EU Publishes Draft Agreement for EU-UK Future Relationship as Trade Negotiations Are Postponed
26 March 2020
On 19 March 2020, the European Commission published a draft legal agreement for the future EU-UK partnership in order to propel progress on trade talks given the short timeframe to conclude an agreement. The draft text proposes to establish a zero-tariff area for goods with a favourable environment for trade in services, however, it also contains provisions on robust commitments to guarantee a level playing field between the EU and the UK and proposes strict penalties in case of non-compliance.
Hong Kong traders may be interested to know that the European Commission has published, on 19 March 2020, a draft legal agreement for the future EU-UK partnership. The proposed agreement compiles together the previous negotiating directives approved by Member States, and is in line with the Political Declaration concluded between the EU and the UK in October 2019. Michel Barnier, the chief Brexit negotiator for the European Commission, stated that “ [t]his text demonstrates that an ambitious and comprehensive agreement on our future relationship is possible, on the basis of the EU's mandate and the political ambition agreed with the UK five months ago .”
According to the draft text, the European Union is willing to establish a zero-tariff area for goods with the United Kingdom. The document proposes to " establish a free trade area in trade in goods " in which " customs duties on goods originating in the other party shall be prohibited ." In the area of services, the EU wishes " to establish a favourable climate for the development of trade and investment ". The avoidance of non-tariff barriers is also sought as part of any agreement along with the promotion of public procurement and digital trade.
Nonetheless, given the " the geographic proximity and economic interdependence and connectedness " of the EU and the UK, the EU is seeking " to establish robust commitments " in order to ensure fair trade. To this effect, the draft text proposes strict clauses on the so-called level playing field to safeguard equal social, environmental and competition standards, and it emphasises that the future EU-UK relationship " can only deliver benefits in a mutually satisfactory way if it prevents distortions of trade and unfair competitive advantages ." The EU also desires to establish an arbitration tribunal that would be able to issue rulings and impose fines to ensure compliance with any agreement.
According to the text, in the event that one of the parties fails to comply with a ruling from the arbitral tribunal, the other party could " impose a lump sum or penalty payment " depending on the seriousness of any violation and the actual duration of the non-compliance. However, where disputes are raised that concern issues of EU law, the EU is pushing for the Court of Justice of the European Union to have a role. The UK, on the other hand, is adamant that it will leave the jurisdiction of the EU Courts once the transition period ends on 31 December 2020.
Given that there are less than nine months before the end of the transition period, the timeframe to conclude an agreement is quite short. Despite this, increasing the intensity of negotiations is expected to be difficult in light of the coronavirus pandemic. In fact, the pace of negotiations between the EU and the UK has already stalled significantly and it is reported that Michel Barnier has tested positive for the coronavirus. The round of talks that were scheduled to take place from Wednesday 18 March 2020 have been completely cancelled due to the outbreak, while the next round of talks scheduled to take place in April are also in doubt.
Due to the impracticality of face-to-face negotiations in the current climate, both sides are discussing how to set up videoconferencing, or other alternative methods, to continue negotiations. Former UK trade negotiator David Henig said a Brexit trade deal could be done over videoconference but the process would be much slower. According to Henig, “[i] t’s not that it absolutely can’t be done but the dynamic is much slower than having lots of people together .” Henig suggested that it would be better to extend the Brexit transition period while the EU and the UK are tackling the problems posed by the outbreak of the coronavirus.
Christophe Hansen, a member of the European Parliament’s trade committee also agreed with extending the transition period beyond 31 December, describing it as “ the responsible thing to do” because of the coronavirus ”. Hansen stated that “[n] ow that Coronavirus interferes with an already short timeframe, I hope that common sense and substance will prevail over speed ”. However, the position of the UK remains that the transition period will not be extended. According to Downing Street, ”[i] t will be possible to do the trade talks. Both the EU and UK are fully aware of the timetable … [and] remain fully committed to the negotiations ”. A spokesperson insisted that “[t] he transition period ends on December 31, 2020. This is enshrined in UK law ”.
In short, Hong Kong traders should be aware that while the EU has proposed a substantive trade agreement, it comes attached with strict conditionality and oversight that are contrary to the UK’s position. The progress of trade negotiations is also now in question due to the outbreak of the coronavirus. Additionally, it appears as though the debate may be reignited on whether to extend the transition period beyond 31 December 2020, notwithstanding the UK’s insistence that it will refuse to request any such extension.
- United Kingdom
- Western Europe