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EU sets out proposals for future trade deal

Andrew Sheftel

The European Council has published draft guidelines for the negotiation of any future trade agreement.

The document proposes that a future partnership deal  should cover trade and economic cooperation as well as other areas, in particular the fight against terrorism and international crime, security, defence and foreign policy. However, it notes that would have to be based on a balance of rights and obligations and reiterates the EU position that there can be no “cherry-picking” through participation based on a sector-by-sector approach, that would undermine the integrity and proper functioning of the Single Market.

Speaking at the launch of the guidelines, the President of the European Council, Donald Tusk, indicated that, in view of the UK’s own ‘red lines’ in the negotiations, the only option would be a free trade agreement similar that between the EU and Canada. He warned that trade would not be frictionless and that the UK would not be able to cherry-pick. He specifically sought to rule out the UK having single market access for certain parts of the economy.

The guidelines set out the EU’s commitment to a future trade deal to be finalised once the UK has left the EU. In this regard, the Council proposes that trade in goods be subject to zero tariffs, in return for maintaining existing reciprocal access to fishing waters and resources.

It also proposes:

  • appropriate customs cooperation, preserving the regulatory and jurisdictional autonomy of the parties and the integrity of the EU Customs Union; and
  • disciplines on technical barriers to trade and sanitary and phytosanitary standards as well as a framework for voluntary regulatory cooperation.

Significantly, however, the guidelines are less comprehensive in relation to services. They suggest that a future deal should include “trade in services, with the aim of allowing market access to provide services under host state rules, including as regards right of establishment for providers”. However, this would be “to an extent consistent with the fact that the UK will become a third country and the union and the UK will no longer share a common regulatory, supervisory, enforcement and judiciary framework”. Further, the guidelines contain no specific reference to financial services at all and speaking shortly after the publication of the guidelines, the Chancellor, Phillip Hammond, stated that from the UK perspective, it was hard to see how any deal which did not include provision for financial services would be one that the UK could accept.

What is contained in the guidelines, however, is a commitment that the free trade agreement should include “ambitious provisions on movement of natural persons as well as a framework for the recognition of professional qualifications”, provisions which are likely to be welcomed by businesses.

With regard to future regulatory alignment, the guidelines stipulate that a future trade deal will only succeed if it includes “robust guarantees which ensure a level playing field”. Further, the guidelines provide that the aim should be “to prevent unfair competitive advantage that the UK could enjoy through undercutting of current levels of protection with respect to competition and state aid, tax, social, environment and regulatory measures and practices. This will require a combination of substantive rules aligned with EU and international standards, adequate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement mechanisms in the agreement as well as Union autonomous remedies, that are all commensurate with the depth and breadth of the EU-UK economic connectedness.” On the face of it, this would appear far more stringent than the suggestion, advocated by Theresa May that EU and UK law merely have the same outcomes.

On the same day as the Council’s draft guidelines were published, a draft resolution on any future UK-EU trade deal published by the European Parliament struck a somewhat tougher tone and emphasised the issues that will need to be bridged in the negotiations – bearing in mind that the European Parliament must approve any final deal.

The draft, which will be debated by the European Parliament, notes that membership of the Single Market and Customs Union is the only way to guarantee continued frictionless trade. In addition, it states that a Deep and Comprehensive Free Trade Area would require a “binding convergence mechanism towards the EU acquis and a binding interpretation role of the CJEU and does not allow cherry-picking of sectors of the internal market”. The statement in relation to the role of the CJEU, in particular, directly contradicts the proposals contained in Theresa May’s speech earlier in the week.

The text also notes records that it is a priority that a “level playing field is ensured and EU standards are safeguarded and a race to the bottom avoided,” and that maintaining a level playing field means abiding by the EU’s competition and state aid rules.

Finally, the draft notes that “limitations in the cross-border provisions of financial services are a customary feature of free trade agreements”.

Accordingly, while the possibility of a free trade deal on goods might be emerging, it appears that for services, something the UK would want to be included, there is still some way to go.

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