No Deal: Trade Continuity

Thursday 21st February 2019 Written Statements

[The Secretary of State for International Trade and President of the Board of Trade (Dr Liam Fox)]

The Government are today publishing revised guidance to UK and international businesses that use preferential trade terms under existing agreements between the EU and third countries to advise them about a scenario in which the UK leaves the EU without a withdrawal agreement. While a number of our continuity agreements are likely to be concluded by exit day, it is the duty of the Government to produce a highly cautious list of those that both may and will not be in place in order that businesses and individuals ensure that they are prepared for every eventuality. A list of these agreements and related advice is available at: https://www.gov.uk/government/publications/existing-trade-agreements-if-the-uk-leaves-the-eu-without-a-deal.

If the UK leaves with a deal, under the withdrawal agreement the EU has agreed that it will notify treaty partners that the UK is to be treated as a member state for the purposes of its international agreements during the implementation period (IP), up until December 2020. This approach provides continuity and gives businesses and international partners the certainty and confidence they want and need.

Delivering a negotiated withdrawal agreement with the EU remains the Government’s top priority. Nevertheless, we continue to prepare for all eventualities, including no deal. Therefore, in recent months, the Government have refocused discussions with third countries to transition trade agreements to come into effect for day one after our EU exit, should the UK leave the EU without a withdrawal agreement. From the outset, we have been open and transparent with the EU about this programme of work.

Scope of the trade continuity programme

The Government are seeking continuity for existing EU trade agreements in which the UK participates as a member of the EU. These agreements constitute around 11% of our trade¹. These agreements also cover a wide variety of relationships, including:

free trade agreements (FTAs);

economic partnership agreements (EPAs) with developing nations;

association agreements, which cover broader economic and political co-operation;

mutual recognition agreements (MRAs) and;

trade agreements with countries that are closely aligned with the EU.

Businesses in the UK and partner countries are eligible for a range of preferential market access opportunities under the terms of these agreements. These can include, but are not limited to:

preferential duties for goods, including reductions in import tariff rates and quotas for reduced or nil rates of payable duties;

quotas for the import of goods with more relaxed rules of origin requirements;

enhanced market access for service providers;

protection from discrimination in public procurement opportunities across a range of sectors;

allowing parties to mutually recognise conformity assessment procedures;

the ability to complete mandatory inspections and tests on products close to the place of production; and

common standards on intellectual property.

The Government have been in extensive and constructive discussions with partner countries to transition these agreements to maintain their benefits and deliver as much continuity and stability as possible in our trade with these partners for businesses, consumers and investors as we leave the EU.

Progress update

To date, the Government have signed trade agreements with Switzerland, Chile, the Faroe Islands, members of the eastern and southern Africa (ESA) economic partnership agreement, Israel and the Palestinian Authority.

The Government are also close to formal agreement on text with Fiji and Papua New Guinea (Pacific) and arrangements are being made for their signature. It is likely these agreements will be transitioned in time for day one of exit.

We have also signed mutual recognition agreements that allow continuity of trade with Australia and New Zealand, and the United States. Total UK-US trade in sectors covered by the US MRA agreement is worth up to £12.8 billion, based on recent average trade flows. These important agreements boost trade as UK exporters can ensure goods are compliant with trading partners’ technical regulations before they depart the UK, saving businesses time, money and resources.

Discussions with other partners continue with the aim of replicating the effects of existing EU agreements as far as possible. We are continuing to engage with those other partner countries to conclude agreements in time for exit day. Particularly intensive discussions are, for instance, happening now with partners such as SACU+M, EEA, Canada and South Korea. Other discussions are ongoing.

