Article 50 one year on: the trade bill and rolled over agreements

One of the main purposes of the Trade Bill is to give the government the tools it needs to maintain the UK’s trading relationships with third countries, such as South Korea, with which the EU currently has trade agreements. The question is whether the UK will be able to ‘roll over’ these agreements and, if so, how?

The government originally intended to do this by renegotiating largely the same agreements by March 2019. It has now abandoned this as unrealistic; in the first instance, the plan is that the EU will simply ask third countries to treat the UK as if it were a member state during the transition period – even though it will no longer be one. It is unclear how the third countries will react. But even if this strategy is successful, such agreements will need to be renegotiated by the end of the transition period, at which point it seems inevitable that the UK would drop out of the existing agreements.

Constitutionally, the government is able to sign and ratify international agreements with minimal reference to Parliament. Normally, however, legislation would be required to implement those treaties.

The Trade Bill is designed to shortcut this process and authorise the government to implement the new agreements directly by executive act. It sounds uncontroversial. The devil, however, is in the detail.

What current agreements will be rolled over under the Trade Bill?

For a start, it is surprisingly difficult to know exactly what the Trade Bill covers. Clause 2, entitled ‘implementation of international trade agreements’, seems straightforward enough. However, an ‘international trade agreement’ not only includes a ‘free trade agreement’ (which is defined to include customs unions and free trade agreements for services) but also ‘an international agreement that relates mainly to trade other than a free trade agreement’.

It is unclear how far this definition extends. There are many agreements that relate to trade. For example, some environmental agreements have trade aspects; the Montreal Protocol and the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), for example, are about banning trade in ozone-depleting substances and endangered species respectively.

It could be that what is meant are agreements focused on reducing obvious barriers to trade. But modern free trade agreements are about much more than duties and quotas. As economies have become more interconnected over the decades, countries have taken a greater interest in each other’s domestic regulation, such as food and product safety.

Where one country has high domestic standards, its negotiating partner might see these as unnecessary trade barriers. The subject of the Trade Bill is therefore both much wider than most people appreciate and much less clear.

One quirk of the way the Bill is drafted is that the government would be able to implement replacement international trade agreements in the UK even if they never become legally binding on the UK or the other party. This is because the Bill allows the government to implement international trade agreements that the UK has signed but which are not yet in force.

This would cover agreements like the EU-Canada Comprehensive Economic and Trade Agreement (CETA)—which is being provisionally applied but is technically not yet in force.

What will rolled over agreements contain?

You could be forgiven for thinking that a rolled over agreement would be a simple ‘copy-and-paste’ of the current agreements, with minor technical changes. In many cases, this would work.

However, not all aspects of the EU’s agreements will be appropriate for the UK once it has left the EU. One important example concerns what are called ‘rules of origin’. These state that a certain percentage of a product being exported must come directly from a partner country to benefit from lower duties.

The UK may lose many of its benefits in this area if it simply copies the rules of origin in the EU’s agreements. This could happen in two ways. Take a hypothetical car assembled in the UK, with 50% of its value coming from UK production and another 50% from other EU sources.

At the moment, an existing EU free trade agreement that gives preferential benefits to cars with at least 60% of their value from theEU would cover such vehicles. However, a UK agreement with the same 60% threshold would not help a car made in the UK in future.

Most likely, in this example, the UK will want to renegotiate the rules of origin to reduce it to 50%, so it can continue to benefit from lower duties.

Second, the UK could also lose out indirectly. This is because an EU-assembled car with 50% UK content would no longer be able to be exported under the EU trade agreement. That would give EU producers an incentive to switch from UK parts and technology to EU (or third country) ones.

Another problem is that the other party may not be happy rolling over an agreement without some changes. This is particularly the case for those countries whose investors have traditionally used the UK as a hub for their EU operations and who have therefore relied on UK participation in the customs union and the single market.

There is always a risk that a party seeking changes in one part of an agreement will lead to demands for trade-offs from the other party, perhaps even resulting in the entire structure being unpicked.

In addition, for issues such as rules of origin, a satisfactory solution may depend on the willingness of the EU to get involved in the negotiations (which does not so far seem to be the case). There is therefore a complex mix of political and technical issues to deal with, and there is no guarantee that both – or all three – sides will come to an arrangement.

How will Parliament be involved in the process?

Finally, it is unclear how the Trade Bill fits into the overarching narrative of ‘taking back control’. It hands the government powers to implement the rolled over agreements in domestic law through regulations, powers that include the ability to change some laws passed by Parliament. Agreements may change in important respects, possibly placing new international obligations on the UK. Given these extensive powers, one would expect an important scrutiny role for Parliament. Currently,

this is not the case. Parliamentary involvement would be limited to the so-called ‘negative resolution procedure’. This means that each of the Houses of Parliament could cancel regulations implementing the rolled over agreements within 40 days of the government bringing them before Parliament.

However, the House of Commons will not hold a vote unless the government grants time for a debate. In the 2016-17 parliamentary session, for example, less than 1% of these regulations were debated.

Meanwhile, the House of Lords faces political constraints in opposing the government with its limited democratic mandate. Neither House can seek amendments.

The role for Parliament in ratifying the rolled-over agreements themselves, making them binding on the UK as a matter of international law, is similarly limited. The Constitutional Reform and Governance Act 2010 theoretically allows the House of Commons to delay ratification indefinitely – but this depends on the government making time available for votes against ratification.

There are good arguments in favour of secrecy in some aspects of trade negotiations. The issues that come up in such negotiations lie somewhere on a spectrum between market access issues and regulatory issues. When negotiations concern market access – where barriers to trade are being reduced, meaning some sectors of the economy will lose out because of greater foreign competition – confidentiality can be important for getting the deal done. It gives negotiators greater flexibility to make trade-offs between sectors.

However, negotiations may also concern purely regulatory issues, such as food safety standards, which would normally be dealt with through the democratic process, and confidentiality for this type of negotiation is harder to justify. Market access and regulatory issues overlap, and it is hard to know where to draw the line, but there is certainly greater scope for parliamentary involvement in rolling over agreements than presently envisaged by the Trade Bill.

Many other countries have systems where parliamentarians have some rights to see what is being negotiated and to be kept up to speed on negotiations as they progress.

The EU, for instance, is extremely advanced in this respect; there are strict limitations on parliamentarians taking notes of secret documents, no phones are allowed, and so on. The US Congress has similar arrangements. There are a number of options to enable parliamentary involvement, even within the framework of confidentiality.

How does all of this link in with the EU?

As noted, the EU would need to agree with the UK and the relevant third countries for all sides to maintain certain benefits from current agreements.

Until recently, it looked as though the UK faced a much bigger problem with the EU’s position on two issues. The first is what rights the UK would have under the current agreements during the transition period.

The second is whether the UK could negotiate replacements during the transition period. Under the draft withdrawal agreement, however, the EU and the UK have dealt with both concerns.

The EU would request that partner countries treat the UK as though it were still in the EU during the transition period and the UK would have the right to negotiate replacement agreements. It is not clear how third countries will respond. They could, for instance, ignore the EU request in order to gain leverage in negotiations with the UK.

At the very least, however, the draft withdrawal agreement gives the government something less to worry about as it seeks continuity in trading with the rest of the world.

By Dr Lorand Bartels, Reader in International Law in the Faculty of Law at the University of Cambridge and Senior Counsel, Linklaters’ and Samuel Coldicutt, international trade lawyer at Linklaters.

Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of the UK in a Changing Europe initiative.

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