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Partner, Attorney-at-Law, Head of International Trade Practice, Ilyashev & Partners
Free Trade Britain
On 17 October 2019 at the EU Summit the EU and Great Britain considered and approved the Agreement on the Withdrawal of Great Britain and Northern Ireland from EU and European Community (Brexit). The EU and GB also agreed on the Political Declaration setting up the framework for further relations between the parties by, i.a. by proclaiming the UK policy on ambitious, comprehensive, deep and flexible partnership on trade and economic cooperation. Such cooperation is supposing to be framed by a trade agreement between the parties.
Another important document agreed as part of Brexit is The Declaration of Her Majesty’s Government of Great Britain and Northern Ireland On Application of the Protocol on Ireland and Northern Ireland called “Democratic Consent in the Northern Ireland”. The document declares the preservation and continuation of the peaceful process between Ireland and Northern Ireland in the issue of border demarcation after Brexit.
On 24 January 2020, the Union and Euratom, and the United Kingdom signed an Agreement setting out the arrangements for the withdrawal of the United Kingdom from the Union and Euratom.
This withdrawal establishes a general framework which will allow companies to plan and ensure a smooth switch over to new market rules. This particular Agreement stipulates that:
– any goods and services legally placed at the EU or UK market shall enjoy the following rights until the expiry of the transitional period: shall remain at this market until reaching the final user;
– customs formalities initiated before the expiry of the transitional period shall be considered as those carried out on the territory of the EU;
– special customs regimes applied before or during the transitional period shall remain in effect until the expiry of its application, release of goods or whenever such goods are leaving the territory of UK;
– EU VAT rules, including access to relevant electronic tools (Directive 2006/112) shall be applicable to the goods and services within the EU and UK in case the period of its placement started before the transitional period and ends after its expiry.
This withdrawal undoubtfully has a meaningful effect to all out-of-EU countries. The Brexit Agreement means that from 1 January Great Britain is withdrawing from the EU free trade agreements with third countries.
Formally, until the full Brexit, GB wasn’t eligible to conclude trade agreements with any of the countries, because the EU Treaty foresees that this competence falls within the exclusive competence of the EU. Nevertheless, in parallel with negotiations on the Brexit agreement, the UK conducted a number of bilateral negotiations. The UK has already concluded the agreements with Andean countries, CARIFORUM trade bloc, Central America, Chile, Eastern and Southern Africa (ESA) trade bloc, Faroe Islands, Georgia, Iceland and Norway, Israel, Jordan, Kosovo, Lebanon, Liechtenstein, Morocco, Pacific states, Palestinian Authority, Southern Africa Customs Union and Mozambique (SACUM) trade bloc, South Korea, Switzerland and Tunisia. These agreements will take effect after full withdrawal of the UK from the EU.
It is of particular interest that the UK has already signed separate agreements with such EEA countries as Liechtenstein and Switzerland, which indirectly witnesses that the UK is not going to conclude a unified agreement between EEA countries or otherwise validate its relations with EEA in a bilateral format.
Also, negotiations are still in process in particular with the US, Canada, Turkey, Egypt, Balkans (Albania, Serbia, Northern Macedonia, Montenegro, Bosnia & Herzegovina), Ukraine and Moldova, Japan.
If negotiated, these agreements might enter into force already on 1 January 2021.
The UK has also signed a transitional agreement on mutual recognition of compatibility assessment of industrial products with the US, New Zealand, Australia and Japan. In the US-UK case such mutual recognition covers the telecommunications sector, electromagnetic compatibility, pharmaceuticals. The agreement with New Zealand covers sectors of electromagnetic compatibility, low voltage equipment, machinery medical devices, pressure equipment, telecommunication terminal equipment, pharmaceuticals. The agreement with Australia covers the same sectors as New Zealand, supplemented only with automotive products.
So a minor effect on bilateral trade between the UK and these countries in goods covered by these sectors is expected. Other non-EU countries such as Eastern Europe and Balkans should pay particular attention to the issue of mutual recognition. Countries of this region have the association and accession agreements with the EU and oblige to alien legislation and practices with the EU system of technical regulation and market surveillance.
For example, Ukraine has been struggling to conclude the mutual recognition agreement (so called ACAA agreement) for already three years after the Ukraine-EU Association Agreement came into force and considers itself as a country which guarantees the safety of industrial products in line with EU legislation and practice. Thus, conclusion of the UK-Ukraine mutual recognition agreement might be a less politicized step, but also a good precedent which might rediscover the new markets of Eastern Europe and the Balkans and contribute to diversification of trade in industrial products in Europe.
Despite the fact the UK conducts rather intensive trade policy in negotiating free trade agreements it is unlikely to compensate the negative effect of withdrawal related to the freedom of movement of goods and services. The scope of trade liberalization between the UK and other non-EU countries would significantly depend on the wording of a future EU-UK trade agreement and the time frame of its signing.
The withdrawal agreement stipulates that the transition period starts on 1 February 2020 and ends on 31 December 2020, but the Withdrawal Agreement foresees the possibility of adopting a single decision extending the transition period for up to 24 months.
Such extension will depend on two key factors: state of play with signing of the EU-UK trade agreement and bilateral trade agreements.
Meanwhile, the WTO should have remained as a basic standard of trade relations between its Member States, unless otherwise provided by the bilateral agreements. However, the only certainty in the context of UK membership in WTO is determined by the withdrawal transition period. According to the UK notification to the WTO, goods schedules, tariff data and services data of the European Union will continue to apply to the United Kingdom during the transition period. The same approach is taken towards participation of the UK in the dispute settlement where the EU is involved.
There are a lot of discussions in the legal community about a potential impact of the Brexit to the UK legal system. Brexit is unlikely to have a significant impact on the classical English legal system, especially as regards dispute settlement.
However, Brexit opens a totally new framework for development of court practice. After the ending of the transitional period EU acquis will not be applicable on the territory of the UK as well as jurisdiction of The Court of Justice of the European Union.
So, we find ourselves in the situation when a judicial system of a non-EU country whose legislation is based on EU acquis will acquire a right of interpretation of EU acquis-based legislation.
So far the Withdrawal Agreement and declarations agreed between the parties do not give clarity about the proportion of competences between national courts and The Court of Justice of the European Union after the transitional period.
Only Article 86.2 stipulates that The Court of Justice of the European Union shall continue to have jurisdiction to give preliminary rulings on requests from courts and tribunals of the United Kingdom made before the end of the transition period.
Formally, COVID-19 didn’t have any legal implications on the withdrawal process. It is also positive that despite travel restrictions, the UK and EU managed to preserve the dynamics of bilateral dialogue on the implementation of the Withdrawal Agreement.
It is also worth noting that the UK adopted a package of measures targeted at supporting UK businesses, particularly those involved in international trade. The mentioned state aid is mostly related to favorable credit conditions for UK companies which, amongst other things, guarantees covering 80% of loan facilities for SMEs with a turnover of up to GBP 45 million in order to cover their working and investment capital needs and direct grants to support SMEs affected by the coronavirus.
Despite the rather transparent free trade policy declared by the UK, the WTO membership format still remains unclear. However, it is unlikely to imagine a more favorable situation for UK negotiations with the WTO. The UK may use the upcoming world economic crisis due to national measures introduced to combat COVID-19, as a solid argument in its negotiations with the WTO both on tariffs and, which is more important, on reservations where it might be needed to protect the national economy.