I believe we can make a great success of Brexit. If we take full advantage of our new-found freedoms we can be the best place in the world to start a new business, trial a new product or develop emerging tech like AI.

But first we’ve got to actually leave. Our failure to deliver Brexit on March 29th was a democratic disaster. Now we need a credible plan to leave on October 31st. I have that plan.

To deliver on that commitment I’ve set out my detailed Brexit Delivery Plan.

It’s a plan that deals with the world as it is, starting with a realistic assessment of the facts.

The first thing is that, like it or not, this House of Commons has blocked a no-deal Brexit and threatens to do so again. Whether by changing procedural rules with the blessing of the Speaker, or by forcing a confidence vote and an early general election, MPs would either seize control of the parliamentary timetable as they did in March, or bring down the Government.

The oft-cited Institute for Government report which argues that No Deal is the ‘legal default’ comes with a huge caveat: it says right at the top that’s all true unless the Speaker of the House of Commons devises any constitutional innovations aimed at frustrating No Deal. That assumes away Speaker Bercow. But Speaker Bercow is a fact.

The honest truth is that No Deal is not a policy option available to the next Prime Minister. The only way to escape the bind is to get a new Parliament. But that would mean an election, which would risk Corbyn by Christmas, a second referendum and no Brexit at all.

It’s also clear that renegotiating the Political Declaration on the future is much easier than renegotiating the Withdrawal Agreement.

Changes to the Withdrawal Agreement must now be unanimously agreed by all 27 member states, not just Brussels. Any such agreement is highly unlikely to be forthcoming. And if it were, it would only be offered with unacceptable strings attached, like conditions on issues like Gibraltar and fisheries. A Brexit plan based on changes to the Political Declaration is more credible than a plan that rests on reopening the Withdrawal Agreement.

Given all this, my Brexit Delivery Plan will get us out by October 31st, without gambling Brexit on an early election.

I want to see a much more ambitious Comprehensive Free Trade Agreement, one that will need changes to the current Political Declaration. That way we restore our sovereignty, protect the economy and safeguard our Union.

The first part of my Plan is to seek a democratic mandate from the Conservative Party by setting out my plan in advance. I hope other candidates will do the same.

Second, I will unilaterally enshrine the rights of EU citizens in UK law. This is the right thing to do, and will create much-needed goodwill for the negotiations ahead.

Third, I will propose a Comprehensive Free Trade Agreement as the basis for our future relationship with the EU. That means leaving the Single Market and the Customs Union.

This free trade deal with the EU will include a major security co-operation element. It will also ensure UK regulatory autonomy on emerging technologies, helping us create the high-pay jobs of the future.

The fourth part of my Plan provides a long-term solution to the most vexed issue of the whole Brexit process: avoiding a hard border on the island of Ireland.

I will set up an Irish Border Council with a remit to agree, as soon as possible, a political, administrative and technological solution that avoids a hard border and allows for an independent UK trade policy.

This will be modelled on the George Mitchell talks which drove the Northern Irish peace process and will include cross-party representation from across Northern Irish society, as well as a role for the EU and the Irish government. Its aim will be to secure the consent of communities on both sides of the border.

To support the Council’s work, we will make it a national UK mission to develop an effective border system. And we will invite the world’s leading logistics and technology experts to come and help us solve this problem.

But this problem cannot be solved with technology alone. It will need political buy-in and the consent of those on both sides of the border. So we will invest an initial £1 billion in communities on both sides of the border, including a new PEACE programme and a new fund to support North-South trade.

The fifth and final part of my Brexit Delivery Plan is to include a time limit on the backstop.

This will focus minds and, crucially, will put an endpoint to the Irish border process. It will be delivered through an addendum to the Withdrawal Agreement. Conversations I have had with EU contacts give me cautious grounds for optimism about the prospects for this.

That’s my Brexit Delivery Plan: a Comprehensive Free Trade and Security Agreement that respects our sovereignty; an Irish Border Council to find a solution that all sides can live with; and a time limit to the backstop.

Once we’ve left the EU by October 31st, I am determined to make such a success of Brexit that we vindicate the choice of those who voted to Leave and we surprise those who voted to Remain.

We can start to reunite our country with an open and optimistic, patriotic unionism. We can focus on the properly-funded, world-class high-tech public services that people want to see. And we can make the new dividing line in British politics higher pay with the Tories or higher taxes with Corbyn’s Labour.

So let’s get Brexit done, let’s make it a success and let’s move our country forward.

The post The Speaker would stop No Deal, so here’s my plan to ensure we’re out of the EU by October 31st appeared first on BrexitCentral.

As President Trump visits the UK, it is worth thinking about the potential for a UK-US free trade deal of the sort that President Trump has promised, and how that might work in practice.

On February 28th, the Office of the United States Trade Representative (USTR) announced its negotiating objectives for a free trade agreement (FTA) between the US and the UK. It announced objectives for negotiations with the EU and Japan at the same time. While the objectives are similar for all the countries with which the US is seeking to negotiate FTAs, they were received in the UK with predictable howls of anguish from those who fear being railroaded by superior American negotiating strength and forced to consume supposedly dangerous, unhealthy American food. Here, we will consider whether the objectives could yield a genuinely liberalising FTA, and whether they accord with what the UK government is likely to seek in negotiations. We will also compare the potential UK response with the potential responses from the US’s other trading partners.

The US Context

Under the US’s Trade Promotion Authority legislation, the USTR must produce negotiating objectives prior to negotiating trade agreements. The objectives for the proposed FTA with the UK mirror the equivalents published recently for FTAs with the EU and Japan, and essentially build on existing agreements which the US has negotiated to date. They look to address the key trade barriers where the US is most concerned, responding to consultations with industry and interest groups. The negotiating mandate is consistent with a comprehensive UK-EU FTA. It is not consistent with the UK being in the (or a) Customs Union, or regulatory harmonisation with the EU (whether achieved through membership of the European Economic Area or a bespoke agreement, or by operation of the backstop set out in the Protocol to the Withdrawal Agreement).

The US wishes the UK to honour its WTO commitments particularly in the SPS area.  It should be noted that these objectives are what it seeks from all of its partners, not just the UK. Many of the objectives merely restate commitments already made in international agreements such as a commitment to regulate in the SPS area on the basis of sound science. These would not, in the normal course be seen as an aggressive move, but they do highlight the fact that the EU is in violation of WTO rules in a number of these areas, and does not give them in its FTAs. The US government appears to be proceeding on the basis that the UK will be prepared to be more open than the EU in a variety of areas, making a UK-US FTA both more likely and quicker to deliver than an EU-US agreement.

The UK Context

The UK government has also carried out a public consultation on the basis that “the UK will have the opportunity to negotiate, sign, and ratify Free Trade Agreements (FTAs) during the implementation period (provided for under the draft Withdrawal Agreement) and to bring them into force from January 2021”. Responses have not yet been published. The consultation document, issued in July 2018, stated that the UK would be pursuing an “ambitious bilateral trade agenda, taking full advantage of the flexibility provided by our proposal for a future economic partnership (as set out in the White Paper on The future relationship between the UK and the EU on 12th July 2018)”.

