Negotiations: Are we getting what we were promised?

Tariffs and Quotas

(a)     Tariffs

Political Dec. – a Free Trade Agreement providing no tariffs, fees, charges or quantitative restrictions across all sectors

PM’s Statement - ensure there are no tariffs, fees, charges and quantitative restrictions on trade in manufactured and agricultural goods between the UK and the EU

This equates to tariff- and quota-free trade in all qualifying goods from the earliest possible time – preferably at entry-into-force of the FTA.

This doesn’t equate to free movement of goods.  Traders will need to fulfil the FTA’s rules of origin and its administrative requirements in order to qualify for tariff-free trade.  Some goods traded between the UK and EU are likely to fail to meet the rules of origin, and will thus not qualify for preferential tariff treatment.  Further, administrative requirements in order to access the zero tariffs are likely to have costs in terms of time and financial outlays associated with them.

Many FTAs achieve total elimination of tariffs, but few achieve this at entry-into-force of the FTA; the phasing-in period can continue for many years.

EU-Canada eliminated almost all tariffs at entry-into-force – for the EU, tariffs on 97.7 per cent of all goods and for Canada tariffs on 98.2 per cent of goods were set at zero from entry-into-force; remaining tariffs are to be eliminated over the following seven years.  However, some agricultural goods are excluded from preferential treatment - chicken and turkey meat, eggs and egg products.

EU-Japan: Japan applied zero tariffs on 86 per cent of goods and the EU apply zero tariffs on around 90 per cent of goods at entry into force; most tariffs to be reduced on remaining goods over 15 years for the EU and 20 years for Japan.  Japan is to retain tariffs on around 3 per cent of goods, including rice, beef and footwear, while the EU is to retain tariffs on around 1 per cent of goods.

Neither side has released its proposals for tariffs or quotas.

There is scope in the text for some tariffs and quotas to remain after entry into force of the agreement.  However, the UK’s MFN tariff schedule suggests the UK will aim for a very high level of tariff elimination.  As the EU could trade this request off for outcomes in other parts of the negotiation, the UK will need to press hard to deliver on its no tariff/quota commitment.

● Is there complete elimination of tariffs and quotas from day 1 of implementation?

● Will there still be some tariffs after entry into force of the agreement

● If so, will they be phased out over a time period?

● Are there any other qualifications being applied to tariff elimination (eg temporary quota arrangements)?

● Are both sides fully acting on their commitment to zero tariffs and quotas, or is it being used as a trade-off elsewhere in the negotiation?

● What tariff arrangements has the UK made for MFN trade once transition is completed and how do these compare to the EU’s MFN arrangements?

● Has the UK announced any quota arrangements for MFN trade after the conclusion of the transition period?

(b)     Tariff Rate Quotas

Political Dec. – a Free Trade Agreement providing no tariffs, fees, charges or quantitative restrictions across all sectors

PM’s Statement - ensure there are no tariffs, fees, charges and quantitative restrictions on trade in manufactured and agricultural goods between the UK and the EU

This equates to quota-free trade in all qualifying goods from the earliest possible time – preferably at entry-into-force of the FTA.

In practice no quotas will involve a far lower administrative burden, as applying for quota allocations involve considerable administration and costs.

Quotas are used by many countries, especially those with sensitive agricultural industries.  They are also used for trade in non-agricultural products like autos and textiles, although their use in non-agricultural trade is less common. 

The EU frequently includes quota requirements in its FTAs. The EU-Canada includes quotas on beef, pork, canned sweetcorn, and, during a transitional period, some fish for imports into the EU, and for cheese on imports to Canada.

Rules of Origin

Political Dec – appropriate and modern accompanying rules of origin

PM’s Statement – “provisions… which ensure that only 'originating' goods are able to benefit from the liberalised market access arrangements …. similar to… the EU-Japan Economic Partnership Agreement (EPA) and CETA.  Rules… supported by predictable and low-cost administrative arrangements for proving origin… accompanied by detailed product-specific rules of origin (PSRs).  In line with general practice, these arrangements should reflect the requirements of UK and EU industry.

The Agreement should provide for cumulation between the UK and the EU, allowing EU inputs and processing to be counted as UK input in UK products exported to the EU and vice versa.  It would also be appropriate to include measures that support trade and integrated supply chains with partners with which both the UK and the EU have free trade agreements or other preferential trade arrangements (diagonal cumulation).