Where agreements have been signed and there are significant changes to trade-related provisions of trade agreements, including to ensure operability in a UK context, they will be set out in reports to Parliament. As is already the case with the Chile, ESA and the Faroe Islands agreements, the reports will sit alongside the treaty text and explanatory memorandum, when these are laid in Parliament as part of the treaty ratification process, as set out in the Constitutional Reform and Governance Act 2010. These and other relevant documents will be also placed on gov.uk when signed. Implementing legislation, including on the preferential tariffs and related rules of origin in these agreements will also be laid before Parliament. Details of these agreements will be available on gov.uk.

If the full parliamentary scrutiny processes to ratify some UK-third country agreements have not concluded by the end of March, we are considering whether there are other means through which we can bring their provisions into effect to provide the same certainty and continuity to business and stakeholders from day one.

One such option is provisional application, where the UK and the third country agree to apply a treaty, in full or in part, “provisionally” for a period of time before the full domestic scrutiny processes have completed and the treaty enters into force. Where possible, this would bridge a potential gap in coverage of preferential trade terms. The UK has used provisional application on a number of occasions in its independent treaty relations. The use of provisional application is also common practice for the EU’s international agreements.

If the UK leaves the EU without a deal, some agreements will not be concluded in time and therefore will not be in place for exit day. There are a range of reasons for this. Those agreements that will not be in place for exit day are Andorra, Japan, Turkey, and San Marino.

Certain countries raise specific issues in the context of transitioning trade agreements. For example, Turkey is in a unique position, being in a partial customs union with the EU. This is not, therefore, a pre-existing free trade agreement relationship that can be technically transitioned to the UK. For this reason, should the UK leave the EU without a withdrawal agreement it will not be possible to transition these arrangements on day one of exit. However, Turkey is an important partner for the UK, and we want to strengthen our trading partnership once we leave the EU. The Government are committed to exploring all options for enabling continuity of trade and will progress these with Turkey as soon as possible. For the same reasons, we will not reach trade continuity arrangements with San Marino or Andorra by 29 March in the event of a no deal.

The EU-Japan economic partnership agreement only entered into force as of 1 February 2019. In a no-deal scenario, it will not be possible to have a bilateral agreement in place between the UK and Japan for 29 March. Therefore, UK-Japan trade will occur on a most-favoured nation basis under WTO terms, as it did up until 31 January 2019 The Prime Ministers of Japan and the UK have, however, already agreed to secure an ambitious bilateral agreement, building on the deal already agreed between Japan and the EU, and Japan is supportive of future UK membership of the comprehensive and progressive agreement for trans-Pacific partnership (CPTPP). We are continuing to work with Japan to realise these opportunities for a stronger trading relationship.

Additional provisions

The UK’s trade relationships are not just determined by trade agreements; we also participate in the EU’s generalised scheme of preferences (GSP), which allows developing countries, including least developed countries and low to lower-middle income countries to receive preferential access to the UK market. The Government fully intend to continue the existing market access provided by these unilateral preference schemes.

To do so we have taken the necessary powers through the Taxation (Cross-border Trade) Act 2018 to allow us to continue providing non-reciprocal reductions in tariffs to developing countries. Through this, the current beneficiaries of the EU’s GSP will be able to export to the UK after our EU exit on the same terms as at present. We will shortly be laying the necessary secondary legislation in Parliament.

This means that some countries will continue to be eligible for preferential tariff treatment under the UK’s newly established independent trade preferences scheme even if the relevant EU-partner country trade agreement has not yet been transitioned into a UK-partner country agreement.

Details of non-EU countries with whom we currently have in place arrangements for preferential trade, including both free trade agreements and unilateral preferences can be found at: https://www.gov.uk/government/publications/uk-trade-tariff-preferential-trade-arrangements-for-countries-outside-the-eu/uk-trade-tariff-preferential-trade-arrangements-for-countries-outside-the-eu.

¹ This 11% figure excludes Turkey (plus San Marino and Andorra) which is part of a customs union with the EU, and excludes Japan, as the economic partnership agreement only came into force on 1 February 2019 and therefore business have only very recently been trading under this agreement.

[HCWS1352]