Rolling over the 37 Free Trade Agreements with more than 60 countries that the UK currently has through the EU will be a monumentally complicated task, and one that will have to involve the EU, according to trade experts at the University of Sussex.
The latest Briefing Paper from the UK Trade Policy Observatory (UKTPO) by Dr Michael Gasiorek and Dr Peter Holmes reveals that‘grandfathering’ existing EU Free Trade Agreements is unlikely to happen without some engagement or negotiation with the EU.
The UK Government has indicated that all existing countries have expressed a willingness to roll over their agreements (also known as grandfathering), and this needs to be achieved by March 2019 as UK membership lapses when the UK leaves the EU.
However, what you might think is a bilateral issue between the UK and a given Free Trade Agreement (FTA) partner, is actually a trilateral issue which also involves the EU, the report argues.
The EU is implicated in renegotiations of existing FTA in several ways. Firstly, this is due to Rules of Origin – rules that require producers to prove that the good was made in their country - contained in every FTA. This may impact on goods that are exported to the EU from the UK that contain lots of inputs from other countries.
Dr Gasiorek said: “Both Rules of Origin and the MFN clauses in the existing agreements mean that grandfathering may prove much trickier than it appears on the surface. The UK government needs to start these detailed discussions with key partners and the EU as soon as possible.”
Drs Gasiorek and Holmes argue that the impacts arising from Rules of Origin constraints could be alleviated if all countries that have FTAs with one another agreed to allow inputs from any of the partners to count as made in the exporting country. This is known as diagonal cumulation, and could help to minimise the impact on UK firms and businesses. But it does not mean that trade will be on the same basis as is currently the case, and it is well known that the EU can be quite difficult about agreeing to diagonal cumulation.
Secondly, clauses tied to services sectors and investment flows contained in some of the EU’s existing FTAs (Canada and Korea, CARIFORUM), stipulate that the EU cannot offer a better deal to other countries without also offering it to them as well. This is likely to have an impact on what both the UK and the EU are prepared to agree to in any future UK-EU agreement, as well as what the UK can negotiate with other countries.
In addition, the briefing paper looks at further issues to do with mutual recognition and tariff-rate quotas that will have to be negotiated and are likely to impact on future trade.
Dr Holmes said: “The UK will automatically lose the entitlement to the mutual recognition of testing and certification on the day after Brexit, even if we keep our standards the same. The UK government needs to urgently negotiate mutual recognition.”
With regard to several key issues – Rules of Origin (RoOs), Most Favoured Nation (MFN) clauses, mutual recognition, and tariff-rate quotas – grandfathering the agreements is unlikely to happen without some engagement or negotiation with the EU.
Even if the existing free trade agreements can be grandfathered, producers and consumers in the UK, in the EU and in the FTA partner countries will be affected. Cutting and pasting the agreements cannot simply maintain the status quo.