This refers to the so-called ‘Chequers plan’, under which, as previously noted, many of the trade objectives of a UK/US FTA would not be achievable. The future relationship described in the Political Declaration (which the parties are obliged to use their best endeavours to negotiate) is based on a single customs territory with no rules of origin, and consideration of regulatory alignment, so even if the UK is able to avoid or exit the customs union arrangement provided for in the Irish backstop, the prospect of the UK’s future relationship with the EU allowing either the UK or the US to meet its objectives seems remote. The outline terms in the Political Declaration would be difficult to reconcile with a US-UK FTA meeting these objectives; a more usual FTA between the UK and EU would be.

US negotiating objectives must be looked at in the context of the evolution of US trade objectives over the last several years. These objectives have been developed to secure a bipartisan consensus in the US, and to achieve maximum market access gains abroad.

Goods

Tariffs

As an opening principle, the objective is to “ensure fair balanced, and reciprocal trade with the UK”. The US will be seeking “comprehensive duty free market access for US industrial goods” this is certainly positive and liberalising but there are a couple of protectionist hangovers, in respect of textile and apparel products where “US import sensitivities” are to be taken into account, and for agricultural goods where there is a suggestion that tariffs will not be eliminated entirely and will be subject to adjustment periods in close consultation with Congress.

If the UK is ultimately in a customs union with the EU (whether as a result of the backstop coming into effect or the conclusion of the future relationship currently envisaged in the Political Declaration), then it will not be possible to fulfil this negotiating objective. On the other hand, if the UK and EU agree an FTA, then this would be consistent with the US objectives. If the Withdrawal Agreement is ratified on its current terms, then the UK could have simultaneous negotiations with the EU and the US, in which case the terms pursued in each will influence what is possible in the other. The negotiation that is moving more rapidly will drive the process. If the US is prepared to exert political will as is evidenced by the many statements of the US President and the US Ambassador in London, then it is possible the US track will move much faster than is generally thought. It may even be possible to achieve an interim agreement with the US on basic matters like tariffs and quantitative restrictions more expeditiously.

The EU has indicated that it does not intend to include agriculture in its FTA negotiations with the US, and therefore will find it difficult to match the pace of a UK-US FTA if the UK is willing to have different regulatory settings than the EU.

Sanitary and Phytosanitary Rules

The US will seek to build upon the existing WTO commitments of both parties, working towards rules and mechanisms to eliminate unjustified restrictions and barriers on trade in food and animal products. This has been a source of friction between the US and the EU and will be an important test of the UK’s commitment to, and capacity for, real progress towards free trade. The EU has a history of violating WTO commitments on sanitary and phytosanitary (“SPS”) rules, in particular with respect to goods of interest to the US and does not make significant commitments beyond the WTO SPS Agreement in the SPS area in its FTAs. Critically, under the US objective it is expressly stated that each side “can set for itself the level of protection it believes to be appropriate to protect food safety and plant and animal health in a manner consistent with its international obligations”. This is vital for sovereignty and innovation and makes clear that it will not be a case of adopting US standards, rather of removing or amending regulations that are discriminatory in their effect and not based on sound science to achieve their policy goal.

The US wishes the UK to commit not to “foreclose export opportunities to the US with respect to third country export markets, including by requiring third countries to align with non-science based restrictions and requirements or to adopt SPS measures that are not based on ascertainable risk”. This is unusual, but given the challenges the US faces as the EU actively seeks to export its regulatory approach, it is understandable. There is a global battle between the EU’s approach to regulation, which is prescriptive and precautionary, and more liberal approaches based on evaluations of equivalence and adequacy, as envisaged by the WTO SPS Agreement.

A significant concern of the US and other trading partners of the EU and of China is the tendency of both to use the size of their markets to project their regulatory approaches, and base their market access offers on trading partners having identical regulation. This is an outlier position to that of most countries in the global trading system, which is to try to recognise as much as possible of other countries’ regulations provided the regulatory aims are aligned, and the regulation objectively achieves these goals. The US will be anxious to ensure that its trading partners adopt this vision of regulatory coherence and not that of the EU and China.

It is in the SPS area that the EU would find the greatest difficulty in meeting US negotiating objectives. It would require a course reversal on the EU’s overall direction on SPS regulation. If anything, the EU’s SPS regulation is becoming more restrictive not less.

Technical Barriers to Trade

The US’s objectives for non-agricultural goods are similar to the objectives for SPS rules. The US wishes the UK to address trade barriers in its technical regulation by adhering to WTO TBT Committee decisions and recommendations, and pursing mutual recognition of conformity assessment, amongst other things. This section includes an equivalent objective in respect of third country agreements that might prejudice US trade to that in the SPS section. Depending on the negotiations of the future relationship with the EU, the UK is more likely to share this objective than the EU. TBT/SPS and other regulatory issues have plagued the EU-US relationship from the early days of the Transatlantic Business Dialogue in the 1990s to the more recent attempt to negotiate an EU-US deal (the Transatlantic Trade and Investment Partnership, “TTIP”). TTIP foundered primarily on the fundamentally different approaches to regulation, and standard setting between the EU and US. If the UK merely replicates the EU approach, it is likely the UK-US FTA would founder for the same reasons.

Services

There should be much for the UK to agree with in the objectives that the US has set out for services trade and investment.

The US objectives for trade in services, including telecommunications and financial services, are generally very liberalising on market access and non-discrimination, with reservations from the core commitments to be by way of “negative list”, which means that all sectors will be covered unless specifically excluded. This would lead to greater openness than the “positive list” approach under the General Agreement on Trade in Services. The US has long advocated a negative list approach. Even the NAFTA agreement, now almost a quarter of a century old, has this approach to services.

The US objectives also accept the possibility of exceptions from the core disciplines for the UK, to be kept as narrow as possible. This will be of vital importance to UK negotiators who will be required to secure reservations to protect public services, including the NHS. As noted by Liam Fox, “the UK’s public services are protected by specific exceptions and reservations in all EU trade agreements, and as we leave the EU, the UK will continue to ensure that rigorous protections are included in all trade agreements to which it is party.”

The EU has now partially adopted the negative list approach to services but is likely to require many more reservations than the UK, as the UK has traditionally been one of the most open member states on services.

Horizontal Matters

Investment

The US primary objective in investment negotiations is to ensure the best possible protection for US investments. In international agreements, this has come to mean agreeing not to engage in expropriations, actions tantamount to expropriation and even to cover some areas where government action takes away an investor’s legitimate expectations. Investment is an area where the US seeks maximum protection for its investors. Since both countries are the largest investors in each other’s markets, both will likely seek this protection they should come to an agreement on this measure of protection.

The US objectives are silent on the issue of investor state dispute settlement (ISDS) which allows private parties to bring claims against state parties for violations of investment provisions. The UK has not made its position on ISDS clear. In his letter to the International Trade Committee, Liam Fox was at least open to the inclusion of ISDS, but given the political sensitivity of ISDS in the UK as well as in the US, it seems unlikely that the UK would insist up on it as an objective. Investor-State dispute resolution has been a part of the regulation of investment for decades under Bilateral Investment Treaties (BITs). While publics in the EU have resisted them, it should be pointed out that they do provide an avenue for smaller firms to hold governments to account when they expropriate their property or take actions tantamount to expropriation. Large firms can simply rely on their governments lobbying on their behalf. The mere possibility of being sued under ISDS does have an effect on a government’s domestic policy choices.

The US has handled this issue in the USMCA by eliminating ISDS with Canada but limiting it in Mexico to certain sectors (oil & gas, power generation, transport services and management of infrastructure). Given that flexibility compared to previous BITs and FTA investment chapters, we do not expect the ISDS issue to be a significant problem with the UK. 

