By Iana Dreyer and Chris Horseman.
The United Kingdom released the draft legal text towards a future economic partnership with the European Union it has tabled to Brussels as part of their ongoing negotiations.
The text confirms in legally-couched language the UK’s well publicised approach to a future agreement with the EU. Britain’s sectoral priorities are also well known. and today’s text confirms this.
Britain also does not want to hear about an overarching political agreement with the UK onto which the trade agreement is docked. It wants to advance sector by sector with the EU and avoid having to comply with demands for regulatory alignment in the area of labour, environment and and in particular competition policy. Britain also does not envisage a chapter with rules and market access commitments in the area of public procurement.
The UK text makes however demands much more explicit and tangible to outside observers.
Financial services – dispute settlement
The financial services chapter tabled by Britain will inevitably give EU negotiators a hard time.
The tabled language focuses first and foremost on cross-border financial services – which is where the UK is set to lose out most from losing its ‘passporting rights’ enjoyed hitherto as an EU member.
The text proposes ‘national treatment’ of cross border financial services – the list of potentially covered services tabled is not publicised, i.e. a matter of negotiation. This is not a standard EU approach in trade agreements.
The financial services text also envisages some form of mutual “recognition of prudential measures” and enhanced regulatory dialogue – something unprecedented in any trade agreement – not only the EU’s.
The tabled chapter further envisages a specific dispute settlement mechanism for financial services involving the ex ante nomination of a 15-member roster of arbitrators that would adjudicate any disputes arising under the financials services chapter only: unheard of in any free trade agreement in the world.
Emerging technology dialogue, MR for regulated professions
The UK’s approach to digital will also make life difficult for Brussels negotiators.
The proposed digital chapter proposes language on cross-border data flows that is much more permissive than the EU’s standard approach to the matter – which is much more restrictive due to concerns over its domestic personal data protection regulation, the GDPR. Here Britain follows the CPTPP and US approach to the topic.
Britain further envisages enhanced engagement with the EU on digital trade – without, however, going as far as tabling a dedicated dispute settlement panel as for financial services. Instead London envisages an ‘”emerging technology dialogue” that would help avoid new barriers to digital trade to emerge as technology evolves.
Another creative UK demand on the EU is in the area of regulated professions.
The UK’s draft language basically asks for continued full recognition of qualifications of regulated professions.
The language is ambivalent in the sense that it is not entirely clear whether this would apply to a yet unspecified list of ‘professional services’ such as laywers, accountants, architects or whether it applies to the more than 60 professions in the UK having a so-called Royal Charter – the list is mentioned in the agreement.
The UK envisages there could be ‘aptitude tests’ to allow for any gaps in knowledge between two countries to be bridged if necessary.
Diagonal cumulation with GSP countries
Trade negotiators in the EU and beyond will also find Britain’s rules of origin requests very interesting.
The UK is making a request for ‘diagonal’ cumulation, whereby components would be counted as ‘local content’ if they had been imported from “a partner country” or “a GSP country”. This would allow British businesses to source components from most developing countries, or from countries with which the EU and UK both had FTAs, without fear of losing out on preferential access.
This would particularly apply to EU agreements which had rolled over to apply to the UK, and where the same rules of origin would thus already apply in both the EU and UK. It would in effect maintain the pre-Brexit status quo in terms of UK suppliers purchasing components from FTA partners such as South Korea, Chile or Switzerland.
SPS standards and organics
Another interesting ask involves food standards.
UK wants its own autonomous regulatory regime for sanitary and phytosanitary standards to be recognised wholesale as ‘equivalent’ to the EU – and thus allow British food and agriculture exporters to continue to sell onto the EU market almost without paperwork.
“The importing Party shall accept an SPS measure of the exporting Party as equivalent to its own if the exporting Party objectively demonstrates to the importing Party that its measure achieves the importing Party’s appropriate level of protection,” the UK text says, adding that the final determination of equivalence would rests with the importing party.
Similarly to SPS, the UK is seeking to establish full equivalence for its organic food and agriculture regimes.
An ambitious ask in the UK’s draft Annex on organics is that UK organic products should be able to bear “the EU’s organic logo, any UK organic logo [none has yet been elaborated], or both logos … provided that they comply with the labelling requirements for the respective logo or both logos.”
The UK is aware of the totemic significance of GIs for the EU, and has responded by taking a conspicuously uncooperative line on the subject.
It has upped the ante by effectively proposing to invalidate the agreement reached between the two sides last year, in which the UK agreed to protect all existing EU GIs, and vice-versa.
In language which will infuriate the agri-food industry in Italy and Greece in particular, the UK draft agreements states simply that “the provisions of this sub-section [on GIs] shall supersede Article 54(2) of the Withdrawal Agreement.” It then adds, in square brackets: “Further text on the provisions of this sub-section to be proposed.”
This is most likely to be a tactical ploy by the UK, which has no strategic interest in appropriating EU food product names for itself, but is aware that it may be able to leverage concessions elsewhere in return for confirmation of the provisions set out in the Withdrawal Agreement.
The UK may also have an eye on its parallel negotiations with the US, which is highly sceptical of the EU’s GI regime, and which may demand commitments on the UK side to take a more hardline approach on GIs as a quid pro quo for its own trade deal.
Still wide apart
In a letter sent today to the EU’s chief negotiator Michel Barnier, the UK’s chief negotiator David Frost wrote that Britain was only asking for concessions that are equivalent to those the EU granted to key trading partners in new state-of-the art trade agreements with Canada or Japan.
“The EU is resisting the inclusion of provisions on regulatory cooperation for financial services, thought it agreed to them in the EU-Japan EPA. The EU’s offer on lengths of state for short-term business visitors (Mode 4) is less generous than CETA and does not include the non-discrimination commitment found in EU-Mexico,” Frost deplored.
But the EU will inevitably retort that the UK is asking for much more than what ‘precedent’ set by EU trade arrangements in its neighbourhood and with key partners across the world. The UK’s proposed provisions highlighted in this articles are indeed a perfect illustration on of this.
Experienced trade agreement negotiation observers know that public statements made by political leaders and chief negotiators involve posturing and are an intrinsic part of a negotiation process that inevitably involves the media and public opinions.
But Britain and the EU are so far apart in this initial phase of negotiations that it is hard to see how enough progress can be made towards a meaningful agreement that can come into force in early January 2021.