It will be important to call for clear product-specific rules which reflect industry structures and sensitivities; low cost, predictable arrangements for demonstrating origin including cumulation of content across the parties, with capacity for extension to common FTA partners.

The rules of origin should be crafted to ensure high proportions of goods qualify for preferential access. 

However, it should be expected that not all goods will qualify for preferential access – the rules will not allow preference for transhipped goods or those whose imported materials have not been substantially transformed within the UK or EU.

There will be increased administration and related costs in complying with a whole new set of rules of origin.

Many rules of origin texts provide clear frameworks for transparent rules with relatively simple testing of products for compliance, and provisions encouraging greater integration of the parties’ economies through broad cumulation provisions.  The best agreements set flexible certification requirements that do not add administrative burdens with robust verification provisions based on cooperation between the parties.  However, even in the best rules of origin chapters, the PSRs include tests which focus on protecting sensitive industries from competition from FTA parties.

CETA outlines a transparent and flexible rules of origin regime.  Its administrative requirements are not too onerous, being based on self-certification of origin.  It encourages greater integration through clear cumulation provisions and provides the basis for expanding this through diagonal cumulation of content from countries where the parties share separate FTAs with equivalent rules of origin in place.  However, many of its PSRs are restrictive, although for automotive and many processed foods, the EU has set origin quotas which allow defined quantities of Canadian exports to qualify under more liberal rules (eg higher levels of non-originating content).

The EU’s Revised Convention on Pan-Euro- Mediterranean (PEM) rules of origin does provide for cumulation of content across any of the parties, provided they have in place FTAs with identical rules of origin to their FTAs with the EU.  However, these have mainly been determined by the EU and reflect its interests on industry sensitivities.

Canada has introduced the concept of “focussed” value in determining qualifying content or regional value content in testing the origin of goods.  This approach focusses on measuring only the value of specific non-originating materials in an imported good – materials that raise industry sensitivities in one or other of the parties to an FTA.  This approach was included for certain goods in the CPTPP rules of origin.

Transparent rules with uncomplicated administrative arrangements are essential.

It is unlikely that the EU will accept the UK’s proposals on cumulation in their present form.  The UK will have to take a stand on product specific rules as the EU will press for strict PSRs in a number of sectors – e.g. agriculture, textiles and apparel and autos, which could restrict UK producers’ ability to source materials from outside the EU and qualify for preferential tariffs.

● Is the UK leaning to join the PEM?

● Has the EU accepted the UK’s proposals on cumulation in their present form?

● Does the UK have a fall-back position to accommodate expanded cumulation provisions in some form?

● Is industry being closely involved in the negotiations?

● Are each side’s product specific rules being shared and discussed with industry in time?

● How do the EU’s PSR proposals compare to those agreed in recent FTAs such as CETA, the EU-Japan FTA and the CPTPP?

● What analysis has been done on which products are unlikely to meet EU rules of origin thresholds?

● Which UK industries will be affected by the PSRs

● Have the certification arrangements for trade between the UK and EU been announced?

● What administrative costs do the certification arrangements place on exporters and importers?

Technical Barriers to Trade

Political Dec – TBT disciplines should set out common principles in the fields of standardisation, technical regulations, conformity assessment, accreditation, market surveillance, metrology and labelling.

PM’s Statement – The Agreement should promote trade in goods by addressing regulatory barriers to trade between the UK and EU, while preserving each party’s right to regulate, as is standard in free trade agreements.

The Agreement should build upon the WTO TBT Agreement, in line with recent EU Free Trade Agreements such as CETA and the EU-Japan EPA.

In practice the approach will incorporate and build on the WTO TBT Agreement and draw on international standards in setting new domestic standards and adopt flexible conformity assessment requirements based on risk management principles to facilitate certainty for manufacturers and exporters.

EU FTAs set a high standard for TBT provisions and the EU is very active in addressing TBT issues generally.  The EU-Canada CETA TBT chapter is a model for best practice in FTAs promoting high levels of transparency and regulatory cooperation.  However, the EU’s mechanisms for conformity assessment have been found in practice to be slow to establish.

Agreement possible on TBT cooperation and transparency provisions.  UK will need to address how conformity assessment mechanisms are put in place initially, with possible administrative delays for clearance of goods until fully operational.  There is potential for levels of cooperation to be strained if regulatory approaches diverge over time.

● Is there consensus between both sides on the overarching principles?

● Is the UK ready to use its own procedures for mechanism such as conformity assessment?