Data Flow

The US will be seeking “state of the art rules to ensure that the UK does not impose measures that restrict cross-border data flows and does not require the installation of local computing facilities”. This will be one of the most difficult areas for the UK to agree. Even if the UK leaves the EU without a Withdrawal Agreement or otherwise negotiates a future relationship restoring regulatory autonomy in this area, the attachment to the EU approach to data protection and privacy is strong amongst regulators and larger businesses. This lays down barriers to international transfers of personal data (so vital to financial services, which are specifically mentioned by the US in this context) and the uses of personal data.

The UK has already enacted the EU’s General Data Protection Regulation and as a matter of domestic policy there is no intention to reform or amend it. In a letter to the International Trade Committee, Liam Fox noted that the UK will wish to promote “robust data protection standards and the flow of data internationally” but wishes to “discuss with the US how best to ensure that the current protections afforded to UK citizens can be maintained post exit”, referring to continuing the EU’s Privacy Shield arrangement for data transfers between the UK and the US, which has now been confirmed.  

There is deep concern among US firms about the EU’s approach to data protection. The US has long set great store on data flow – it is currently one of its most important trade objectives. If there is to be a global solution to the data issue, it can only come from a global set of disciplines based on adequacy as the US will never accept the EU approach. This will be one of the more difficult areas of the tripartite negotiation between the UK, US, and EU, all elements of which will be moving broadly simultaneously. The UK must be able to move away from the strict territorial requirements of the EU’s data protection regime, but build on and extend the EU’s Privacy Shield arrangement with the US. It should also work to eliminate barriers to the flow of non-personal data. These efforts would deliver huge benefits in services trade and e-commerce.

The discussion of data flow does not take place in a vacuum. The UK also seeks to be part of the new WTO working group on e-commerce, and if it is to play any serious part in this group, it will have to diverge from EU data protection rules and instead seek an adequacy type arrangement both for itself and on a global basis.

Intellectual Property

The US seeks strong protections for intellectual property rights in its agreements with all its trading partners, and it is duly included here as an objective. While it can be expected that the UK may have broadly similar objectives, given the UK’s interests in pharmaceuticals and technology sectors. The economic literature supports the notion that intellectual property protection is a critical part of economic development. It is a part of the panoply of property rights protection, and the UK and US’s economic interests are relatively aligned on these issues. At the same time, it is important that intellectual property rights are not drawn so broadly as to curtail innovation and the activities of new entrants.

The US objective of preventing “the improper use of the UK’s system for protecting or recognising geographical indications (GIs), including any failure to ensure transparency and procedural fairness, or adequately protect generic terms for common use” will likely come into conflict with the UK’s commitment to protect EU GIs in the draft Withdrawal Agreement and intention in the Political Declaration to continue with “appropriate protection” for GIs. This will be a difficult negotiation as it is a crucial part of the US’s negotiating objectives. US agricultural interests see the vast number of EU GIs as a protectionist tool, and an incorrect application of intellectual property protection. The number of UK specific GIs is relatively small, and some are protected by international agreements to which both the US and UK are parties (such as Scotch Whisky, for example) so if it were possible to renegotiate the UK’s commitment on GIs in the Withdrawal Agreement, UK businesses would not be materially prejudiced.

The EU position on GIs is inconsistent with US negotiating objectives. This will make an EU-US FTA very difficult to negotiate.     

Good Regulatory Practice

The objective here is to facilitate market access and promote greater compatibility between US and UK regulations. This has been a persistent problem that has thus far proved to be unsolvable in trade talks between the US and the EU. What constitutes good regulatory practice is left at a high level and includes, for example, transparency, promoting the use of impact assessments and similar methods, and providing opportunities to comment on the development of regulations that includes both trade and competitive effects, and due process. The UK already operates practices that would meet many of these requirements, and provisions covering these matters are common in FTAs, including the EU’s. This objective is a sound one, and one where the parties would be well placed to make significant progress in achieving greater regulatory compatibility, but only if the UK is not bound to EU regulations, which would mean it would not be able to make commitments in respect of regulation that it has no real role in promulgating.

Liam Fox noted in his letter to the International Trade Committee of the UK Parliament of July 2018 that “it is critical… that UK-US FTA is a living agreement. We support the inclusion of a structured arrangement for future dialogue between UK and US regulators, while recognising that such a dialogue should not have a chilling effect on future public interest regulation.” This indicates that in principle the UK and US will be aligned on this objective, although Fox’s letter also cautioned that the independence of regulators in the UK and its partner countries would need to be taken into consideration in the context of regulatory mechanisms in an FTA with the US. This should be welcomed, but, given the commitment the UK has made in the non-binding Political Declaration to consider aligning on regulations and to maintain alignment in Northern Ireland, if Northern Ireland effectively stays in the EU single market for goods, the UK’s ability to negotiate around this objective would be constrained.

Competition Policy

The negotiating objectives set out basic requirements in competition policy, in particular some current high profile issues for the US. US authorities have become concerned with the application of antitrust law by the European Commission. The US believes that the EU is interpreting competition law in increasingly restrictive ways and applying it expansively outside of its territory, most notably in the tech sector. The US has previously complained about the Commission’s approach to transparency and due process, and so the negotiating mandate’s reference to these issues is also unsurprising. If the UK is committed to maintaining EU competition policy (as it would be under the current iteration of the backstop in the Withdrawal Agreement and Political Declaration) it would be unable to commit to anything in this area that would entail diverging from the EU. However, the UK could seek to negotiate a competition chapter in the UK-US FTA if it also negotiated similar provisions in an EU-UK FTA.

State-Owned Enterprises and Market Distortions/Currency Manipulation

These objectives do not particularly relate to specific UK challenges, but represent what the US will be seeking in any trade agreement given its current priorities and the situation in the global trading system.  The US has been pre-occupied by the impact of China’s state-owned enterprises (SOEs) and market distortions on the US market, particularly in manufacturing. It would like to see strong disciplines in this area in all modern FTAs to put more pressure on China. The US anticipates that the UK would be a strong ally in the fight against market distortions caused by governments and SOEs. As this plays into concerns often raised in the UK, we can be hopeful that this will be the case.

Rules of Origin

The negotiating objectives here are unsurprising given recent pronouncements of the Trump administration. They include ensuring that the benefits of the FTA “go to products genuinely made in the United States and the UK” and that “the rules of origin incentivise production in the territory of the Parties, specifically in the United States”. This is disappointing in that it would likely result in the rules of origin becoming trade barriers. The FTA would then be trade destructive rather than trade creative, cancelling out or annulling the benefits of tariff elimination. Such an approach to rules of origin would present the UK with challenges as it negotiates an FTA with the EU at the same time. The UK will seek very liberal of rules of origin so that it can ensure that products from the UK-EU27 supply chain can qualify for preferences under its FTAs. This is likely to be one of the tougher areas of negotiation.

Government Procurement

A core objective of the UK will be minimal restrictions on competition for government procurement, including the US agreeing to waive its Buy America regulations for the UK. Buy America, and numerous other domestic preferential purchasing programmes allow sub-federal authorities (i.e. state and local government) to preference US suppliers and not open their procurement processes to foreign competition. While the US seek to open up government procurement opportunities in the UK, its objective is not to allow these disciplines to cover its own sub-federal entities. Most government procurement is at the sub-federal level in the US, and the UK would be seeking access for its suppliers to compete in that market, as confirmed by Liam Fox in his letter to the International Trade Committee.

