{"id":5443,"date":"2020-11-20T17:31:49","date_gmt":"2020-11-20T17:31:49","guid":{"rendered":"http:\/\/blogs.sussex.ac.uk\/uktpo\/?p=5443"},"modified":"2020-11-20T17:44:43","modified_gmt":"2020-11-20T17:44:43","slug":"uk-eu-trade-relations-a-checklist-of-10-key-issues","status":"publish","type":"post","link":"https:\/\/blogs.sussex.ac.uk\/uktpo\/2020\/11\/20\/uk-eu-trade-relations-a-checklist-of-10-key-issues\/","title":{"rendered":"UK-EU trade relations: A checklist of 10 key issues"},"content":{"rendered":"Share this article: <\/em> \"Facebook\"<\/a>\"twitter\"<\/a>\"reddit\"<\/a>\"pinterest\"<\/a>\"linkedin\"<\/a>\"mail\"<\/a>

\"\"20 November 2020<\/em><\/p>\n

Michael Gasiorek is Professor of Economics at the University of Sussex and Director of the UKTPO.<\/em><\/p>\n

Discussions and evaluations on the future UK-EU relationship have been\u00a0on-going\u00a0since the referendum of June 2016, and we are close to another milestone\u00a0\u2013\u00a0by the end of the year,\u00a0we will either have\u00a0a free trade agreement\u00a0(FTA)\u00a0with the EU\u00a0or no-deal. Note this is a milestone and not the endgame.\u00a0Whether or not there is an agreement there will still be\u00a0considerable\u00a0practicalities to resolve, and no doubt some areas will be open to future negotiation. There is a lot of talk in the press about sticking points (fisheries,\u00a0state aid and\u00a0level playing field provisions, dispute settlement) but\u00a0how\u00a0good the deal is for the UK will depend on the scope and the depth of what is agreed, and whether some areas are only notionally covered and need to be sorted out in future negotiations.<\/p>\n

If there is an agreement, this blog lists ten key issues to be mindful of when assessing how\u00a0\u2018good\u2019\u00a0the\u00a0deal is for the UK. If there is no agreement, then these issues will matter for future trade with the EU and beyond, the\u00a0total\u00a0impact on the UK, and the distribution of that impact across industries, regions and people.\u00a0 The ten issues are not listed in any order of\u00a0importance,\u00a0however, they outline\u00a0the\u00a0key dimensions of trade that will\u00a0affect the UK economy and politics in the UK come the end of this year.<\/p>\n

1) Tariffs<\/h3>\n

No-deal means trading on WTO terms\u00a0and so the UK will levy tariffs on its imports from the EU and vice\u00a0versa.\u00a0A\u00a0Free Trade Agreement (FTA)\u00a0should remove tariffs on most goods \u2013 but not necessarily all.\u00a0It will therefore be important to see if there are any exceptions to the tariff liberalization\u00a0and which goods or sectors these are in. Where there are exceptions,\u00a0they are likely to be for certain agricultural goods and possibly fisheries.<\/p>\n

2) Rules of Origin<\/h3>\n

In an FTA\u00a0rules of origin\u00a0are needed to determine which goods are eligible for the lower or zero tariffs that have been agreed between the partners. Goods can only be eligible if they have been \u2018produced\u2019\u00a0(ie\u00a0are originating)\u00a0within\u00a0one of the partner countries. The rules of origin outline the criteria a\u00a0good needs\u00a0to satisfy to be deemed as originating.\u00a0Really important here is whether an agreement goes beyond\u00a0bilateral<\/em>\u00a0cumulation (where you can count the\u00a0intermediate\u00a0inputs from each\u00a0partner\u00a0as originating), or whether it allows for any\u00a0diagonal\u00a0<\/em>cumulation (where you can also count the\u00a0intermediate\u00a0inputs from specified partners\u00a0as originating).\u00a0Diagonal is much better than bilateral.\u00a0While the UK is keen on diagonal cumulation,\u00a0it appears that the EU is unlikely to agree to this.<\/p>\n

3) Mutual Recognition<\/h3>\n

Leaving the EU means that in order to access the EU market UK goods will need to prove that they\u00a0are produced to the right standards to make them acceptable for sale in the EU.\u00a0This adds bureaucratic complexity and costs for UK firms.\u00a0Even if the UK unilaterally adopts EU standards in a sector,\u00a0procedures for proving that standards have been met are\u00a0necessary –\u00a0known as conformity assessment. This raises the question of which bodies are\u00a0accredited\u00a0to carry out these assessments\u00a0for UK exports to the EU. It is cheaper and easier if\u00a0there is agreement on\u00a0the\u00a0mutual recognition of conformity assessment\u00a0\u2013\u00a0i.e.\u00a0the EU accepting that UK certifiers can make these certifications. The UK\u2019s ask in this regard was ambitious\u00a0and hoped for mutual recognition in a wide range of sectors, but the EU is unlikely to agree to\u00a0these requests,\u00a0and at best,\u00a0there may be\u00a0a small number of\u00a0sectoral mutual recognition agreements\u00a0for certain manufacturing sectors.<\/p>\n

