Post Brexit: ‘Trade Bill’ aiming to support UK’s future ‘independent trade policy’ moves a step closer

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On 8 September 2020 the House of Lords picks up the passage of a Trade Bill that, if it becomes law, aims to support “continuity agreements” – as the Government is calling them.  It seeks to allow the UK to replicate the existing network of trading relationships with the EU’s current partner countries.

The bill would enable:

  • the UK to meet any obligations arising under International Government Procurement Agreement – presently covered under UK membership of the EU;
  • the UK to implement in domestic law obligations that may arise under international trade agreements signed between the UK and countries having an existing international trade agreement with the EU;
  • establishment of a new UK Trade Remedies Authority;
  • HMRC to collect information on the number of exporters in the UK; and
  • data sharing between HMRC and other private and public sector bodies in order to fulfil ‘public functions’ relating to trade.

The bill does NOT address:

  • any agreement that may be reached between the UK and EU about their future trading relationship; nor
  • any powers to implement new free trade agreements between the UK and any countries that do not currently have a free trade agreement with the EU.

Background

Whilst the UK was a member of the EU, it was party to many trade agreements with ‘third’ (every other non-EU) countries by virtue of its EU membership.  It did not have an independent trade policy – and was, indeed, precluded from negotiating its own trade agreements.  The Withdrawal Agreement continued this arrangement until the end of the ‘transition period’ that ends on 31 December 2020.

The Government cited the ability for the UK to control its own trade policy, set its own tariffs and do its own trade deals as one of the benefits of Brexit.  However, the Government is also seeking ‘continuity’ of existing EU and third country trade relationships post-transition.

By the end of August 2020, the Government has signed ‘continuity agreements’ with about three-quarters of EU trading partners – accounting for £110 billion of trade in 2018.  They come into effect on 1 January 2021.  A list of countries and trading blocks and countries that have already signed continuity agreements – and those “still in discussion” is set out, below.

Significantly, the EU does not have a free trade agreement with the US – so the powers in this bill may not be used to implement a free trade agreement between the UK and the US.

International relations – including making treaties—is a ‘reserved’ matter within the devolution settlements; meaning that the UK Government negotiates and enters into such agreements on behalf of all nations within the UK.

The Government Procurement Agreement (GPA) falls within the framework of the World Trade Organisation.  It consists of 20 parties covering 48 WTO members.

WTO explains the purpose of the GPA as follows: “to mutually open government procurement markets among its parties…worth an estimated US$1.7 trillion annually to international competition.

The UK expects to join the GPA in its own right at the end of the transition period – on substantially the same terms.  However, the Government has stated that it may take up to 30 days to come into force after 31 December 2020.

Overseas businesses will be able to bid for £67 billion worth of public sector contracts in the UK every year.  In return, British suppliers will be able to bid for £1.3 trillion worth of government contracts overseas in a wide range of sectors from large infrastructure to professional and business services.

Trade negotiations are new for the UK

Countries that are experienced in trade negotiations, typically implement domestic reforms that precede commitments in trade agreements.  In other words, they try to work out what reforms they want to pursue – and then identify how entering into treaty commitments can underpin and lock in these reforms.  The UK’s has yet to set its aims and policies in this respect.

Trade policy in the 21st Century is both cross-cutting and fast-moving.  For instance, in the decarbonisation and the ‘green’ agenda.  The UK has its net zero-emissions target, but the pursuit of climate and environmental objectives will require a mix of policy instruments such as standards, subsidies, and environmental/ emissions taxes.  In turn this raises the question of how these all relate to agreements and multilateral trade rules.  How will the UK government manage differences between countries around the World in terms of ambitions regarding environmental and climate objectives?

Trade agreements also need to address digitisation in production and trade.  Distinctions between ‘goods’ and ‘services’ – and between traditional industry sectors – are breaking down.  It is vital that the UK gets its policy right in a world of evolving patterns including: the regulation and taxation of digital platform and network services; data protection and privacy; support for sectors and regions in accessing technological innovation; and consumer protection.

In an increasingly digital, networked, globally connected world, “lock-in” of the wrong policy settings will be somewhere between detrimental and catastrophic.