In government procurement, the federal government for constitutional reasons cannot compel states to open their government procurement to foreign entities. In the Uruguay Round USTR was able to persuade some two dozen states and some large municipalities to unilaterally make procurement commitments in the WTO, but the willingness of states to do that now is less. The UK will have to convince the states and their municipalities to be more open on government procurement. A critical element of this will be how much market access the UK will be able to give for key exports of products from those states, and much of that will be in the agricultural area.

The UK also has major interests in defence procurement, and would likely seek to ensure its defence industry is not disadvantaged by US rules. There are Buy America provisions in defence procurement, as well as other restrictive rules such as the International Traffic in Arms Regulations (“ITAR”). The UK should seek to be part of the common defence area with the US to which ITAR exemptions can apply (as have Canada and Australia). The US objectives state that it wishes to maintain exemptions for key Department of Defense procurements and broad exceptions for government procurement for national security, so there may be some room for negotiation in this sector.

Environment, Labour and Anti-corruption

The objectives in these areas are not especially controversial given the approach trade agreements have adopted in recent years. Both the UK and US maintain high standards in both these areas, and negotiation of this chapter should not present major difficulties. Both sides will likely need to include protections in these areas to reassure domestic interest groups and legislatures that the FTA does not start a ‘race to the bottom’.

Conclusions

There is nothing especially surprising in the US’s negotiating objectives. Even in the areas which have attracted the most media coverage, the objectives are as expected and do not materially go beyond what the UK can expect from other trading partners, such as the CPTPP countries. The US does not have adoption of its systems and regulations as an objective, but would require the UK to comply with WTO rules and regulate in ways that are consistent with sound science. This will raise issues in the negotiations between the UK and the EU, as the more goods that the UK allows into its territory that are not compliant with EU rules, the more border checks will be required to ensure that only compliant products are exported from the UK to the EU. This is a particular problem for the border between Northern Ireland and the Republic of Ireland where the parties have agreed that they will not operate physical infrastructure or related checks and controls. This makes the work of the alternative arrangements joint group as agreed between the UK and EU even more important.

There is no question that managing a UK-US and UK-EU negotiation at the same time will be a challenging task, not least because of the legal default underpinning the UK-EU negotiations comprising a customs union under the backstop. Many of the EU and US’s trading partners have found ways of agreeing with both but not from within a customs union or the single market. What the UK has forgotten after more than forty years of its trade policy being subsumed within the Common Commercial Policy is that trade policy is a dynamic process with an ever-changing battlefield. Ultimately it is at the intersection of politics, economics and law – and politics usually wins.

The post What do the American negotiating objectives mean for a future US-UK trade deal? appeared first on BrexitCentral.

We ask about any bad event – cock-up or conspiracy? With the Government’s Brexit negotiations, you get both. Theresa May’s Withdrawal Agreement is no such thing; it is a Remainer Agreement, a legally-binding international treaty that can only be changed by the unanimous consent of the 27 EU member states.

This proposed international treaty breaches the referendum result in spirit and fact; it breaches the clear manifesto pledge of the Conservative Party during the 2017 election; it potentially results in Northern Ireland permanently remaining in the Single Market – creating a border between it and the rest of the UK; and it hands over a minimum of £39 billion of UK wealth for an Agreement worse than the status quo.

The EU/May Political Declaration commits us to ‘an ambitious, broad, deep and flexible partnership across trade and economic cooperation, law enforcement and criminal justice, foreign policy, security and defence and wider areas of cooperation’, which would be membership in all but name.

It obliges us to ‘create a free trade area’, a ‘single customs territory’, ‘provisions to enable free movement of capital’, ‘a liberalisation in trade in services well beyond the Parties’ World Trade Organisation commitments and building on recent Union Free Trade Agreement’, and ‘a level playing field for open and fair competition’.

The Declaration proposes an ‘overarching institutional framework’ which ‘could take the form of an Association Agreement’. Association means Associate membership, which effectively means staying in the EU.

Paragraph 89 of the Declaration obliges the police to arrest people deemed to have committed ‘political offences’ – s kind of crime not known in our law. Remember, the EU’s Attorney-General has said that “Criticism of the EU is akin to blasphemy.”

Oddly, the Declaration proposes ‘developing alternative arrangements for ensuring the absence of a hard border on the island of Ireland’, so they accept that we can avoid a hard border in Ireland with no need whatsoever for a backstop or a customs union.

The Agreement gives the EU a veto on UK withdrawal. If the current Withdrawal Agreement is passed into law, the UK cannot unilaterally withdraw from the Agreement. The EU can keep us in forever by refusing to revise the Agreement. It is a sham negotiation by both sides: the EU has got exactly the Agreement it wants. Why would they it change now?

It makes us a rule-taker in almost all areas of EU competence. Should it be agreed, Parliament would effectively be forced to accept, apply and obey whatever regulations the EU proposed and be bound by all rulings by the European Court of Justice. Contrary to the Prime Minister’s Lancaster House speech and manifesto pledge, the European Court of Justice retains de facto primacy over the UK, remaining the final arbiter of the Agreement and of the EU laws that affect us. Thus, the Agreement is remaining in the EU in all but name, but no longer having a say, thus breaking the spirit of the referendum result and the election manifesto promises.

The Agreement requires us to keep in regulatory alignment with the EU on matters such as agriculture subsidies and tax policy. This would effectively give the EU control over the UK’s economic policy. The UK would not be able to lower taxes and increase subsidies where necessary to vital parts of our economy.

We would be listed as a ‘participating state’ within the EU’s Civil Protection Mechanism, paving the way for us to having to contribute money to any Eurozone bailout. (The EU Civil Protection Mechanism was how we were forced into giving the Eurozone money after the 2008 economic crash.)

The Agreement stipulates the ECJ and the European Commission would be able to set the legal levels of our financial contributions to fund EU bodies which the Agreement commits us to be part of. In effect we would be handing the EU a blank cheque

It aims to retain some preferential treatment towards EU citizens from the other 27 Member States – specifically in areas of education and work. Why should EU citizens get preferred over those from the rest of the world?

The Agreement commits us to contribute towards funding and supplying our troops for any future EU military operations and commits us to sharing sensitive intelligence data with the EU after Brexit.

It commits us to sharing the sensitive data of our citizens with European databases.

We would hand over a minimum of £39 billion (and possibly as much as £60 billion) of taxpayers’ money to the EU without agreeing any future deal on trade, other than being tied to the current acquis communautaire in its near entirely. This is like paying for a house before you have seen the title deeds.

The Agreement includes future negotiations on the Common Fisheries Policy (at the last minute and against all promises to the contrary) in the transition period the May government has guaranteed that access to UK fishing grounds will become a bargaining chip to be traded away, as President Macron confirmed immediately after the Withdrawal Agreement was signed.

By treating Northern Ireland differently to the rest of the UK, the Agreement raises the question of introducing a different deal for Scotland.

Article 18 of the Protocol says, “If the application of this Protocol leads to serious economic, societal or environmental difficulties liable to persist, or to diversion of trade, the Union or the United Kingdom may unilaterally take appropriate measures.” So, in the event of any disturbance, of any kind, the EU has the right to act unilaterally in any way it sees fit.