● What measures are in place to meet EU product and labelling standards?

● Can they be addressed as part trade facilitation?

Sanitary and Phytosanitary Measures (SPS)

Political Dec – The Parties should treat one another as single entities as regards SPS measures, including for certification purposes, and recognise regionalisation on the basis of appropriate epidemiological information provided by the exporting party.The Parties will also explore the possibility of cooperation of United Kingdom authorities with Union agencies such as the European Medicines Agency (EMA), the European Chemicals Agency (ECHA), and the European Aviation Safety Agency (EASA).

PM’s Statement – The SPS agreement should build on the WTO SPS Agreement in line with recent EU agreements such as CETA and the EU-NZ Veterinary Agreement.

The Agreement should protect human, animal and plant life and health, and the environment while facilitating access to each party’s market. It should ensure parties’ SPS measures do not create unjustified barriers to trade in agri-food goods between the UK and EU.  The Agreement should reflect SPS chapters in other EU preferential trade agreements, including preserving each party’s autonomy over their own SPS regimes.

This will be a cooperative approach to protecting human, animal and plant life and health and the environment - one that builds on the principles of the WTO SPS Agreement and other international forums.

Any SPS measures should not create an unnecessary barrier to trade by ensuring that domestic provisions are firmly based in science.

CETA provides a robust and cooperative approach to SPS, with the text recognising the high standards that currently exist in the parties’ regimes.  The UK text proposal is very similar to what has been agreed in CETA.

The EU has made it clear that it will not compromise its existing SPS regime and standards which are recognised as amongst the highest in the world.  Proposals in the UK and EU draft texts are similar, however, any divergence from common standards is likely to be met with very close scrutiny by the EU in the future.

● Is there consensus between that agreement on the overarching principles for SPS measures can be reached?

● What measures are in place in the UK to accommodate changes relating to meeting EU SPS requirements?

● Will UK producers be permitted to have their goods certified as meeting EU SPS requirements within the UK?

● Does the UK have in place the necessary capacity in place to certify products according to EU requirements?

Customs Measures

Political Dec – ambitious customs arrangements… making use of all available facilitative arrangements and technologies….

Ensuring the absence of a hard border on the island of Ireland.

PM’s Statement – The Agreement should provide for streamlined customs arrangements covering all trade in goods, in order to smooth trade between the parties, while ensuring that customs authorities remain able to protect their regulatory, security and financial interests.

This will amount to the introduction of customs arrangements more typical of trade between independent customs territories.  It will result in significant friction at the border compared to current conditions. It will inevitably result in longer time and cost to meet customs requirements.  These could be alleviated to some extent through agreement to make use of enhanced and streamlined documentation submission requirements, as well as approved economic operator or other trusted trader programmes. However, compared to current trading conditions, the trade barriers in this area will be far higher and more costly to overcome.

There will be the need for provisions to support the efficiency of documentary clearance, customs simplifications, transparency, advance rulings, and non-discrimination.

Several modern FTAs include provisions on customs arrangements that provide for high levels of cooperation in transparency, risk management, the use of modern technologies and a flexible approach to timely clearance.  These include CETA, CPTPP and the EU-Japan FTA.

While they are minimising trade barriers, it is in the context of starting from higher levels of customs restrictions than the UK is experiencing currently.

The draft texts tabled by the UK and EU are based on common principles of cooperation and transparency in customs procedures, despite major differences in how these are set out.  While both sides are likely to defend the integrity of their trade, traders should expect that the outcome of the agreement will be streamlined processes for submission of documentation and pre-clearance of goods, and rapid and timely release of those goods.  Both parties have proposed the continued recognition of Authorised Economic Operator (AEO) schemes to assist with streamlining clearance procedures.  Despite this, there will be significant friction at the border (see column 2) as a result.

● Is there consensus between both sides that agreement on the key principles for customs arrangements can be reached?

● What additional infrastructure will be required at UK/EU border points to implement the agreed arrangements?

● What changes will be required for documentation for UK goods to meet the arrangements for export to the EU?

General provisions

A level of openness in services trade above and beyond baseline level under WTO commitments.

EU FTAs to be a starting point, specifically those with Canada and Japan; with a view to reaching greater levels of liberalisation in services than has been achieved in these FTAs. 

Substantial coverage of services sectors (with exceptions and limitations as appropriate).

Sectors to include professional and business services, telecommunications services, courier and postal services, distribution services, environmental services, financial services, transport services and other services of mutual interest.