Status of UK trade ‘continuity’ negotiations at August 2020

The UK has signed ‘continuity agreements’ with: Andean countries (Columbia, Ecuador and Peru); CARIFORUM trade bloc (Antigua and Barbuda, Barbados, Belize, Bahamas, Dominica, the Dominican Republic, Grenada, Guyana, Jamaica, St Christopher and Nevis, St Lucia, St Vincent and the Grenadines, Trinidad and Tobago – whilst Suriname has approved in principle); Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama); Chile; Eastern and Southern Africa (ESA) trade bloc (Madagascar, Mauritius, Seychelles, Zimbabwe); Faroe Islands; Georgia; Israel; Jordan; Kosovo; Lebanon; Liechtenstein; Morocco; Pacific States (Fiji and Papua New Guinea); Palestinian Authority; South Korea; Southern African Customs Union and Mozambique (SACUM) trade bloc (Botswana, Eswatini, Lesotho, Namibia, South Africa and Mozambique); Switzerland; Tunisia.

The Government is ‘in discussion with’ the following countries that currently have existing EU trade agreements in place: Albania (Western Balkans); Algeria; Bosnia and Herzegovina (Western Balkans); Cameroon (Central Africa); Canada; Cote d’Ivoire; East African Community (EAC) (Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda); Egypt; Ghana (Western Africa); Mexico; Moldova; Montenegro (Western Balkans); North Macedonia (Western Balkans); Serbia (Western Balkans); Singapore; Turkey; Ukraine; Vietnam.

Reference: http://researchbriefings.files.parliament.uk/documents/LLN-2020-0119/LLN-2020-0119.pdf

Post-Brexit: UK Government unveils strict new cross-border plans from 1 January 2021 – deal or no-deal

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The UK has a Brexit negotiating team of 50 civil servants in Brussels today.  They are led by Britain’s chief negotiator, David Frost – who met European Commission chief negotiator, Michel Barnier for an informal dinner last night.  This is for Round 7 of the UK-EU Brexit talks on setting the terms for future trade and cooperation to come into effect on 1 January 2021.

Even if the two sides can reach a free trade agreement in sufficient time to get all EU central institutions and each of the 27 states to sign-up – businesses should take note that the UK plans to adopt the strict border controls in any event.

With 4 months to go, the Government has just announced a month-long consultation on a blueprint for a traffic management system designed to limit tailbacks for vehicles heading to Dover and Eurotunnel.

Department of Transport said in a statement: “Something akin to Operation Brock will need to be confirmed for use at the end of the transition period.”   The DoT anticipates disruption at the cross-Channel ports as “clearly a possibility.”

The new rules are complex and detailed.  They introduce ‘pre-registration’ of the journey and details of goods carried.  In a no-deal scenario the complexity of declarations will be compounded by tariff and quota declarations.  The chances of getting something wrong are manifest – especially in the early months of 2021.

There is an increasing risk that, whether based in the EU or the UK, haulage companies at corporate level – and drivers as individuals – will simply consider the risks and costs outweigh the rewards, compared to shipping and driving across the Channel today.

Trucks without the right documents risk “being held at port until the relevant paperwork has been provided, and in some circumstances having their goods seized or destroyed,” the government said in the consultation.

Truck drivers who don’t comply with the system could personally face a Fixed Penalty Notice of £300 under the government’s plan.

UK trucker furthermore face prosecution and the fine rising £1,000 unless paid within 28 days.

Non-UK drivers will be fined using “a financial penalty deposit notice and would have had to make an on-the-spot payment.  If drivers chose not to pay, they would have been at risk of having their HCV impounded.” [HCV = Heavy Commercial Vehicle, previously known as an HGV]

Under a new ‘Smart Freight System’, hauliers will have to fill in details on a government website showing they have the correct documents to enter the EU.  Then they will be issued with a permit giving permission to proceed to the port – and a window sticker for the police and port authorities to view in whilst in transit and customs clearance.

Rod McKenzie, Managing Director of policy and public affairs at the Road Haulage Association: “There is an overload of new systems coming to operate the border…It is essential that all systems work together to minimize bureaucracy and duplication, and that is not happening at the moment.”