Annexes 2 and 3 set out the core rules governing the single customs territory. The UK commits to align with the EU’s Common External Tariff, and with the Common Commercial Policy on trade in goods with third countries to the extent necessary give effect to these provisions. The text provides for the UK to remain within the EU’s trade defence regime for the duration of this Single Customs Territory regime.

The post A reminder of why Theresa May’s deal is so unacceptable appeared first on BrexitCentral.

The Attorney General, Geoffrey Cox, has been tasked with coming up with a legal solution to the ‘backstop’ that the Government hope will persuade or bamboozle the DUP and Conservative backbench MPs into backing the Prime Minister’s EU deal largely as it is. We do not know what he will come up with, but there is a range of options from a legally impotent ‘codicil’ to a full replacement of the backstop with alternative arrangements as mandated by the Commons’ vote on Sir Graham Brady’s amendment.

If the Attorney General concludes a legal agreement the Government may bring back a new ‘meaningful vote’ to approve the deal next Wednesday. To understand the importance of this we need to go through his options. But before starting, lets recap as to what the ‘backstop’ is and why it is a problem.

The problem with the backstop

The ‘backstop’ is the ‘Protocol on Ireland/Northern Ireland’ attached to the Withdrawal Agreement. The Withdrawal Agreement, if approved, would become an international treaty and the Protocol would have the same legal force as the main text.

The backstop would commit the UK to placing Northern Ireland in a Customs Union with the EU. Among other things, it commits the UK to keeping EU regulations in Northern Ireland, to EU policing of ‘state aid’ to prevent the UK Government using public money to Northern Ireland’s advantage and to following the EU VAT regime in the province.

These provisions are controversial on many levels. Firstly, imposing EU law on Northern Ireland over which they have no say is undemocratic. Secondly, as these provisions do not apply to the rest of the UK, it opens up the probability of an internal UK border. Goods going from mainland Great Britain to Northern Ireland will cross a regulatory and customs border. GB goods would require an archaic ‘A.UK movement certificate’, a paper form requiring a physical wet stamp (Article 4 of Annex 3 to the Protocol) which would in all probability not work. Creating an internal border with Northern Ireland on the other side has obvious economic (60% of NI’s exports/imports are with GB) and political problems for Unionists and is potentially in contravention of the principle of consent agreed in the Belfast Agreement. 

No exit clause 

So far so dreadful. The Protocol would divide the UK, lock Northern Ireland in a Customs Union following EU law under the European Court of Justice and subject UK trade with the EU to an archaic paper based system that is already obsolete.

If that is not bad enough, the real killer problem is that there is no way out. If the UK ended up in the backstop there is no exit unless the EU wished to let us leave.

The only route out of the backstop is contained in Article 20 of the backstop – the ‘review clause’. This states that if the UK notifies the Joint EU/UK committee of a desire to leave the “union and the United Kingdom decide jointly” on the outcome – i.e. the EU can say no. To make matters worse, the EU could only decide to let the UK out if the conditions in Article 1 (3) of the backstop are fulfilled: These are “the necessary conditions for continued North-South cooperation, avoid a hard border and protect the 1998 Agreement in all its dimensions.” These are all disputed and vague terms that are designed never to be met.

If the review clause is designed to keep the UK cemented in the backstop, it fulfils another vital task. It prevents the UK using the Vienna Convention on the Law of Treaties to denounce the backstop and escape. If there were no review clause, the UK could use Article 56 of the convention to give notice and walk away. The presence of the clause closes off that option.

Why did the Prime Minister agree the Backstop?

It is clear to me that no MP could in any good conscious agree a treaty that divides the UK permanently with no exit. So why did the Prime Minister and her advisers agree to it?

To the Downing Street Europe Unit, that dreamt up this horror, it is actually rather clever and fulfils many of their main objectives.

The central objective and current planning assumption in Downing Street remains the adoption of the Chequers Customs Partnership. This Chequers plan is based on technology and practices that do not exist that would create a virtual Customs Union between the UK and EU with associated regulatory alignment. This involves a complex system for tracking goods around the UK to ensure they do not enter the EU.

This plan is currently unworkable and will probably never be workable. It is also highly undesirable as it would lock the UK into EU rule-taking and prevent the UK having its own trade policy. But that is of little concern in Downing Street.

For Downing Street whether Chequers works or not is of little concern: the immediate aim is to remain in a Customs Union with EU rule-taking. The backstop was vital to get them there. With the backstop, Downing Street has a method of permanently cementing the UK into a Customs Union for Northern Ireland which they could then build on during the implementation period to get to Chequers/CU for the entire UK. For them, the permanence of the backstop is its primary quality and purpose. The UK at the end of the implementation period must stay in an all-UK Customs Union so the future framework will by necessity be a Customs Union.

Very clever, notwithstanding the fact that a Customs Union was ruled out in the Conservative Manifesto, would leave the EU in charge of our trade policy and our legislation without any UK say. No doubt it may even have crossed some of their minds that this would be a good platform to re-join the EU in a few years – in order to give us back our say etc. We now know this was all cooked up behind the backs of the FCO and DExEU.

So what might the Attorney General have asked for?

If the Attorney General believes he has been tasked with finding an exit to the backstop, he has an immediate problem. If he replaces or gains an exit from the backstop, he will unravel the entire strategy Downing Street has been working on for the last two years. If he does not, MPs are unlikely to be impressed and vote down the deal again. So here are his options: 

1. Treaty Change

The text of the draft treaty could be opened up and replaced with something in line with the Conservative manifesto. Depending on what is changed, changing the treaty text is the only 100% legally fail-proof way of altering the meaning of the agreement. Options might include:

  • Change Article 20 of the backstop – the review clause – and the linked objectives in Article 1 (3). If this article were changed to make the decision to leave one that either party could take, that would allow a guaranteed UK exit.
  • Add a sunset clause. A new termination date could be added in the treaty text. For this it would be important the date was not too far in the future so as to be effectively permanent. In truth, there is no reason for it to be any later than the end of the implementation period, but that would be to misunderstand its real purpose.

Verdict: Potentially Potent—————————————————

2. A new Protocol

If the parties were keen to preserve their backstop unamended, they could agree a new Protocol. Protocols in EU treaties have the same legal force as the main text and derive their legal potency from it. Unfortunately, the existing text of the backstop is so clear in its objectives that there would seem to be little a new Protocol could say that would not cut straight across it – i.e. create an exit – or be irrelevant. If they do conflict and one declares it is superior, will the European Court of Justice find in the UK’s favour?

One weak idea might be to add a Protocol that puts a greater obligation on the EU to deliver a trade agreement that would replace the backstop. This is hardly an ideal solution. A legal commitment to deliver Chequers would arguably make the deal worse and effectively just replace one backstop with another backstop. 

Verdict: Unlikely to be Potent———————————-

3. An ‘interpretive instrument’

Under international law, parties to a treaty that is imprecise can agree an additional ‘interpretive instrument’ that would set out in more detail how they intend it to operate. These are accepted under Article 31 of the Vienna Convention. The important point to note here is that the draft Withdrawal Agreement is actually very clear. It has a commencement clause (Article 185) and a review mechanism (Article 20 of the backstop) that gives the EU a veto. It would be impossible to interpret these clauses away.

