What to look for in a UK-EU free trade agreement
Published on 1st Dec 2020
If the UK and EU agree on the text of a free trade agreement (FTA), here are some of the areas which will be relevant to business.
This note is written from the perspective of a UK business trading into one or more EU Member States, but most of the note will also be relevant to trade from the EU to the UK, as many FTA provisions are reciprocal.
Given that the FTA is expected to run to around 800 pages plus annexes, what follows is by necessity a very high level overview.
Temporary Entry and Stay for Business Purposes
Here, we're talking about travel and movement for business purposes, not general immigration rules (which have to be considered separately).
- For short-term business visitors, there is likely to be a visa-free limit of 90 days in every 180 days, but the crucial issue will be what activities are permitted during any visit, and to what extent there is an EU-wide regime and to what extent there will be individual national regimes or derogations across the Member States.
- What does the FTA say about:
- intra-company transfers between the UK and EU, for example for senior personnel, specialists and graduate trainees;
- the movement of contractual service suppliers i.e. employees of a UK business into a Member State to support a service contract between their employer and a local client;
- the duration for which UK self-employed professionals and investors can work in a Member State and for what purpose; and
- UK business visitors travelling for investment purposes?
That is, to what extent does the FTA build on Mode 4 of the WTO GATS Modes of Supply.
Services and Investment
Here, we're talking about business selling services into, or making investments in, the EU.
What does the FTA do to reduce or eliminate barriers around Market Access, such as economic needs tests (where a market entrant has to show that there is an economic need for their service), requirements on corporate form (such as non-recognition of English LLPs or of the limited liability of UK-incorporated companies), or caps on the amount of equity that can be held by a UK investor?
Does the FTA address National Treatment by prohibiting discriminatory treatment between UK and EU service suppliers?
Are local presence requirements - such as the need for a UK supplier to establish a physical presence in a relevant Member State, or to have a local management or board presence, or to have a local partner - reduced or eliminated?
Does the FTA reduce restrictive conditions on UK service providers, such as requirements for content to have a specified amount produced locally?
In all of the above, what specific national exceptions (sectoral, industry-specific or geographic) to these liberalising provisions have Member States managed to include?
Mutual Recognition of Professional Qualifications
Here, we're talking about the recognition by Member States of UK qualifications, to enable the holder to practise in that Member State. To take two examples, management accountants and architects.
Does the FTA set out a framework or pathway for the recognition of all professional qualifications by Member States? Is that framework limited to general conditions and guidelines which can then be applied to profession-specific agreements – or does the FTA allow for full mutual recognition of qualifications (unlikely!).
What is the extent of the coverage of the MRPQ provisions? And does the FTA allow the UK to conclude bilateral agreements on mutual recognition with individual Member States (which the UK would like, so that it is not stuck only with EU-wide general framework provisions)?
Here, we're talking about FTA provisions to ease the flow of goods each way between the UK and the EU.
An FTA will almost certainly remove tariffs and quotas (quantitative restrictions) for goods moving between UK and EU. But what does it say about Rules of Origin? These are the rules which stipulate what percentage of a product moving between the UK and the EU has to 'originate' in the UK to qualify for zero tariffs and quotas. For example, if 60% of the product actually originates from the US and only 40% from the UK, it is unlikely to qualify.
On Rules of Origin, does the FTA allow for bilateral cumulation (any EU content in a 'UK' product is treated as of UK origin for the percentage calculation) or for diagonal cumulation (any content from a third country with which both the UK and EU have a free trade agreement, such as Japan, is treated as of UK origin)? Are there sector-specific provisions, for example disregarding batteries in electric vehicles manufactured in the UK from the percentage calculation, as the UK has no battery making capacity?
What is the extent of provisions in the FTA addressing Technical Barriers to Trade in manufactured goods, such as detailed technical regulation, standardisation requirements, accreditation stipulations, and marking and labelling?
Are UK conformity assessment bodies permitted to test products against EU requirements, and so reduce or avoid the need for UK manufacturers to appoint an EU-based conformity assessment body?
What measures does the FTA contain on Customs and Trade Facilitation, streamlining customs arrangements through processes such as the advance clearance of documentation and paperwork simplification and transparency. Does the FTA have specific provisions to ease roll-on, roll-off trade, given the importance of the Short Straits crossing between northern EU Member States and the UK?
How much does the FTA ease sanitary and phyto-sanitary regulations, and in particular does it contain (or aim towards) an equivalence mechanism to reduce border checks and simplify certifications regimes for animal movement and trade in animal and plant products (such as food!).
Other areas: digital trade, energy, road transport, aviation
Here, we're talking about a wide range of important sectoral areas and issues (some of these, such as aviation, may be dealt with separate agreements).
For digital trade (excluding data adequacy), will there be commitments on market access to minimise barriers to the supply of digital services between the UK and the EU?
Will the Energy chapter contain a link between any future UK Emissions Trading Scheme and the EU ETS, including mutual recognition of allowances?
To what extent will road transport operators be permitted to provide services to, from and through each territory, including cabotage rights for UK operators? Will there be non-discrimination measures to allow full recognition of the UK regulatory regime?
For aviation, to what extent will UK and EU airlines have the right to operate between points in the UK and points in the EU without restrictions on frequency or capacity? What restrictions will there be on ownership or control?
Level playing field
Here, we're talking about the EU's 'red line' that the UK, given its geographical proximity, should not be able to lessen standards across environmental, labour and social, tax and climate regulation and so provide UK businesses with potential competitive advantage over EU businesses.
Will the UK (and the EU!) agree not to regress from existing standards? Will there be a 'ratchet' that means a party cannot regress from its own future higher standards? Could there be a ratchet which requires the other party to match (and not regress from) the future higher standards of the other party (no)?
On state aid, will the UK agree to establish an independent domestic regulator to monitor state aid decisions, and if so, what powers would that regulator have? Or could there be a bilateral dispute settlement mechanism (arbitration) to resolve state aid disputes between the EU and UK?
What provisions will there be for retaliation if a party breaches the FTA? The EU would like a single overarching mechanism which permits cross-retaliation, allowing the EU to remove concessions in areas unrelated to the area of breach. The UK wants separate mechanisms for different parts of the relationship, with no cross-retaliation.
Will an FTA contain future review procedures, by which provisions in areas which have been difficult in these negotiations are reviewed in, say, five years' time? That is a possible way of the current impasse.
Finally, will there be any sectoral or area-specific implementation periods? This could be a way of managing some of the difficulties thrown up by the Northern Ireland Protocol for goods movements between NI and Great Britain.
We await the text. And developments on data adequacy and financial services equivalence, which are unilateral decisions of the EU taken outside the scope of an FTA.