Negotiating across the four modes of supply.

Aim to preserve as much openness and access as possible to the EU market.

Provisions should respect both parties' right to regulate and be subject to limited, justified carve-outs, such as for services in the exercise of governmental authority.

Both sides to provide a schedule of their commitments - the baseline for the negotiation on schedules being both parties' best offer to date.

The arrangements should include provisions on market access and national treatment under host state rules for the Parties' service providers and investors, including with regard to establishment.

In practice the level of access being requested will result in new barriers to market access in the EU across a range of services sectors, as the baseline being used (above WTO and also current EU FTA levels) are more restrictive than currently.

For any flexibility to be more ambitious than the current levels of access other EU FTA partners receive, the EU will expect high degrees of regulatory alignment reflecting EU law.

The EU- Canada (CETA) agreement, followed by the Japan-EU EPA are examples of the two most liberalised services FTAs. While they are closer to levels of services openness in practice, they are still considerably more restrictive than the degree of services liberalisation that the UK currently enjoys.

The EU is limiting its offer to what has previously been offered to other third country markets in FTAs. This will result in significant barriers to UK services exports into the EU.

Any increased access the UK tries to secure is likely to be traded off with the need for the UK to adhere to level playing field provisions.

● Is there agreement to go beyond precedent of previous EU FTAs?

● Is the UK industry being consulting on their priorities?

● Is the UK willing to find common ground on regulatory alignment in order to gain mores services access?

● Are all designated sectors and modes of supply being covered?

Cross-border services

The Agreement should include measures to minimise barriers to the cross-border supply of services on the basis of existing FTAs, such as CETA and the EU-Japan EPA, and could draw on precedent from trade negotiations where the EU has made offers to other third-country partners.  In areas of key interest, such as professional and business services, there may be scope to go beyond these commitments.

The Agreement should enhance cooperation between the parties and competent authorities.

On Cross-Border Trade in Services specifically, the Agreement should include provisions:

1.     to ensure service suppliers do not face limitations such as economic needs tests;

2.     on National Treatment, to provide for non-discriminatory treatment between UK and EU service suppliers;

3.     Local Presence, to ensure that cross-border trade is not inhibited by establishment requirements – as the EU has recently agreed with Mexico; and

4.     Most Favoured Nation treatment, to ensure the Agreement continues to provide for ongoing liberalisation.

There will be a number of new restrictions on accessing the EU market from the UK in each sector, including due to limitations on discriminating in favour of local suppliers (national treatment).

There are likely to be regulatory licensing etc requirements in various EU countries, creating an incentive for companies to establish a physical presence in the EU, rather than to engage in cross border supply.

Various member states will also have different restrictions on the supply of cross border services for each European market. For example, in the supply of legal services, some member states impose nationality criteria.

On the whole, most EU FTAs do not liberalise cross-border services trade much beyond levels committed to in the WTO (which are far more restrictive than current levels facing the UK).

The UK has limited scope to negotiate much access on cross border services within its limits of standard FTAs and without a significant trade off on the UK’s part.

● What limitations are UK providers of cross border services likely to face? Economic needs tests for e.g.?

● Are there local EU establishment requirements for UK service providers?

● Are industry priorities being pushed-for?

● Are there significant variations between member states restrictions?

● Are changes phased or immediate?

● Can industry prepare in time for these changes?

Temporary entry and stay for business purposes

The Free Trade Agreement should include significant reciprocal commitments on the temporary entry and stay of individuals, so that both EU and UK nationals can undertake short-term business trips to supply services - in defined areas. This is without prejudice to the UK’s future points-based immigration system.

The Agreement could build on commitments in CETA and the EU-Japan EPA, and should cover: short-term business visitors, including for establishment purposes; intra-company transferees; contractual service suppliers; and independent (i.e. self-employed) professionals and investors.

Both parties should clearly set out, on a reciprocal basis, the activities that can be undertaken by a short-term business visitor.

There will be immediate restrictions on the ability of people to travel and operate commercially between the two territories. In practice it is likely to require all UK service providers who want to operate in the EU, having to comply with relevant visa and work permit obligations.

These obligations are likely to vary between each member state and be applicable only to specified services sectors.

CETA and EU-Japan EPA set out conditions such as: visas and work permits for designated skilled professionals in specified sectors for the purposes of short-term business,certain intra-company transferees, investors, and business visitors for investment purposes and allowing families on postings; no numerical quotas on immigration and economic needs test prior to migration

This is an area where the UK will need to push for agreement, without which significant restrictions will be imposed on those needing to travel to the EU to deliver services.