4) Fisheries<\/h3>\n

Economically,\u00a0for the UK this is not an important industry\u00a0as it accounts\u00a0for less than\u00a00.2% of\u00a0GDP.\u00a0 However, fishing has a symbolic significance\u00a0which is\u00a0tied up with the UK being a maritime nation. There is\u00a0concern for\u00a0the economic fate of\u00a0fishing communities, and\u00a0notably the issue of\u00a0sovereignty over British waters.\u00a0There is a strong case to be made that the current arrangements disadvantage the UK industry and that\u00a0there are better scientific methods (zonal attachment) for allocating fishing quotas. But agreeing to this will be very hard. If there is an agreement it is likely to\u00a0allow for a transition period and periodic reviews.<\/p>\n

5) Financial Services<\/h3>\n

While the preceding points all focused on goods trade,\u00a0services trade is also extremely important for the UK given that\u00a0as a whole\u00a0it\u00a0accounts for around 80% of GDP.\u00a0A key sector for the UK is\u00a0financial services\u00a0(approx. 7% of GDP). Under current arrangements,\u00a0financial services firms in the UK have passporting rights in the EU\u00a0which allow\u00a0them to sell their product in EU markets.\u00a0At the end of the transition period,\u00a0which ends on 31 December 2020,\u00a0this will no longer apply. The sector is hoping that the EU will grant\u00a0\u2018equivalence\u2019 status which would enable them to continue their current activities.\u00a0However, equivalence is not as good as passporting as it is normally granted on an annual basis and can be revoked\u00a0at 30 days\u2019\u00a0notice\u00a0and so provides firms with much less certainty.<\/p>\n

6) Mutual recognition of professional qualifications (MRPQ)<\/h3>\n

MRPQ\u00a0allows people with professional qualifications obtained in one country to have these qualifications recognised in another.\u00a0These rules are extremely important to allow professionals qualified in one country to work or provide a service in another country.\u00a0After the transition period and without a deal the EU framework for MRPQ will no longer apply to the UK, which may have a significant impact on the ability\u00a0of both manufacturing and services firms to offer their services in the EU market.\u00a0It may also affect the ability of UK firms to source professional services from the EU or EU residents.\u00a0Related to this too will be what agreements\u00a0are in place for the\u00a0temporary movement of workers (GATS mode 4), in order to allow people to travel to deliver a given service.\u00a0For the UK, it will be important to obtain\u00a0an\u00a0agreement on MRPQ\u00a0as well as on\u00a0the temporary movement of workers.<\/p>\n

7) Digital Trade<\/h3>\n

The rise of the digital economy raises a range of complex issues for trade relations and agreements between countries.\u00a0 Digital trade refers to\u00a0digitally-enabled\u00a0transactions of goods and services that can either be digitally or physical delivered\u00a0and involve consumers, firms and governments. Underpinning digital trade is the movement of data across borders which thus needs to be regulated. This raises the question of\u00a0how to manage data flows across borders which may facilitate the provision of goods and services while raising issues of competition,\u00a0privacy,\u00a0consumer protection and cybersecurity.<\/p>\n

8) State aid and level playing field provisions<\/h3>\n

These are\u00a0the contentious areas.\u00a0The\u00a0UK would like as much\u00a0freedom to set\u00a0its\u00a0own rules\u00a0while maximizing access to the EU market;\u00a0yet,\u00a0the\u00a0EU\u00a0wants\u00a0to ensure\u00a0<\/u>that\u00a0the UK does not get any competitive advantage in the future for example because of laxer environmental or social standards, or more generous state aid.\u00a0What\u00a0will matter here is the extent to which the UK spells out its proposed state aid regime, and\/or allows for dispute settlement clauses which\u00a0would\u00a0give\u00a0the EU some\u00a0effective\u00a0<\/u>redress if the UK is deemed to have given\u00a0UK firms a competitive advantage. On environmental and social provisions,\u00a0while both sides appear to agree on current standards, the issue is how to deal with future divergence:\u00a0will the\u00a0UK agree to match future EU standards; will it agree not to regress from current standards; or will it do neither, which some MPs believe is the only position compatible with \u2018sovereignty\u2019.<\/p>\n

