Building capacity to help Africa trade better

Is Brexit now in the Emergency Ward?


Is Brexit now in the Emergency Ward?

Is Brexit now in the Emergency Ward?

Brexit is due to happen on 29 March 2019 but there is no agreement yet on how the future relationship between the UK and the EU (the UK’s most important trading partner) will work. The UK’s ruling party is deeply divided over the Brexit White Paper, published on 12 July 2018.[1] The EU’s chief Brexit negotiator has ruled out allowing the UK to collect customs duties on its behalf, a key UK proposal for post-Brexit trade.[2] Important questions on how the UK will trade with the rest of the world remain unanswered.

The UK government’s official plan for leaving the EU is contained in a Policy Paper entitled The United Kingdom’s Exit from, and new Partnership with, the European Union.[3] It contains the following points:

Trade in Goods

The UK wants a Free Trade Area (FTA) with the EU to govern trade in goods, including agriculture. But this will be a unique and intertwined FTA: There will be a “common rule-book” and a future treaty to harmonise UK and EU rules on matters such as origin and standards, to ensure “frictionless trade at the border”. This part has to ensure that there will not be a hard border with Ireland. However, it means the UK must agree with the relevant EU rules. The UK government wants to leave this aspect for future negotiations.

The role of the European Court of Justice (ECJ) is controversial. The UK wants the role of the ECJ in the UK to end. However, since the ECJ is the ultimate legal authority on EU trade rules, it is difficult to imagine Brussels agreeing to give up jurisdiction over its internal rules.

Customs Administration

The UK wants a “facilitated customs arrangement” (FCA) with the EU and proposes to enforce the EU’s tariffs and trade policy for trade in goods intended for the EU, and its own tariffs and trade policy for goods intended for consumption in the UK. Administration hereof will be cumbersome, complex and expensive. It is not done anywhere else on any significant scale, and will have to be phased in. The UK will not be ready by the end of the proposed transition period in December 2020.

EU Agencies

For goods involving high levels of regulatory control (because of safety and health standards), the UK seeks “participation” in the relevant EU agencies, albeit without voting rights. It will make financial contributions. The EU has rejected full UK membership of these agencies and demands acceptance of the jurisdiction of the ECJ.

Trade in Services

Trade in services accounts for roughly 80% of the UK economy, but the UK admits that it will no longer operate under the EU’s “passporting regime”, as this is intrinsic to the Single Market, which it will leave. Passporting gives financial and other service providers automatic access to EU markets. The UK argues that the importance of the City of London to the EU’s entire financial system requires a unique solution. More negotiations are foreseen. However, the EU opposes cherry-picking from the four freedoms that underpin the single market. The UK cannot have full access to the single market for goods and not services, especially if it is determined to end the free movement of people.

Freedom of Movement

Freedom of movement of EU citizens will end. The UK wants to “control and reduce net migration”. Details will be published in a separate White Paper.

How has the EU reacted?

The chief EU negotiator, Michel Barnier, wants the UK to make a choice. “The EU cannot, and the EU will not delegate the application of its customs policy and rules and VAT and excises duty collection to a non-member who would not be subject to the EU’s governance structures.” Some commentators have described this as a significant blow to Mrs May’s proposals, which are also criticised by pro-Brexit Tory MPs.[4]

What are the Implications?

The UK government has increasingly less room for manoeuvre. It’s getting harder for the Prime Minister to get things through Parliament. She has a divided party and no majority. The result is uncertainty for business; in the UK and, to some extent, also for third parties trading with the UK. While calls for a second referendum are widely rejected, that sentiment could change if this kind of deadlock continues. And time is running out.

London has promised developing countries that there will be no interruption in the present state of affairs. Preferential trade will be rolled-over bilaterally. African nations presently trade with the EU (and the UK as part thereof) under preferential trade arrangements such as the EU’s Generalized System of Preferences and the Everything but Arms scheme for Least Developed Countries. They were agreed and given WTO approval while the UK was an EU member. The African members of the SADC-EU EPA (SACU member states and Mozambique) can hold the UK to a binding trade agreement, although new tariff quotas and safeguard rules must be worked out for the post-Brexit phase. It will be necessary for Brussels to agree to adjustments to the SADC-EU EPA.

What will be rolled over and how? The present suggestion is that the UK and the relevant African governments will adopt legislation to ensure mutual preferential trade will continue. Certainty about the nature of a Brexit deal and about WTO compatibility then become important issues. Eventually the UK wants to conclude its own trade agreements with third parties, but they will take time to negotiate. (It took 7 years to conclude the EU Canada FTA.) The rolled-over dispensations may last for quite a time. The WTO grants waivers for preferential trade arrangements with developing countries and presumably the UK will apply for such waivers. Time will tell. Global trade concerns will then enter the debate.

What happens if there is no Brexit deal? For the UK it will mean a serious disruption in trade with its major trading partner. All UK trade with third parties will then have to be WTO compatible, in respect of all multilateral disciplines. For African states it will mean detailed trade agreements will have to be negotiated de novo or stand-alone preferential arrangements (which will also involve negotiations) must be established. A hard Brexit will also mean a massive governance revamp in the UK in order to establish all the national agencies required for regulating trade in goods, in services and for other disciplines. This will take a long time to bring about and to secure full legal certainty.

[1]  pdf The future relationship between the United Kingdom and the European Union | White Paper (748 KB) - July 2018

[2] See ‘Brexit: Barnier rules out key UK customs proposal’, BBC News, 26 July 2018.

[3]  pdf The United Kingdom’s exit from, and new partnership with, the European Union | White Paper (1.48 MB)  - February 2017

[4] https://www.bbc.co.uk/news/44964521

About the Author(s)

Gerhard Erasmus

Gerhard Erasmus is a founder of tralac and Professor Emeritus (Law Faculty), University of Stellenbosch. He holds degrees from the University of the Free State, Bloemfontein (B.Iuris, LL.B), Leiden in the Netherlands (LLD) and a Master’s from the Fletcher School of Law and Diplomacy. He has consulted for governments, the private sector and regional organisations in southern Africa. He has also been involved in the drafting of the South African and Namibian constitutions. He grew up in Namibia.

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