” not only includes a “free trade agreement” (which is defined to include customs unions) but also “an international agreement that relates mainly to trade other than a free trade agreement”.
It is unclear how far this definition extends. There are many agreements that relate to trade. For example, some environmental agreements have trade aspects; the Montreal Protocol and the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), for example, are about banning trade in ozone-depleting substances and endangered species respectively.
It could be that what is meant are agreements focused on reducing obvious barriers to trade. But modern free trade agreements are about much more than duties and quotas. As economies have become more interconnected over the decades, countries have taken a greater interest in each other’s domestic regulation, such as food and product safety. Where one country has high domestic standards, its negotiating partner might see these as unnecessary trade barriers. The subject of the Trade Bill is therefore both wider than most people appreciate and less clear.
On the issue of content, you could be forgiven for thinking that a rolled-over agreement would be a simple “copy-and-paste” of the current agreements, with minor technical changes. In many cases, this would work. However, not all aspects of the EU’s agreements will be appropriate for the UK once it has left the EU – to take perhaps the most extreme example, the UK can’t maintain a customs union with Turkey if it is no longer in a customs union with the EU.
More significant are “rules of origin”. These determine whether a product being exported can benefit from lower duties under a free trade agreement. This is frequently done by stating that a certain percentage value of a product being exported must have added by the exporting party. The UK may lose many of its benefits under current free trade agreements if, when it rolls them over, it simply copies the rules of origin in the EU’s agreements.
This could happen in two ways. Take a hypothetical car assembled either in the UK or elsewhere in the EU, with 50% of its value coming from UK production and another 50% from other EU sources. At the moment, an existing EU free trade agreement that gives preferential benefits to cars with at least 60% of their value from the EU would cover such vehicles. However, a UK agreement with the same 60% threshold would not help a car made in the UK in future.
Second, the UK could also lose out indirectly. This is because an EU-assembled car with 50% UK content would no longer be able to be exported under the EU trade agreement. That would give EU producers an incentive to switch from UK parts and technology to EU (or third country) ones.
Another problem is that the other party may not be happy rolling over an agreement without some changes. This is particularly the case for those countries whose investors have traditionally used the UK as a hub for their EU operations and who have therefore relied on UK participation in the customs union and the single market.
There is always a risk that a party seeking changes in one part of an agreement will lead to demands for trade-offs from the other party, perhaps even resulting in the entire structure being unpicked. In addition, for issues such as rules of origin, a satisfactory solution (likely involving diagonal or full cumulation) may depend on the willingness of the EU to get involved in the negotiations (which does not so far seem to be the case). There is therefore a complex mix of political and technical issues to deal with, and there is no guarantee that both – or all three – sides will come to an arrangement.
Written by Lorand Bartels and Samuel Coldicutt