● What visas and work permits for skilled professionals (in categories listed on p 28 of report) have been negotiated?

● Are numerical quotas on the table?

● Is removing economic needs test agreed?

● Are at least conditions of CETA and EU Japan EPA agreed here?

Financial services

Committed to preserving financial stability, market integrity, investor and consumer protection and fair competition, while respecting the Parties' regulatory and decision-making autonomy, and their ability to take equivalence decisions in their own interest. This is without prejudice to the Parties' ability to adopt or maintain any measure where necessary for prudential reasons. The Parties agree to engage in close cooperation on regulatory and supervisory matters in international bodies.

Given the depth of the relationship in this area, there should also be enhanced provision for regulatory and supervisory cooperation arrangements with the EU, and for the structured withdrawal of equivalence findings. It should include transparency and appropriate consultation in the process of adoption, suspension and withdrawal of equivalence decisions, information exchange and consultation on regulatory initiatives and other issues of mutual interest, at both political and technical levels.

Parties should start assessing equivalence with respect to each other under these frameworks, endeavouring to conclude these assessments before the end of June 2020. The Parties will keep their respective equivalence frameworks under review.

The Agreement should include legally binding obligations on market access and fair competition, in line with recent CETA and EU-Japan EPA precedent.

An FTA arrangement will significantly restrict market access for UK financial service providers.

If an equivalence mechanism can be agreed some types of financial services products may be deemed equivalent and allowed to be traded between the territories. 

In practice, a system of equivalence will be considerably different to the current passporting system within which the financial services sector operates – where UK financial services businesses are currently free to operate in any EU member state.

The EU has tended to grant equivalence for only limited products, which then also have to be authorised. 

Immediate new barriers are likely to include the loss of wholesale banking revenues and negative impacts on EU derivative contracts cleared in London. UK investment banks are unlikely to be able to provide services to their EU-based clients from the UK. It will also create an incentive for firms to relocate to the EU.

Also, under non-discrimination (MFN) rules, if the EU granted additional concessions to the UK, it may also have to offer these automatically to its other WTO trading partners. (Although there are caveats in some of the EU’s trade agreement where MFN rules do not apply in circumstances where the EU relationship with the country is particularly inter-twined, such as Switzerland.) 

Within EU FTAs provisions for financial services tend to be for services in support of the sector (advisory and data processing) rather than core financial services themselves.

Restrictions limit operations to financial services companies that are established in the EU and/or have branches or subsidiaries through which they must operate.

The provision of insurance services is substantially limited within FTA commitments.

The UK will have to push for an “equivalence plus” system so additional services/ products can be granted equivalence. However there appears to be no sign of agreement to this from the EU side. Without this, significant barriers will result for the provision of financial services.

● Is the UK prioritising this area given its contribution to the UK economy, and if so, how?

● When will the equivalence assessment process be complete?

● Has the UK secured an equivalence-plus arrangement, for a greater range of products?

● Has the UK secured agreement to enhanced regulatory cooperation EU?

● Are the range of likely restrictions facing UK financial service providers set out for them in advance?

● Is the UK pushing for access for industries not covered by typical FTAs, such as for insurance services?

Digital services

There should be measures to support digital trade, building on the most recent precedents for example negotiations on the WTO's Joint Statement Initiative on E-Commerce.

The provisions on digital trade in the Agreement could, in specific areas, go beyond those precedents to reflect the direction of travel in current digital trade negotiations. For example, provisions on electronic authentication have continued to evolve as part of EU Free Trade Agreement negotiations with Australia and Mexico and at the WTO, and this should be reflected.

The Parties should establish provisions to facilitate electronic commerce, address unjustified barriers to trade by electronic means, and ensure an open, secure and trustworthy online environment for businesses and consumers, such as on electronic trust and authentication services or on not requiring prior authorisation solely on the grounds that the service is provided by electronic means. These provisions should also facilitate cross-border data flows and address unjustified data localisation requirements, without affecting personal data protection rules.

The Parties should work together through multilateral fora, and establish a dialogue to exchange information, experience and best practice on emerging technologies.

The Agreement should include commitments on market access and regulatory governance of digital trade. Commitments on market access should minimise barriers to the supply of digital services provided from the territory of a party into the territory of the other party and will provide a clear and predictable basis upon which business can invest. This should lock in regulatory certainty, while preserving the UK's regulatory autonomy.

