The BREXIT Bulletin: Will the Singapore ruling mean the EU-UK trade deal avoids a parliamentary odyssey?
The ECJ’s Opinion provides some clarity on the EU’s trade policy competence, but raises more questions for Brexit.
The European Court of Justice (ECJ) may have provided the UK Government with an increasingly rare opportunity to shape Brexit’s negotiating playing field.
Arriving via the unlikely conduit of the Asian city state of Singapore, this opportunity relates to the EU’s legal authority to conclude comprehensive trade deals.
Trade agreements go beyond tariff barriers to encompass regulatory non-tariff barriers, public procurement, and intellectual property rights. The vast scope of such agreements has fundamental ramifications for the division of competence between the EU and its Member States.
Enter the ECJ and Singapore
Delivered on 16 May, Opinion 2/15 clarifies whether the EU can unilaterally ratify deals like that with Singapore, or whether, because the agreement also covers areas of competence shared with the Member States, their 38 national and regional Parliaments should have a say. Such agreements are often referred to as Mixed Agreements.
Readers need only recall how CETA - the EU-Canada agreement - was nearly ended thanks to the Walloon Parliament, highlighting how politics can interfere with trade policy - and not always helpfully.
So, with the stakes high, how did the ECJ’s Justices rule?
On balance the Opinion came down neither in favour of the EU’s exclusivity or of shared competence Rather the Opinion clarifies that the EU currently enjoys exclusive competence in transport services, public procurement and IPR, and shares it with Member States in non-direct foreign investment and on the controversial investor-state-dispute-settlement mechanism.
UK Government regains some initiative
The UK effectively has a choice to make. It could decide to pursue an agreement with the EU excluding areas of shared competence, thus avoiding a parliamentary odyssey. This would however, mean that the deal will be less comprehensive than the EU-Singapore and CETA deals, far from the unprecedentedly comprehensive deal that Prime Minister May has promised the British electorate.
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This weeks contents:
Sectoral Insight -UK Highlights -EU Highlights - Highlights from the US - Highlights from the Rest of the World -
Sectoral Insight: Consumer
Contributed by Robert Francis, Marketing Director and Head of Consumer, Grayling PA
Caution: Don’t expect the UK to do away with Precaution
The EU’s much-heralded Precautionary Principle has been a bugbear for businesses for many decades. Whilst legislative decision-making should probably be a balance between scientific and political concerns, too often it is politics which wins out over science, the result being blanket bans on substances whose risks have been exaggerated or in some cases misrepresented.
So perhaps Brexit represents an opportunity for the UK? Freed from the shackles of the EU’s precautionary legislation, the UK’s adherence to risk-based, light-touch, business-friendly regulation will ensure that there will be a swathe of industry-friendly legislation introduced into the UK.
Except it probably won’t work like that.
For one, the UK wants a “deep and special” partnership with the EU, one which grants them quasi-membership of the Single Market, if not a full member. This being the case, the UK cannot diverge too much from EU legislation, and its products exported to the EU will have to fulfill EU regulations on – for example – chemical safety.
Secondly, standardisation is now increasingly taking place at the global level, with evidence of regulatory convergence happening across both sectors and continents (see our Grayling Advantage report on this very issue). The UK being an open, global economy, requires it to be in step with prevailing regulatory trends. Thus, any divergence from EU law is likely to be limited in scope.
The Grayling view
Post-Brexit, the UK is unlikely to face any risk of sanctions from the EU if it adopts its own legislation relating to consumer safety. However for trade purposes, it is likely that, where possible, manufacturers will comply with EU rules if these are still acceptable to the UK.
Conversely, Brexit could provide the EU with an opportunity to further strengthen its precautionary policy-making, since one of its biggest opponents will be leaving. This could result in stricter provisions for consumer goods in the EU post-Brexit, from both an environmental and public health perspective. This could place further burdens on businesses, with the UK forced to follow in the EU’s wake in the case of a “deep and special” partnership. So much for taking back control!
The highlights from the UK
Manifesto week arrived in the UK with the launch of the three main parties’ manifestos. In an election which has been criticised by the press for being too focused on the respective leaders’ competences and not enough on policy detail, the releases provided some welcome clarity. All parties produced a number of fresh policies, however, the limited notice period ensured that major changes were scarce. All three of the main parties largely repeated their previous statements on their Brexit policies.