If an interpretive instrument could not interpret an exit where one does not exist, it could potentially strengthen the “best endeavours” clause in Article 184 on achieving a new trade deal (based on the Political Declaration) to replace the backstop. This, however, would only make matters worse. As long as the backstop is there, any future trade agreement will be a Customs Union. Creating a further UK commitment to deliver a deal based on the Political Declaration and the parameters of the backstop would further tie the hands of any future Prime Minister seeking to negotiate a genuine trade agreement.

Verdict: Minimal legal value as it cannot overrule the treaty text

4. Amend the Political Declaration

The Withdrawal Agreement comes with a Political Declaration that is of itself not legally binding. The EU itself has said that it would be open to changing the Political Declaration – a tell-tale sign that this is a reasonably futile gesture. [The current one referenced in Article 184 is dated DD/MM/2018]

The Political Declaration sets out the broad parameters of a future trade agreement. While the wording is vague, it is clear that the current Withdrawal Agreement + the Political Declaration means a Customs Union. Indeed it is not well disguised. Paragraph 23 of the declaration refers to “single customs territory.”

So could the Political Declaration be amended to help allay concerns over the backstop? There are multiple problems. Firstly, the Political Declaration is not legally binding; it cannot touch the text of the backstop (and nor would we want it to be legally binding, given that it takes us to somewhere we don’t want to go). What it could do is redouble a joint commitment to move on with trade talks to come up with a replacement.

The problem with any potential replacement to the backstop is that the backstop itself sets a test that can only be met by agreeing a Customs Union. Article 1 (3) of the backstop as interpreted by the EU and Irish Government (with UK connivance) leads you to an all-UK Customs Union or a separation of Northern Ireland from the UK.

The Attorney General could insert lots of fine wording on sensible minimal border procedures, based on the Malthouse Compromise, into the Political Declaration. We could agree to move forwards on them at speed, using ‘best endeavours’ (Article 184) so they can be implemented at the end of the implementation period with no need for the backstop. We could put all of this in the non-binding declaration, but it would come straight up against the actual text of the backstop. The UK could still not leave unless the EU agrees and the Irish have made it perfectly clear that they would not accept any change at all. It would lead us back to a Customs Union. 

Verdict: Almost worthless and could potentially make matters worse

5. A Council Conclusion including basic ‘assurances’ or comfort wording

In addition to amendment of the existing Withdrawal Agreement or text, the EU might seek to make the Attorney General accept some lesser form of life. Perhaps a standard Council Conclusion including basic ‘assurances’ or some other comfort wording.

The point to note here is that political agreements are not binding in EU law or international law. There is little these could add if the existing wording remains as is.

Verdict: Of no value whatsoever

6. No change, but the Attorney General changes his legal advice anyway

The Attorney General is supposed to be an independent legal adviser to the Government. This principle is long standing. The appearance of partiality by A-G Hastings led to the 1924 Campbell case and the fall of a Labour Government. More recently we have had the appearance of politically influenced advice in the run-up to the Iraq war.

In this case, the Attorney General has already put his thoughts down in public in the House of Commons and privately in a memo to the Prime Minister that was subsequently released. In this private advice, the Attorney General was emphatic that there was no escape from the backstop. It would not be credible if he decided to change this advice while leaving the Withdrawal Agreement untouched. A lawyer who negotiates a new agreement and then gives his opinion on the outcome of the negotiation is no longer impartial. He has himself for a client… 

Verdict: Worse than useless———————————————–

A prediction:

We do not know what the Attorney General will come back with – but I will have a guess.

The key priority from Downing Street is for a minimal change that looks as if they have solved the backstop permanence problem while leaving them open to use it to build a permanent Customs Union.

On past performance, the EU is open to interpretive instruments as a way of avoiding tricky problems with treaties. An “interpretive instrument” was given to Belgium to help overcome Wallonian objections to CETA. The Dutch Government gained an interpretive instrument in a Council Conclusions annex, having voted down the EU-Ukraine agreement in a referendum. None of these made any difference.

So potentially they could agree an interpretive instrument that seeks to reinterpret the review clause and add in more commitments to future trade talks. In addition to that, Cox may seek to change the Political Declaration to add new options for the Northern Irish Border based on the Malthouse Compromise. They could even grant a modicum of treaty change – the date on the political declaration in Article 184…. Perhaps some new wording in Article 1 of the backstop setting a more manageable test.

This will then get packaged up and given a grand and meaningless name – a codicil. To add more theatre, the Attorney General will then try the same trick David Cameron tried and ‘lodge it at the UN’. This has no legal importance, and does not, as with David Cameron’s renegotiation, make a document a ‘treaty’ (see David Lidington here). So there we would have it, a legally worthless document announced with fanfare – game set and match…

Not so fast

Let’s stand back a moment. The Withdrawal Agreement was defeated by 230 votes, the largest in history for a government. It was defeated for good reason. It will cost £39bn, potentially split up the UK, prevent us having a trade policy, make the UK a rule-taker for years to come and puts the ECJ in charge of rules applied to the UK, penalties and even the calculation of the £39bn.

Of this deal, the backstop is undoubtedly the worst and most permanent feature – but not the only one. Taking this into account, the Commons voted to support Sir Graham Brady’s amendment that “requires the Northern Ireland backstop to be replaced with alternative arrangements to avoid a hard border”.

 These should be the tests we set when looking at the Attorney General’s package:

  • Does it replace the backstop with something reasonable? If it does not replace it, does it come to a guaranteed end in the near future or allow the UK the right of unilateral exit? If there is a technical legal way out, is it drafted in a way we think the UK Government would actually be able or willing to use it?
  • Does the new agreement still tie the UK into remaining in a Customs Union / Chequers using the backstop as a means to get there? Or could a new Prime Minister be free to negotiate a genuine Free Trade Agreement?
  • Taken as a whole, is what remains of the Withdrawal Agreement once the backstop is removed – essentially the £39bn for two years’ negotiating time – worth the money? Is there an alternative free trade deal on the table we want and need the implementation period to negotiate and implement?

The post As the Attorney General explores solutions to the backstop, how potent will Cox’s codpiece be? appeared first on BrexitCentral.

The Political Declaration accompanying the draft Withdrawal Agreement has been largely overlooked in the furore over the backstop and the resounding defeat at the meaningful vote on 16th January 2019. However, the letter written to the Prime Minister by Jean-Claude Juncker and Donald Tusk on 15th January confirms that:

a) “There is an important link between the Withdrawal Agreement and the Political Declaration, reflecting Article 50 of the Treaty on European Union. As stated in Article 184 of the Withdrawal Agreement and reflected also in Paragraph 138 of the Political Declaration, the European Union and the United Kingdom have committed to use best endeavours, in good faith and in full respect of their respective legal orders, to take necessary steps to negotiate expeditiously the agreements governing their future relationship referred to in the Political Declaration.”

b) “As for the link between the Withdrawal Agreement and the Political Declaration, to which you make reference in your letter, it can be made clear that these two documents, while being of a different nature, are part of the same negotiated package. In order to underline the close relationship between the two texts, they can be published side by side in the Official Journal in a manner reflecting the link between the two as provided for in Article 50 of the Treaty on European Union (TEU).”

It is therefore unwise to dismiss the Political Declaration as a “vague wish-list”. It is far from vague and binds the UK into most areas of EU policy (in many cases under EU law); and should any form of the current draft Withdrawal Agreement pass a second meaningful vote, this Political Declaration will undoubtedly form the basis for the future relationship.

