The government lays down the first steps on the UK's road to independent trade post Brexit, but reveals just how much work there is still to be done.
The Trade Bill was one of the nine central pieces of legislation designed to ‘deliver Brexit’ in the Queen's Speech. The Bill starts to set out some of the key parts of that strategy but it is clear that this is one piece of the jigsaw – with the Taxation (Cross-Border Trade) Bill being the next major component.
Free trade agreements – Transitional Adoption
The most intriguing aspect of the Bill is the measure it will grant the government to implement the process it is calling ‘Transitional Adoption’. In effect, the government is putting in place measures so that it can ‘adopt’ pre-exit day, EU negotiated free trade agreements (FTAs) as standalone UK FTAs post-exit day. In order to do this the Bill gives government the right to pass regulations in order to implement in UK law any FTA to which the EU is a signatory prior to ‘exit day’ (the day the UK leaves the EU – notionally March 2019). Such regulations can be made prior to exit day (once the Bill has passed into law) and at any time up to five years after exit day.
The planned ‘Transitional Adoption’ does however require the counterparties to the EU’s FTAs to agree. Despite references to ‘adoption’ of an existing EU FTA, in fact a separate UK FTA will have to be entered into with the counterparty and consequently the UK will require the other country's active agreement. The government acknowledges this in the explanatory notes to the Bill and acknowledges that such new agreements may need changes to make them applicable to the UK outside the EU (including in relation to quotas, regulatory approvals, mutual recognition of standards etc).
Practically speaking it is not clear whether many third party countries will be prepared to transition current EU FTAs. FTAs are notoriously hard fought and the EU, which wields large economic power, invariably negotiates a favourable deal for its members. A smaller country, such as the UK, does not have the same clout as the EU and counterparties to current EU FTAs may not be willing to agree an FTA with the UK on as favourable terms as it agreed with the EU. This may of course be as much an opportunity as a risk for the UK. Free from the concerns of other EU member states the UK may be able to negotiate FTA terms which are more favourable to it – especially where there is an alignment of export / import interests between the UK and the counterparty.
In any event, while on paper attempts to transition EU FTAs into UK FTAs might not be a straight-forward exercise, the government is making provision to do so where quick deals can be done. This is a laudable ambition but also a challenging one:
- Exit day is in March 2019. That gives the government 16 months (if one counts from now, rather than when the Bill is passed into law) to conclude the negotiations. For context, it took Canada and the EU seven years to negotiate CETA, which was concluded last year. The EU has FTAs with over 50 countries, so the task ahead for the UK looks substantial.
- Under EU law, while the UK remains a member (i.e. up to exit day) it is prohibited from entering into its own FTAs (and in principle negotiating its own FTAs), so the earliest it can sign up to an FTA is on exit day itself.
- The counterparts to the EU FTAs may not be willing to commence discussions with the UK now regarding a new FTA. This may be because they have other priorities (i.e. the UK is not ‘top of their list’) or because they want the UK EU exit negotiations to be concluded first (wary countries may not want to start talking to the UK if they fear it would draw the ire of its exiting trading partner, the EU or may want to know what the future trading relationship between the UK and EU is so they can assess the benefits of UK trade as a gateway).
It appears that the government has set itself a significant challenge.
Trade Remedies Authority
The Bill also makes provision for the creation of the Trade Remedies Authority (TRA). The explanatory notes to the Bill say that role the TRA will be to monitor, investigate and take decisions to counter injurious trade practices (such as dumping or subsidies) enacted by foreign entities importing into the UK. This role is currently performed for the UK by the European Commission but which will cease on exit day.
As it stands the Bill only delegates to the TRA an advisory function in relation to trade remedies and no detail is provided regarding the TRA’s powers to investigate trade practices and impose trade remedies. This will be set out in another Bill, potentially the soon to be released Taxation (Cross-Border Trade) Bill.
Closely allied to the establishment of the TRA is the grant of new powers to HMRC to obtain information from business in order to establish the number and identity of people exporting goods and services from the UK. HMRC will then be free to share that information with other public and private bodies for the purposes of facilitating public functions relating to trade. This is stated to be an essential mechanism in order to give the TRA the information it needs to perform its role.
Agreement on Government Procurement
The Bill makes provision for the UK to become an independent signatory to the Agreement on Government Procurement (GPA). The GPA is a plurilateral agreement made within the framework of the WTO, which mutually opens government procurement markets to businesses in any WTO member state (e.g. it allows a UK business to bid for goods / services contracts tendered by, say, the Japanese government).
This will not be a surprise to public procurement practitioners, who had largely anticipated that the UK government would sign up to the GPA and continue using the EU originated procurement law currently in force (which is GPA compliant).
The Trade Bill, like the European Union (Withdrawal) Bill, is very much focused on preserving the status quo and trying to achieve a smooth transition for the UK as it leaves the EU. What is still to be seen is what the UK will do next. How will the UK implement its own independent FTAs (as opposed to those it seeks to ‘adopt’ from the EU)? How powerful will the TRA be when it comes to policing cross-border trade? It appears that these questions will be answered (at least in part) by the Taxation (Cross-border trade) Bill. This will be focused on the UK’s customs framework and will include powers for agreeing preferential tariffs (i.e. implementing new FTAs) and more detail on the TRA’s powers.