What does it take to achieve a trade deal?
13th September, 2018
In a recent statement made by EU Leave's Brexit Negotiator, Michel Barnier, he hinted that a special and unique trade deal with the United Kingdom is achievable within the Brexit negotiations.
This statement has been grasped by many commentators and analysts as an early and much needed turning point in the seemingly mired-in-the-mud Brexit negotiations.
In this newsflash, we will start to give you Ward Hadaway’s thinking on the key issues that make trade deals important and then how Barnier’s assurance can be converted into reality – by explaining the route map negotiators need to follow – most recently achieved with Canada.
The challenges your business faces without a trade deal
There are indeed challenges:-
Trading internationally benefits to some extent through the existence of the World Trade Organisation – members agree to work to common rules on how tariffs are applied – each member commits to apply tariffs equitably across all members. This leaves open, however, the opportunity for individual states to do more customised deals with selected other members of the organisation – these are the trade deals that the remainder of this briefing is concerned with.
- With no trade deal, tariffs can apply to goods and services you market. Clearly a competitive disadvantage arises – sometimes so significant that you will simply give up trying to sell into the territory.
- You may find selling impossible if there are no common understandings about product technical standards – leaving you faced with potentially prohibitively expensive modification requirements to allow you to sell your products into that territory. Again, you may well give up.
- If selling involves support services such as training and sales product support, you may find visa controls over visitors for business purposes over-complicated. You may have to manoeuvre through over-bureaucratic procedures to allow your staff to work within the territory on a short-term basis.
- If selling involves a decision to establish a branch or a subsidiary company or other legal business vehicle to achieve the sales, again there will be issues around your ability to invest in that territory. Without a trade agreement in place there may be outright restrictions on your ability to operate businesses in the country concerned or, where you attempt to do this on a joint venture basis (which may be a requirement in itself), the processes for ensuring you have control of the company will at best be complicated and, at worst, extremely difficult to understand as carrying no risk to your business.
- If you sell into the public sector, there are issues again where there is no trade deal. The vast majority of global countries are committed to the standards set by the World Trade Organisation. This is likely to assure you of being in a fair competitive position (in principle at least) in many territories when attempting to sell to central government. Trade deals become necessary however to secure an extension of the rights you have to compete for business with subsidiary public authorities and organisations which may be private sector but carry out public sector functions. The trade deal with.
How does the EU work towards achieving trade deals?
Given Barnier’s positive statement it’s important to understand just how the EU operates in this vital area. The starting point is to appreciate that all member states have delegated to the EU four relevant responsibilities. These are:
- trade in goods and services;
- commercial aspects of intellectual property;
- public procurement; and
- foreign direct investment.
Importantly, this means that trade deals can be struck without reference back to Member States for ratification – provided the scope of the deal stays within these parameters. We will come back to this issue!
The EU must of course, in turn, follow the rules of the World Trade Organisation – setting out red lines in particular aspects of what can be agreed. Our trade deal must not cut across pre-existing WTO rules, such as those applicable to public procurement by central government and rules requiring intellectual property protection.
Deals are negotiated through the European Commission. It needs a mandate and that comes from both The Council of Ministers and the European Parliament who agree the guidelines negotiators must work within.
The strategy adopted for negotiations will always be agreed with the counterparties to the deal and there will typically be “rounds” of negotiations – with report back to the Council of Ministers and the European Parliament at each stage.
Do international agreements need to be agreed to individually by the EU with each Member State? The answer is frequently yes. Whilst the EU has a widely drafted jurisdiction in the areas listed above, when it comes to trade in services and intellectual property protection – the EU’s powers are more limited – meaning that ratification at every Member State level is essential. The concept of provisionally adopting a trade agreement can come into play as is the case with the recently adopted Canada agreement.
Matters are in some Member States more complicated. A European Court of Justice decision has made clear that some Members – such as Belgium, are required to consult with regional governmental bodies and secure their approval of the deal struck before a ratification can be regarded as complete.
It’s interesting to see that a shifting political landscape in any Member State can provoke problems for already agreed deals. The relatively new Italian government has threatened not to ratify the Canadian agreement.
Returning to Barnier’s commitment, yes a trade deal can be achieved with the UK but working to the present timeline for the UK to exit the EU presents a considerable challenge – and to have any certainty given the ratification processes that can come into play it will almost certainly need to be scoped in a way that limits the deal to the four areas of jurisdiction listed above.
If you require any further information on the issues raised above, please do not hesitate to get in touch.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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