The Government’s own analysis from October 2019 – when Operation Brock was trialled in anticipation of the UK leaving the EU without a deal – showed that hauliers were poorly prepared for the new customs checks.  As their attention is presently on dealing with the consequences for supply chains and logistics due to coronavirus, it would be prudent to assume that’s still the case.

We publish an extract from the Government website as an illustration of one element of the regulations coming in on 1 January 2021 – simply to show the complexity and underline how difficult it will be for hauliers and drivers to avoid finding themselves out of compliance – and in deep trouble.

In addition to the new ‘Smart Freight System’ for outgoing goods, a new ‘Goods Vehicle Movement Service’ (GVMS) means imports from the EU to the UK will also face full customs checks.   We cannot emphasise enough that with only 4 months to go, both the SFS and GVMS are still being developed and untested in live operations.  A failure in: the systems software; or the operation of the systems by hauliers and regulatory authorities means that goods movements come to a standstill.

Extract from UK Government’s “Proposed legislative amendments on enforcing Operation Brock” published on 4 August 2020

“Being border-ready

While it is the responsibility of the trader (or the trader’s agent, such as a customs agent or freight forwarder) to provide the necessary documentation to the HCV driver, it is the HCV driver who must present the documentation at the EU ports.

Being border-ready means that an HCV driver is carrying all the necessary documentation to get through the GB and EU port (or has been provided with the appropriate information to get the documentation).

This includes:

  • customs documentation:
    • a master or movement reference number (MRN) from an import declaration if the goods are going to stay in the country of disembarkation (for example, goods going from GB to France), or a transit accompanying document if the goods are either staying in the country of disembarkation or going to move beyond it (for example, goods going from GB to Spain via France)
    • an admission temporaire/temporary admission (ATA) carnet if the goods are temporarily going abroad (for example, goods going from GB to France and then back to GB)
    • a transports internationaux routiers (TIR) carnet if goods are sealed and/or going to non-Common Transit Convention (CTC) member countries (for example, GB to India overland).
  • import and export documentation depending on what goods are carried (it is possible that a free trade agreement or sectoral deal may change some of the requirements for import and export documentation). For example, EU member state authorities will check for the following on arrival at the EU port:
    • products of animal origin require an export health certificate
    • plant and plant-based products require a phytosanitary certificate
    • fish require a catch certificate, export health certificate and where appropriate a captain’s certificate.

Some documentation could be electronic or physical (like the MRN barcode) while others would need to be physical (like the ATA carnet). Please note that the list is not exhaustive; for more information, please refer to the Border Operating Model published on 13 July 2020.

In addition, there may be other forms of import/export documentation that an HCV driver will need to carry on behalf of their trader which would not be checked at the ports. An HCV driver using the accompanied roll on roll off (RoRo) route would need a safety and security declaration before arriving in the EU. However, EU rules mean that they can be completed shortly before arriving in the EU.

Some EU member states have additional national requirements for goods arriving from GB, for example:

  • France requires the use of the SI Brexit system, and the MRN barcodes for multiple consignments must be compiled in to a single ‘envelope’ MRN that will be scanned
  • the Netherlands and Belgium require that all movements are pre-notified using the Portbase and RXSeaport systems respectively; HCVs that are not pre-notified will not be allowed to leave Dutch or Belgian ports”

Commentary

After 40 years membership of the European Union including decades of free and unfettered trade and logistics, the UK is shifting to a ‘3rd country’ set of border controls at 23:00 GMT on 31 December 2020.

We have already reported on the lack of progress in the recruitment and training of up to 6,000 customs and border officers needed to police the new regulations.

We have already reported on the lack of testing and communications with hauliers on operating and complying with the new regulations.

We note that new issues are only now coming to light – such as the need to meet EU regulations on the construction and certification of palettes arriving in Europe from 3rd countries, such as the UK.  A regulation that is simply not relevant today – and which needs to be added to the changes that hauliers need to understand and adapt to.  There is presently no need and therefore no expertise or infrastructure in the manufacture and certification of EU compliant palettes in the UK – and less than 4 months to understand, adapt and implement.

Reference: https://www.gov.uk/government/consultations/enforcing-operation-brock-plans-in-2021/proposed-legislative-amendments-on-enforcing-operation-brock