The UK is separately attempting to secure a data transfer adequacy agreement as part of the broader relationship negotiations, before the end of the transition period.

The EU is aligned with the UK position on many of the provisions set out. Where the two parties have differences however is in the area of facilitating the cross-border transfer of electronic information, including whether transfers can be restricted for public policy reasons. The UK would like transfers to be allowed and only limited for a specified set of legitimate public policy reasons. The EU on the other hand only wants to focus on freeing up data localisation rules and wants to maintain the right to data privacy safeguards that are exempt from disciplines.

A separate data adequacy agreement will be important in allowing the free flow of data across borders, and therefore facilitating the supply of cross-border services.

CETA has a stand-alone e-commerce chapter that includes provisions to protect personal information. It also promotes cooperation on issues like treatment of spam and protection from fraudulent and deceptive commercial practices. No customs duties are applicable on the e-transmission of digital products.

In the EU Japan EPA there was no assurance on the free flow of data, unlike the CPTPP which Japan is a member of also.  (They separately signed a Mutual Recognition Agreement which deemed the other’s personal data protection regimes to be equivalent).

On e-commerce: they agreed no duties on electronic transmissions, recognised the legal validity of electronic contracts and signatures, and no source codes need to be transferred or accessed.

While significant agreement could be reached on this chapter, it will hinge on a data adequacy arrangement being agreed to allow the free flow of data which supports numerous UK services exports.

● Has the UK secured agreement to a digital chapter as per best practice?

● Has agreement been reached on the transfer of electronic information, with limitations only being for specific public policy reasons?

● Has the agreement been locked in on digital trade provisions beyond the EU’s previous FTAs?

● Have provisions been set up to facilitate e-commerce measures?

● Are there restrictions likely on the provision of digital services from the UK into the EU?

● Has a data adequacy agreement separately been reached?

Transport

Calling for reciprocal commitments allowing road transport operators to provide services between each other's territories, with no quantitative restrictions.

Market access to be underpinned by appropriate and relevant consumer protection requirements and social standards for international road transport, and obligations (from international agreements), notably concerning conditions to pursue the occupation of a road transport operator, conditions of employment, rules of the road, passenger carriage by road and carriage of dangerous goods by road.

Parties should consider complementary arrangements to address travel by private motorists.

Should secure continued connectivity for commercial road transport services (buses and coaches).

While there is no direct EU precedent for this (EU FTAs are with countries where cross-border road transport is impractical for geographical reasons) this is consistent with many commercial road transport bilateral agreements EU Member States have with countries outside the EU. Th

UK hauliers and passenger transport operators expected to comply with international rules (such as ECMT and AETR3) when operating outside of the UK.

The Agreement should respect the UK's autonomy as a third country and not require the UK to follow EU standards. The parties should agree how to cooperate on monitoring and enforcement. The Agreement would leave the UK free to regulate domestic haulage and passenger transport, including in a way which reflects the circumstances of the island of Ireland.

Given the highly interconnected nature of UK and EU road transport the potential for increased trade barriers and immediate costs on the import and export of UK goods is high.  

In practice the UK requestsamount to having similar access levels to the current arrangements and similar levels to the EC/Switzerland land transport agreement.  However, the EU stands by its position that after leaving the EU, the UK should have lesser levels of access than it currently enjoys.

The EU is insistent on the UK committing to level playing field provisions and keeping in regulatory alignment in this sector, whereas the UK does not want to be limited to following EU standards

The EU has made it clear it will not replicate the Swiss style bilateral agreements on separate issues

Also, the EU states that unless an agreement can be struck in this area the UK will have to access the limited quotas currently available for operators to conduct journeys to the UK and EU.

The EC/Switzerland land transport agreement providesfully open access to each other’s transport sectors, without quantitative restrictions (quotas) and allowing ‘grand cabotage’ (transport between member states). 

As a starting point, both sides favour open bilateral road freight access between the two territories – in principle. However, without concessions from the UK on wider regulatory alignment there’s a real risk that the EU will resort to numerical quotas for operators and treat the UK as a third country. The UK dependence of freedom of road transport access for its exports could see this have a detrimental impact on administration and prices.

● Given the significant need to maintain open bilateral road freight access between the two territories has the UK prioritised this outcome and considered concessions in return?

● Has the UK secured no numerical quotas for road operators?