The EU’s letter of 15th January did not include any legal text to make the backstop either optional or time-limited. It is unlikely that concessions will be offered on the backstop for the simple reason that it is required to compel the UK to follow both the timing and substance of the negotiations envisaged in the Political Declaration.

The following is a summary of my more detailed paragraph-by-paragraph analysis of the Political Declaration which you can see here

General principles

  • The preamble confirms the link to the Withdrawal Agreement. It commits the UK to “an ambitious, broad, deep and flexible partnership across trade and economic cooperation, law enforcement and criminal justice, foreign policy, security and defence and wider areas of cooperation.” Hard red lines are set by the EU with regard to an agreement consistent with “the Union’s principles” and rules, meaning that in most important areas, EU law will be supreme.

Core values and rights

  • The UK will have to agree to EU human rights law “as an essential prerequisite” to trade talks.

Data protection

  • The EU has placed assessment of UK databases, including the transfer of the personal data of UK citizens, first on the list of areas of cooperation.

Participation in Union programmes

  • Participation in a wide range of EU programmes across science, culture, overseas development, defence, foreign policy and space is to be subject to EU law and requires a financial contribution from the UK to be determined by the EU.
  • The UK commits to funding a shared PEACE PLUS programme in Northern Ireland and to exploring options to rejoin the European Investment Bank.

Economic partnership

  • The economic partnership requires inclusion of the onerous non-regression clauses in Annex 4 of the backstop.
  • A free trade area is proposed across all sectors with a customs union (“build and improve on the single customs territory provided for in the Withdrawal Agreement”) – i.e. in the backstop, where the UK must implement the EU’s common external tariff in full. This means the UK will not be able to operate an independent trade policy, despite statements to the contrary.
  • The UK should adopt EU rules for goods (with no say) with full regulatory alignment.

Customs and the Irish border

  • Paras 26-27 propose facilitative customs arrangements covering technology and administrative cooperation (trusted trader schemes, electronic declarations etc) to avoid a hard border in Ireland.
  • The EU therefore admits in the Political Declaration that there is no need for the backstop or a customs union to avoid a hard border in Ireland.

Services and investment

  • The economic partnership covers all areas of services, with regulatory alignment.
  • There is a risk of a supranational regulatory body through “structured cooperation” in financial regulation.

Public procurement

  • Public procurement to go beyond WTO GPA commitments and will favour state-owned EU businesses.

Mobility

  • Mobility provisions retain the prospect of preferential treatment for EU nationals, including access to social security benefits and some form of free movement (making it easier to cross borders).

Transport

  • The EU seeks comprehensive agreements in the transport sector, particularly aviation, with the imposition of EU policies on standards (including working hours etc), although international agreements and bilateral arrangements with the EU27 could adequately cover this sector.

Energy

  • The UK is expected to rejoin/align with the EU’s carbon pricing scheme. Any clauses linked to climate change will be enforced as part of the overall deal (France has already said it will veto trade deals with countries it deems non-compliant with environmental targets, particularly with those set out in the Paris Agreement).

Fishing

  • Fishing is surrendered as a shared resource, with an agreement on quotas, management of stocks and continued EU free access to UK waters to be ratified by 1st July 2020. And should we enter the backstop, we will not be allowed to leave it unless we sign a fisheries agreement with the EU as set out in this linked Political Declaration.

Competition and “level playing field”

  • Catch all to force UK alignment with EU rules on “state aid, competition, social and employment standards, environmental standards, climate change, and relevant tax matters, building on the level playing field arrangements provided for in the Withdrawal Agreement” (i.e. replicating the “non-regression” clauses in the backstop). Could be used to trap us in the backstop.

Agriculture

  • State aid provisions will allow the EU to influence the level of support available to British farmers, already set at a very disadvantageous level in the Withdrawal Agreement.

Security partnership

  • Extensive provisions to lock the UK into the EU’s legal and judicial pillars through the criminal justice system, with operational activities and data exchange under EU rules. Obliges the UK to arrest people (including our own nationals) deemed to have committed “political offences”.

Foreign policy, intelligence and defence

  • Ties the UK into the EU’s Common Foreign and Security Policy, commits the UK to common action with EU in international forums, joint military action under EU command structures, participation in and funding of EU defence agencies, operations under EU control.
  • Defence manufacturing and procurement to be under EU frameworks. Intelligence sharing under EU frameworks.
  • UK to consider continued funding the EU overseas aid budget under EU rules.
  • Taken together, the provisions on foreign policy, defence, intelligence and cyber security mean that UK assets and know-how will be used to further the EU’s strategic objectives – a serious risk to national security, defence capability and existing international alliances.
  • UK to participate in EU’s civil protection mechanism as “a participating state” – could lead to UK being asked to fund a Eurozone bailout, as in the past.

Institutional framework

  • Envisages associate membership of the EU via a formalised “institutional framework”.
  • Replicates the Joint Committee provisions of the Withdrawal Agreement with all questions of EU law (of which there will be many in view of the above) to be referred to the ECJ for a binding ruling. No international dispute mechanism at the WTO, for example.

Negotiations and timetable

  • Power to start negotiations rests solely with the EU. Once the WA is ratified, the EU can take as long as it likes to start talks and string them out for as long as it wants. As the UK will be locked either into a transition period or the backstop, it can only influence progress by agreeing to the EU’s terms. The UK has already surrendered its leverage in the negotiations.
  • Progress to be benchmarked to steps to remove the need for a hard border in Ireland. This establishes a direct link between leaving the backstop and agreeing a deal, thus reinforcing the fact that most of this declaration (all “should”, “must”, “will” not “may” or “might”) is already non-negotiable.
  • There is no cut off point if agreement cannot be reached. A six-monthly review of talks does not suggest that progress will be anything.

The anonymous civil servant’s fully detailed analysis of the Political Declaration can be viewed below or by clicking here.

Political Declaration analysis for BrexitCentral

The post The Political Declaration is not a vague wish list, but an attempt to bind the UK to EU policies appeared first on BrexitCentral.

In the aftermath of Parliament’s rejection of the draft Withdrawal Agreement, there is a way forward for the Government which allows a smooth transition into a No Deal scenario after 29th March, if found necessary, and then allows the UK to negotiate its desired comprehensive Free Trade Agreement with the EU without having to impose tariffs or quotas in the interim. There is a mechanism to ‘manage’ a No Deal scenario; one that works within existing WTO rules, and that is not widely known about.

This is essentially an alternate transition or interim period, but within WTO rules without having to levy tariffs or (arguably) pay membership fees to the EU, but requiring some customs forms levied on the 7% of UK businesses (400,000 out of 5.7 million UK private registered businesses) that actually trade with the EU. This is the deal with the EU used by China, the USA, India, Australia and New Zealand for example.

These recommendations are based on my nearly ten years of experience as a member of the European Parliament’s International Trade Committee, working on EU trade deals such as those with Canada, New Zealand, India, South Korea, Japan and Columbia/Peru, and drawing on high level discussions I have had with senior trade representatives for the EU and the World Trade Organisation (WTO).