Labour reconfirmed their pledge to protect the rights of EU nationals and confirmed that they would seek to remain a member of a number of EU organisations and agreements such as Horizon 2020. They also pledged to reject a “no deal” scenario and to end freedom of movement.
The Liberal Democrats matched Labour’s promise to guarantee EU citizen rights but departed from the other major parties in their flagship policy of holding a second referendum on EU membership after a deal has been agreed.
The Conservative manifesto was more notable for the Brexit policy aims it ruled out than any new pledges on future policy. Its content was primarily a restatement of Prime Minister Theresa May’s Lancaster House Speech with membership of the Customs Union and Single Market ruled out. There was, however, no mention of membership of the European Court of Justice (ECJ). It was also interesting to note a new pledge on the money coming back to the UK from the EU following Brexit: a United Kingdom Shared Prosperity Fund will be used to reduce inequalities between communities across England, Wales, Scotland, and Northern Ireland.
In an election in which the result is almost certain, it is the Conservative manifesto which generated the most expectation and which is already receiving the greatest scrutiny. Although the Brexit policies set out by the parties are largely unchanged from their previous positions, there were notable changes – most strikingly the lack of mention of the ECJ. This could signal a major change in Government thinking and lead to elements of the UK’s future relationship with the EU falling under ECJ jurisdiction.
The scant and imprecise language utilised in the Conservative manifesto to detail May’s Brexit objectives leaves her and her team with plenty of flexibility in the negotiations. It is, however, concrete enough to ensure that May should have success in the UK Parliament. Notably, the manifesto commitment to leave the Single Market and Customs Union will make it difficult for the largely pro-EU House of Lords to frustrate May’s negotiations or vote down any future deal.
On the domestic front, May’s ambitious pitches to blue collar voters in traditionally Labour voting areas such as workers on boards, preserving workers’ rights, an energy price cap, and the restatement of the immigration target are indicative of a Government unafraid of external and internal party opposition. Many of these voters were leave supporters – a grouping the Conservatives hope to provide with a new natural home.
The highlights from Brussels
EU to grow, but Brexit concerns persist in the regions
On 11 May the European Commission’s Spring Forecast revised upwards the EU’s growth forecasts for 2017 and 2018 to 1.9%, even against the backdrop of Brexit-related uncertainty. EU Economic and Financial Affairs Commissioner Pierre Moscovici hailed the figures as “good news”, predicting that “in future, growth should remain stable”.
In contrast, Marco Buti, Director General of Mocovici’s Directorate-General, urged caution, highlighting the continued existence of structural deficiencies in the Eurozone.
Brexit threatens to provide such a shock. Indeed, the President of the Conference of Peripheral Maritime Regions (CPMR) has asserted that the “(R)egions are the first to feel the impacts of the challenges facing the EU”. Similarly, Markku Markkula, President of the Committee of the Regions (CoR), stated that Brexit is a predicament with its roots in the failure to devolve power to the regions. However, for Markkula Brexit is also an opportunity to fulfill subsidiarity’s promise by empowering regions as “drivers of change”.
The Grayling View
In the short-run the immediate Brexit implication for the EU’s regions is the loss of a net-contributor to the Budget, which could mean that less financing will be made available to the regions. In addition, any Brexit economic downturn in the UK will spillover to the EU, the effects of which will be felt more severely in the already exposed regions.
In the longer term, and allied to the election of Emanuel Macron as President of France, it is again a possibility that meaningful structural reform of the Eurozone can be achieved, featuring a Eurozone Budget and fiscal transfers. While decentralising power to the regions would certainly be of benefit, it is reform of the currency area that is of paramount importance.
Highlights from the US:
Contibuted by Dutko Grayling's D.C. Office
Ambassador Robert Lighthizer Sworn in as US Trade Representative
On 15 May, Robert Lighthizer was sworn in as U.S. Trade Representative (USTR), the last Cabinet-level official to join the Trump Administration. His arrival completes the President’s trade team.