● Is the UK pushing for ‘grand cabotage’ as per the EU/Swiss arrangement?

● How is the UK advising and preparing UK transport operators for the changes, ahead of time?

Recognition of Professional Qualifications

The Agreement should provide a pathway for the mutual recognition of UK and EU qualifications, underpinned by regulatory cooperation

Comprehensive coverage would ensure that qualification requirements do not become an unnecessary barrier to trade in regulated services, across the modes of supply.

Ensure the parties can set their own professional standards and protect public safety. The parties should explore how competent authorities could recognise applicants who demonstrate that they meet the host states’ standards.

In practice the EU does not have a blanket system of recognising professional qualifications from third countries across all member states in a uniform way. EU member states tend to recognise qualifications individually.

In other FTAs the EU has predominantly offered supporting dialogue between member states’ competent authorities and counterparts in the third country. The Japan EPA and CETA both facilitated a framework to work to mutual recognition of qualifications.  In contrast, within the CPTPP, parties have committed to recognise qualifications of any one territory in the supply of a service in another.

There is potential for agreement in this area – subject to trade-offs.  However, the UK will have to push for more than just a framework to start discussions- as per other FTAs

● Has agreement been secured for mutual recognition (vs. a framework to start discussions as in other FTAs, which could take significant time)?

● What is the time-frame for achieving this?

● Are there interim measures to put in place if delayed?

Visual audio

The Agreement could promote trade in audio-visual services as well as associated businesses in the audio-visual supply chain by ensuring fair access and treatment for audio-visual services, and provide protections for the UK's audio-visual services policy framework.

Given the important role of UK audio-visual industries in Europe, freedom of workforce movement, free trade in audio-visual services and access to the Digital Single Market are essential; there may be quotas on European works, access to EU funding streams may be limited and UK broadcasters may consider relocating considering to the EU to continue benefitting from the Digital Single Market.

Both CETA and the EU Japan EPA excludes audio-visual services from liberalisation commitments.

Given the EU wants to exclude audio-visual services from the agreement the UK will have to consider trade-offs and press hard for it to be included, given the importance of this sector to the UK, and its trade with the EU market in this area.

Issue

UK Commitment

Practical Implications

Best Practice

Negotiation Direction

Evaluation Questions

Level Playing Field

The Political Declaration: Given the EU and UK’s geographic proximity and economic interdependence, the future relationship must ensure open and fair competition, encompassing robust commitments to ensure a level playing field. The nature of commitments should be commensurate with the scope and depth of the future relationship and the economic connectedness of the Parties. These commitments should prevent distortions of trade and unfair competitive advantages. The Parties should uphold the common high standards at the end of the transition period in state aid, competition, social and employment standards, environment, climate change, and relevant tax matters.

The Parties should in particular maintain a robust and comprehensive framework for competition and state aid control that prevents undue distortion of trade and competition; commit to the principles of good governance in the area of taxation and to the curbing of harmful tax practices; and maintain environmental, social and employment standards at the current high levels provided by the existing common standards. In so doing, they should rely on appropriate and relevant Union and international standards, and include appropriate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement. The future relationship should also promote adherence to and effective implementation of relevant internationally agreed principles and rules in these domains, including the Paris Agreement.

The concept of the level playing field is to ensure that neither party undermines or disadvantages the other by having lower standards and costs of regulation in their territory – thereby ensuring “open and fair competition”.

The UK and EU have very different level playing field positions, despite both agreeing to the concept in the Political Declaration.

The exact details of what it will entail are to be outlined in the negotiations. The UK will not be governed by EU regulations and says it will uphold high standards against the commitments. It wants standard FTA provisions and no dispute rules- the EU says these are needed given how highly integrated the two are.

Common ground could be found on competition, environment, labour standards and taxation, through non-regression clauses. A difficult area is EU insistence on state aid rules being enforced and disciplined in the UK. The UK will not go beyond standard FTAs, nor align with EU laws and will have its own system subsidy regime.

EU trade agreements have level playing field commitments within them, with differing degrees of specificity.   For Japan, Korea and Canada there are non-regression clauses and rules on subsidies and safeguards (The types of provisions that the UK Government is strongly leaning towards.)

For Turkey, Ukraine and Switzerland, there are measures on state aid and competition. The EU takes account of the level of integration and geographical proximity as to the specificity of the level playing field provisions set out.

This is already a major sticking point in the negotiations. The UK will have to find middle ground in order to secure other key issues such as low tariffs for good, low services barriers and expanded financial services equivalence to maintain the current open trading access for UK industries.