9) Northern Ireland<\/h3>\n

The Northern Ireland protocol is designed to manage the issue of no border on the island of Ireland, in particular in the event of no-deal. However, even if there is a deal, the border issue would continue to pose challenges and the protocol provides the basis of those arrangements. The UK Government has performed a bit of volte-face and is no longer content with what it signed up for. The Internal Market Bill overrules the Protocol by (a) allowing UK ministers to implement rules on export declarations and procedures from Northern Ireland to Great Britain, which could override the obligations in the Withdrawal Agreement; and (b) by allowing the UK Government not to apply the state aid clause in the NI protocol. The aim of that clause was to ensure the trade between Northern Ireland and the EU is not distorted by subsidies. In addition, the Government intends to introduce a clause in the Taxation Bill to allow it, rather than the Protocol\u2019s Joint Committee, to determine whether a good travelling from Great Britain to Northern Ireland is at risk of moving into the Republic of Ireland and hence of having to pay the EU tariff on entry to Northern Ireland. It will be interesting to see if the EU insists and if the UK Government agrees to drop these contentious clauses in the event of an agreement.<\/p>\n

10) Governance\/Dispute settlement<\/h3>\n

In any FTA, the arrangements that govern the agreement especially in the event of non-compliance \u2013 how does one party seek redress if the other party \u2018transgresses\u2019 \u2013 are important. For the UK, it would be politically unacceptable for jurisdiction to be given to the European Court of Justice, so expect some form of formal arbitration process which kicks in if disputes cannot be resolved more amicably. The EU wants a unified governance structure which would enable more robust enforcement, including cross-sectoral retaliation, whilst the UK has advocated multiple governance structures which would prevent this from happening.<\/p>\n

There are of course other\u00a0areas to watch out\u00a0for, for example,\u00a0investment provisions (including dispute settlement)\u00a0or the inclusion of\u00a0Most-Favoured\u00a0Nation clauses\u00a0which we have not detailed here.<\/p>\n

Leaving the EU will have economic costs for the UK. This applies whether there is a deal or not. Clearly leaving without a deal will be significantly worse than with a deal \u2013 but\u00a0it\u2019s\u00a0hard to know by how much\u00a0until the deal is public.\u00a0Either way, there will be short term impacts in the\u00a0early months of next year such as possible lorry queues,\u00a0and strains as\u00a0firms adjust to changes in costs\u00a0arising\u00a0from changes in tariffs and regulatory barriers. In addition, a no-deal outcome is likely to be accompanied by a good deal of acrimony which will prevent pragmatic solutions to inevitable\u00a0issues\u00a0as the partners separate,\u00a0and probably sour relations for a lot longer.<\/p>\n

Whilst the UK Government has\u00a0seemingly\u00a0pursued Brexit at\u00a0almost\u00a0any cost, the deal between the UK and the EU, or if there isn\u2019t one, will be\u00a0moulded\u00a0by\u00a0the\u00a0politics\u00a0on both sides. But there is also an opportunity now to\u00a0get the principles\u00a0of governance and policy\u00a0right for the future, and minimise\u00a0the negative economic impact on the\u00a0UK.<\/p>\n

\n

Disclaimer:<\/em>
\nThe opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.
\n<\/em><\/p>\n

Republishing guidelines:<\/em>
\nThe UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Share this article: 20 November 2020 Michael Gasiorek is Professor of Economics at the University of Sussex and Director of the UKTPO. Discussions and evaluations on the future UK-EU relationship have been\u00a0on-going\u00a0since the referendum of June 2016, and we are close to another milestone\u00a0\u2013\u00a0by the end of the year,\u00a0we will either have\u00a0a free trade agreement\u00a0(FTA)\u00a0with the EU\u00a0or no-deal. Note this is a milestone and not the endgame.\u00a0Whether or not there is an agreement there will still be\u00a0considerable\u00a0practicalities to resolve, and no doubt some areas will be open to future negotiation. There is a lot of talk in the press about sticking points (fisheries,\u00a0state aid and\u00a0level playing field provisions, dispute settlement) but\u00a0how\u00a0good the deal is for the UK will depend on the scope and the depth of what is agreed, and whether some areas are only notionally covered and need to be sorted out in future negotiations.<\/p>\n","protected":false},"author":299,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[130195],"tags":[148007,123620,41419,147852,147862],"_links":{"self":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/posts\/5443"}],"collection":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/users\/299"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/comments?post=5443"}],"version-history":[{"count":11,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/posts\/5443\/revisions"}],"predecessor-version":[{"id":5454,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/posts\/5443\/revisions\/5454"}],"wp:attachment":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/media?parent=5443"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/categories?post=5443"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/tags?post=5443"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}