In the event of No Deal, there is a strong case to maintain preferential tariff and quota rates at zero between the UK and the EU for a limited period – thought to be around two years. There are a number of arguments for exemptions to what are termed ‘Most Favoured Nation’ (MFN) rules, which require the same treatment in terms of tariff rates and treatment between WTO members to avoid discrimination. They are:

1) It is to the advantage of fellow WTO members to minimise disruption between our two large markets, which would reduce knock-on impacts to their imports/exports to the UK or EU markets. WTO members have to show financial harm to justify objections to practices (or tariff schedules). Civitas calculate that £13 billion of tariffs would have to be levied on EU goods entering the UK and £5 billion on UK goods entering the EU Single Market if standard tariffs are levied under No Deal. This is one justification for keeping preferential rates of tariffs for a period whilst a full trade deal is finalised.

2) There are exemptions under National Security grounds such as over the issue of Northern Ireland, which the IEA have argued as a case for an exemption, but this is less appealing given its association with US and Russian cases for exemptions, such as over US tariffs on Chinese steel.

3) Exemptions to ‘Most Favoured Nation’ (MFN) rules under Article 24 of the General Agreement on Tariffs and Trade (GATT) 1947. This appears to be the most substantive argument. WTO rules state that preferential benefits, such as tariffs and quotas for goods which are more favourable than MFN treatment, may only be extended to another country if it is part of a customs union or a free trade area. The ultimate legal authority to grant such preferences is Article 24 of GATT , incorporated into the WTO regime when that body commenced operations in 1995.

Article 24 is helpfully the ultimate basis in international law for the existence of the EU itself as a preferential trading bloc, which grants preferential treatment to its members within the Customs Union.

If the UK accepts Donald Tusk’s offer of a free trade agreement along the lines of CETA+++ or what I propose as ‘SuperCanada’, then the UK and EU will be in the process of moving towards creating a free trade area – Tusk has offered a tariff and quota free deal plus services (whilst leaving the EU Customs Union) – so qualifies under this criterion.

There are two under-appreciated aspects of Article 24 which have direct relevance to our situation, and which provide reassurance.

Firstly, Article 24, para 3 states:

The provisions of this Agreement [i.e. the requirement to extend MFN treatment equally to all] shall not be construed to prevent:

(a) Advantages accorded by any contracting party to adjacent countries in order to facilitate frontier traffic

  • This has direct relevance to the position of Northern Ireland, and our adjacent country of Ireland. Some commentators have claimed that a sensitive and appropriate management of trade which respects and upholds both the letter and the spirit of, for example, the Good Friday Agreement would be in some form an unauthorised infringement of MFN treatment. That claim is clearly untrue.
  • There is also no obligation under WTO rules to erect a so-called “hard border” on 29th March. Government may continue discussions with our counterparts in Dublin to arrive at adequate and effective technological measures for the management of trade with minimal friction. You will have noticed the encouraging signs that the Irish Government already appreciates this fact. (See, for example, “Ireland has no plans for hard border after Brexit, says Varadkar”, from The Guardian of 21st December 2018)
  • We can expect that there will be considerable international sympathy for measures which support the situation in Northern Ireland, and hence a reluctance on the part of third countries to lodge objections. Although given the sensitivities this should not be stressed too heavily, such an exemption falls into ‘National Security’ related actions.

Secondly, Article 24 not only authorises member states to operate lower/zero tariff free trade agreements, it also permits them to offer lower/zero tariffs pre-emptively during the course of negotiations. The relevant provision, Article 24 para 5, is worth quoting at length, with emphasis added to the critical wording:

Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of… a free-trade area or the adoption of an interim agreement necessary for the formation of… a free-trade area; Provided that:…

(b) with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade area, the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free–trade area or the adoption of such interim agreement to the trade of contracting parties not included in such area or not parties to such agreement shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the free-trade area, or interim agreement as the case may be; and

(c) any interim agreement referred to in subparagraph… (b) shall include a plan and schedule for the formation of such… a free-trade area within a reasonable length of time.

(A WTO declaration, the Understanding on the Interpretation of Article 24, 1994, clarifies that the ‘reasonable period of time’ in para 5(c) will generally taken to be no more than 10 years.) I estimate based on EU trade deals to date, that a UK-EU comprehensive Free Trade Agreement could take around two years, especially given the unique reality that the UK is starting from a convergent position with the EU, with zero tariffs and quotas and with our laws and standards currently harmonised.

  • If, before 29 March, the UK has reached an ‘interim agreement’ with the EU to pursue negotiations towards a comprehensive free trade deal, both sides would be permitted under WTO rules to continue with the present zero tariff/zero quota trading arrangements. There would be no disruption to the man or woman on the high street. No Deal would mean No Change, as the cost of goods would not go up.
  • In the present situation the ‘interim agreement’ would not have to be an extensive document running to hundreds of pages. The schedule of items covered by the negotiations would be all goods, as already envisaged in our discussions with the EU. The plan which the document sets out would have to amount to little more than a timetable for regular meetings and an ultimate deadline, some years hence, by which point negotiations will have to be concluded.
  • An ‘interim agreement’, then, need be little more than an agreement to continue talks – while also continuing zero-tariff and zero-quota trade on both sides – plus a deadline no later than 29th March 2029. I accept that the EU has so far declined to agree any deadlines (other than 29th March) but since the absence of a final cut-off point has been a major contributing reason for Parliament’s rejection of the Draft Withdrawal Agreement, perhaps the EU will now reassess that stance.
  • Whilst legal challenges at WTO level might be expected from an unhelpful member, the reality is that any such challenge is unlikely to get to the WTO ‘court’ – its appellate body – for at least two years and possibly longer, and only if that body finds the UK non-compliant would any compensating actions be authorised such as tariffs. This is within WTO rules, and if any challenges arise a fully compliant Free Trade Agreement should already be in place by the time any appellate body were to meet. The EU is now under extreme pressure from EU27 industry and commerce who enjoy a £96 billion surplus with the UK.
  • You will recall that the draft Political Declaration indicates the EU want to reach a comprehensive Free Trade Agreement with the UK on the basis of zero tariffs and quotas (see paras 17, page 5, and para 23, page 6) and extending to services (para 29, page 7). Those provisions are fully in line with numerous public statements made since the 2016 referendum by Donald Tusk, President of the European Council, and Michel Barnier, European Chief Negotiator – offering a CETA+++, or what I term a ‘SuperCanada’ trade deal, on 7th March 2018, 30th August and 6th October 2018.

It is significant that Heiko Maas, Foreign Minister of Germany, has already indicated a willingness to continue talks (see “Germany says EU ready to talk if UK rejects Brexit deal” on Reuters, 15th January).

Conclusion

This approach would continue the pre-29th March status quo in trading arrangements and patterns without interruption, justified by an explicit provision of the WTO regime. The possible grounds on which any third country could lodge an objection to this are extremely slight (unlike for schedule changes).

An ‘interim agreement’ would therefore be an important component of a ‘Managed No Deal’ outcome from 29th March. It permits trade between us and the EU to continue without tariffs or quotas under No Deal while creating a space for negotiations to be reset and recommenced on the basis of reaching a SuperCanada or CETA+++ trade treaty.

I urge the Government to now adopt this course of action, as it will mitigate the main impacts of a ‘No Deal’ Brexit and eliminate the task of having to assess and charge tariff rates on 19,753 MFN tariffs under the EU Customs Union, thereby substantially reducing friction at borders.

The post A ‘Managed No Deal’ WTO option using Article 24 of GATT can avoid raising tariffs or quotas appeared first on BrexitCentral.




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