New Free Trade Agreement
The UK’s declared intention is to leave the EU single market and EU customs union. The UK government White Paper of 2nd February 2017 confirms that the UK will not be seeking membership of the single market but will pursue, instead and start a new strategic partnership with the EU including an ambitious and comprehensive free trade agreement and a new customs agreement.
“After we have left the EU, we want to ensure that we can take advantage of the opportunity to negotiate our own preferential trade agreements around the world. We will not be bound by the EU’s common external tariff or participate in the common commercial policy.”
The UK’s stated objective is to negotiate a comprehensive free trade agreement with the European Union. This must be negotiated separately from and after the withdrawal agreement.
Context
A free trade agreement is usually negotiated to liberalise trade where there is no prior agreement or there is an earlier less comprehensive agreement in place only.
Free-trade agreements generally seek to liberalise the conditions of trade, lower or limit tariffs and remove quotas on imports and exports. They commonly deal with a range of issues in accordance with various WTO agreements, which promote the liberalisation of trade.
Trade agreements typically reaffirm and build on the existing WTO Agreements and framework See the chapters on the basic WTO Agreements. They may provide enhanced, more precise and more effective measures. They usually establish new institutions such as committees to coordinate harmonisation and institutions for cooperation and implementation.
They seek to further liberalise the commitments under the existing agreements by providing further more accommodating or precise substantive terms and enhanced remedies. They may revise and reduce the sectoral or other exceptions or exclusions or increase the concessions or inclusions provided for the schedules to the existing general agreement or earlier agreement.
Timing and Competence
It seems very likely that even if a free trade agreement can be negotiated in tandem with a withdrawal agreement that it will not be possible to complete the process before 30th March 2019. This would appear to necessitate the extension of the Article 50 withdrawal deadline or an interim agreement providing for a transitional period. A transition period to the end of 2020 has been agreed in principle. This will have the adverse effect of continuing uncertainty as to the final outcome.
The EU competence in external trade matters is exclusive. The EU has long since been the competent body in international trade policy. This is in contrast with many other areas, where its competence is shared with the member states.
Some trade matters are within the competence of the states. EU Free trade agreements are usually implemented by way of a regulation so that there may be thereby applicable in member states. National law may supplement and implement the regulation.
Most EU / third country comprehensive trade agreements are mixed agreements by the EU jointly with a member state. They must be ratified by each members state, each of which must be party to them.
High-Level Issues
The European Treaties themselves are the most comprehensive example of an interstate agreement going well beyond free trade creating its own institutions and harmonizing rules, regulations and policies across almost all areas of the economy. In a sense, the UK is starting from this point but is withdrawing backwards from it.
The type of free trade agreement entered will depend on its objectives. The EU UK agreement is likely to be combined with agreements on a broader range of matters than traditional trade agreements.
The EU has a fundamental interest in ensuring that the benefits of membership are not available through equivalent free trade agreements. The key question accordingly is to what extent, the UK can obtain the benefits of membership without the corresponding obligations and institutions and the lack of loss of sovereignty thereby involved.
In order for the most favoured nation treatment not to apply under WTO rules, there must be a free trade agreement or a customs union between the states concerned. The duties and other restrictive regulations of commerce (subject to exceptions) must be eliminated on substantially all trade between the states concerned and products originating in those states. It must eliminate tariffs in a period of up to ten years subject to some exceptions for sensitive goods.
The extent to which the UK may be free to pursue an independent trade policy after Brexit is likely to depend on its continuing relationship with the EU. Trade policy usually includes tariffs, regulations, preferences, rules of origins, regulations, controls and defensive mechanisms /, countermeasures against or sanctions against other states.
The UK government has indicated that it does not want to remain in the EU Customs Union. This is because it would mean membership of the EU’s external common commercial policy and preclude free trade agreements with third countries.
It appears that if the UK wants comprehensive market access under a free trade agreement, it will be obliged to accept all or most EU regulations and standards. The greater the degree of access, the greater the locking into EU Law that will be required. This would, in turn, cause less flexibility in negotiations with third countries for free trade agreements, in recognising the equivalence of their standards.
It is necessary to establish the status of the UK’s stand-alone membership of the WTO after Brexit in order to proceed to enter trade agreements.
Trade policy also includes trade promotion in the sense of industrial policy and the totality of a state’s ability to expand its exports, including by inward investment. Competence in trade promotion policy largely remains with member states, subject to the overriding EU competition/ state aid rules.
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