Lighthizer has a long history in public service and in private practice as a trade lawyer. He served as Chief of Staff of the Senate Finance Committee, the Senate committee having jurisdiction over trade policy, under Former Republican Senator for Kansas State and Presidential Candidate Bob Dole.
He went on to become Deputy USTR in the Reagan Administration under former Tennessee Senator and then-USTR Bill Brock. More recently, he has practiced international trade law, representing mainly U.S. manufacturers in opposition to unfair trade practices in various markets around the world.
The Dutko Grayling view
Ambassador Lighthizer joins the Administration at a crucial time in the development of its trade policy. First on his agenda is the renegotiation of the North American Free Trade Agreement (NAFTA), which the Administration hopes to complete by the end of the year. Members of Congress in agricultural states and districts are very wary of the Administration’s intentions with respect to NAFTA, as most believe that NAFTA has been good for their home states. Ambassador Lighthizer will have to tread carefully as he attempts to implement Trump’s “America First” policy in this trilateral negotiation.
Beyond NAFTA, Ambassador Lighthizer is expected to pivot to Asia, where he will meet APEC leaders in Vietnam this week. With the U.S. out of the Trans-Pacific Partnership (TPP) and with the recent unveiling of a “down payment” trade agreement with China, Lighthizer will have to deal with the growing concerns of other Asian U.S. trading partners.
Finally, he is expected eventually to turn to the UK and the EU, where Brexit has complicated the future of U.S. trade deals in the region, including the Transatlantic Trade and Investment Partnership (TTIP), and a future bilateral US-UK agreement. Ambassador Lighthizer’s experience and competency should be a huge “plus” for the Administration and indeed for US’ trading partners. While the trade agenda is loaded with complexities, the new USTR is uniquely qualified to handle them.
Highlights from the Rest of the World:
The ACP and Brexit - Bananas, Market Access and Values
The EU’s trading relationships with the African and Caribbean (ACP) states are often overshadowed by blue riband negotiations and concluded agreements like TTIP, CETA and EU-South Korea. However, this has not stopped the ACP weighing in with its Brexit concerns, with the ACP’s Ministerial Council adopting Brexit resolutions on 4 May. Whilst reaffirming the ACP’s commitment to its trading relationship with the EU, the resolutions implore the EU to show flexibility in its negotiations with the UK.
The EU has been negotiating a raft of Economic and Partnership Agreements (EPA) with ACP states since 2002. To date EPAs have been concluded among others with regional blocs including the East African Community, the South African Development Community, and the Economic Community of West African States (ECOWAS).
The ACP’s concern is whether the UK will seek to replicate its commitments under the EPAs when they cease to apply to the UK or whether it will look to negotiate new bilateral arrangements. Uncertainty and the possibility of higher trade costs could adversely impact ACP exports, particularly for sugar and bananas. In the case of bananas, the UK accounted for 40% of ACP exports to the EU in 2015.
The Grayling View
With an average GDP per capita of $1,650 compared to the $51,638 in the United States in 2015, it is understandable that today access to the US’s market is considered more attractive.
EU-ACP trade accounts for 5% of the EU’s imports and exports, and this figure is only likely to increase as ACP countries’ economic development potential grows. The lure of the future size of the ACP market, allied to the EU’s desire to combine trade liberalisation with trade with values and propagating its regulatory model, has seen it preemptively leverage EU market access to conclude ACP deals.
For the UK, the relative ease of bilaterally concluding agreements with the ACP, the membership of which includes many Commonwealth States, should make its members prime targets for the UK Department for International Trade. However, UK Trade Secretary Liam Fox has rarely mentioned the ACP when prioritising the Department’s efforts, and conversely the EU’s labours in setting the direction of ACP bilateral trade means that the UK may struggle to carve out a position on the playing field.
Dates for your diary
22 May 2016 - Member States to Adopt the European Commission's Negotiating Mandate
8 June 2017 - UK General Election
19 June 2017 - Queen's Speech - Great Repeal Bill + 15 other Brexit Related Bills
11 June - 18 June 2017 - French Legislative Elections
1 July 2017 - Estonian Presidency of the Council
24 September 2017 - German Federal elections
End of October 2018 - Negotiations expected to end
Autumn 2018 - Spring 2019 - Likely Scottish independence referendum
March 2019 - UK expected to leave EU
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