● If UK industry is unlikely to diverge significantly from the EU regulatory environment for commercial reasons, are there compromises the UK can make in order to maintain the levels of openness and access needed for UK producers and consumers?

● How have the full range of industry views been taken into account?

Regulation

Should be measures that reduce unnecessary barriers to trade in services, streamlining practical processes and providing for appropriate regulatory cooperation.

While preserving regulatory autonomy, the arrangements should include provisions to promote regulatory approaches that are transparent, efficient, compatible to the extent possible, and which promote avoidance of unnecessary regulatory requirements.

In this context, the Parties should agree disciplines on domestic regulation. These should include horizontal provisions such as on licensing procedures, and specific regulatory provisions in sectors of mutual interest such as telecommunication services, financial services, delivery services, and international maritime transport services. 

Parties should establish a framework for voluntary regulatory cooperation in areas of mutual interest, including exchange of information and sharing of best practice.

Regulation in this context refers to broad regulatory frameworks in different sectors being kept in line with each other in the two territories and one not deregulating out of step with the other.

The EU Japan EPA was the first to have a chapter on the issue and a joint committee for ongoing cooperation. While the work is on a voluntary basis, EU regulations are a reference, allowing the right to regulate on public policy grounds.

They have a joint forum, on sharing information, new rules, resolving disagreements and ensuring domestic regulations do not discriminate against the non-EU providers.

Parties also commit to work together in international regulatory forums.

While voluntary regulatory cooperation could be achieved, the broader issue of regulatory alignment is a major sticking point in the negotiation and the UK may have to find a compromise in order to get a deal.

● How are industry views accounted for on need for regulatory cooperation?

● Has the UK set out common areas to be reached on voluntary regulatory cooperation?

● Have disciplines been agreed on licensing procedures?

● Have specific mutual interest regulatory provisions been agreed in - telecommunication services, financial services, delivery services, and international maritime transport services?

Fisheries

Political Dec – commitment to bilateral cooperation to ensure fishing at sustainable levels, promote resource conservation, and foster a clean, healthy and productive marine environment, noting that the UK will be an independent coastal state.

PM’s Statement – “The UK is ready to consider an agreement on fisheries that reflects the fact that the UK will be an independent coastal state at the end of 2020. It should provide a framework for our future relationship on matters relating to fisheries with the EU… in line with precedent for EU fisheries agreements with other independent coastal states. … that respects the UK’s status as an independent coastal state and the associated rights and obligations that come with this.”

A new fisheries arrangement needs to be in place to determine fishing opportunities from the end of the transition period.

The new fisheries agreement by 1 July 2020 target was not met.

“Bilateral cooperation” could take different forms – from a formal structure with both jointly determining catches and management issues for both parties’ waters, to one where each consults before independently determining arrangements for its own exclusive economic zone.

The UK is seeking an outcome consistent with relations between independent states with access and quotas negotiated on an annual basis – such as Norway/EU arrangements.

The EU is seeking to extend its access, to joint management of the waters and reciprocal rights for either party vessels to fish in the other’s waters.  The EU wants these provisions included in the FTA, vs. a separate agreement – this goes much further than provisions for management of fishing resources in other EU FTAs.

Few FTAs include provisions covering fisheries, other than commitments to support environmental or conservation principles such as trade in endangered species.  The UK-EU relationship is very different to most in that it involves large stretches of neighbouring and overlapping economic zones and the restructuring of an existing relationship which was based on shared management of and access to each party’s resources.  It is further complicated by the fact that the key resource – the fish – are mobile and do not respect territorial boundaries.

The Political Declaration suggested that the FTA itself should focus on stating shared commitments to sustainable usage and cooperative management, with future access issues being covered in a separate agreement.

The parties are far apart and their aim to complete a new fisheries agreement by 1 July 2020, was not met.  The UK will need to push for precedent based on the EU/Norway deal while the EU wants to continue current access.

● Has either released proposals for future management of fishing and fish stocks in the waters governed by the UK and EU?

● Will the new arrangements allow for vessels from the UK to operate in EU waters, and vice versa?

● If so, who will be responsible for policing of fishing activities by the fleets in each territory?

● Will there be any changes in the ownership or crewing requirements of vessels engaged in fishing when the new arrangements start?

● Will there be an impact on fishing in and operations of fleets from other non-EU countries with EEZs that adjoin those of the UK or EU?