This week marks the beginning of a new phase of the UK-EU negotiations with more frequent and restricted meetings to hammer out compromises. Chief negotiators for the UK, David Frost and for the EU, Michel Barnier have agreed on a condensed and intensified timetable that should take the two sides closer by the end of the summer.
This week the two teams of negotiators are meeting in Brussels for a face to face restricted round tackling some of the most difficult issues, namely the so called “level playing field,” the rules of origin, fisheries and governance of the future relationship amongst others on the agenda.
NFU EU exit and international trade adviser Lucia Zitti takes a look at the sticking points in the negotiations:
On the “level playing field”
It seems the EU is ready to soften its demands of the UK on the level playing field provided that the integrity of the EU Single Market is not compromised. This is likely to be welcomed by the UK, whose position on the issue is that it remains opposed to any requirement that limits our sovereignty and our ability to make or amend rules. However, on the possibility of the EU agreeing “looser” level playing field commitments, in return for the EU to have the right to raise tariffs on UK goods if commitments are not honoured, David Frost was clear that “the government will not agree to ideas like the one currently circulating giving the EU a new right to retaliate with tariffs if we chose to make laws suiting our interests. We could not leave ourselves open to such unforeseeable economic risk.”
From an NFU perspective, we recognise that the terms of the future relationship should acknowledge the UK as an independent, sovereign nation that wishes to retain control of its own rules and regulations. Attempting to restrict the UK by requiring it to agree to regulatory alignment and specific non-regression clauses restrains the UK developing its own domestic policies and misses one of the main points of Brexit “taking back control.” However there is a balance to be struck between: maintaining the high levels of environmental, climate change, social and employment protection we currently enjoy, alongside appropriate levels of regulatory equivalence with trading partners in the EU to maintain the smooth flow of trade in agri-food products, and ensuring a degree of regulatory autonomy so that our regulations are designed to take into account the specific conditions and challenges of the UK’s unique circumstances, which may in some instances mean that priorities differ to those which are applied at EU level. We think a compromise can be found that accommodates the EU’s concerns on the Single Market and the UK’s objective for sovereignty.
On rules of origin – weight vs value, diagonal vs cumulative
Another issue that sees the UK and EU positions diverging is the technical, but hugely important rules to establish the “origin of products.” Rules of Origin (RoO) determines what products can benefit from agreed preferential trade conditions (e.g. lower or zero tariffs). The UK is proposing RoO which means only “originating goods” can benefit from free trade. In some cases, the origin of a good is easy to determine (i.e. when the product is “wholly originating – for instance plants grown and harvested / animals born and raised). However, when the origin is not so apparent, the UK proposes that if the good is not wholly originating, then the parties should be able to use either the weight or value method to determine if a good has been sufficiently transformed. Although most modern free trade agreements (FTAs) use weight methodology, the ability to use value better accommodates premium products and any added value processing, it is also what is provided for in the EU-Canada agreement. The UK text proposes that bilateral cumulation between UK and EU should be allowed, as well as diagonal cumulation with countries with which both the UK and the EU have trade agreements.
The EU also proposes an approach to RoO which means only originating goods can qualify for preferential treatment. The EU proposes that if a good is not wholly originating, then only the weight methodology should be used to determine if a product has been sufficiently transformed. The draft EU text provides for bilateral cumulation with the UK but does not provide for any diagonal cumulation with mutual FTA partners.
The NFU is in close contact with the government on this issue and we have made the point that the government should seek to agree rules that preserve the established supply chains that already exist between the UK and the EU, but that does not enable the substitution of UK raw materials for imported materials more than is encouraged today. The NFU supports the government’s aim of using both the weight and value methodology and achieving diagonal cumulation. The latter often enables UK food and drink manufacturers to use more UK materials, for example the use of Canadian milling wheat in UK grist allows for greater use of UK milling wheat. Appropriate checks and balances should be in place to ensure the system is robust and the risk of it being undermined is minimised.
Finally, on the issue of governance, the UK and the EU have chosen a different format for the structure of the agreement on their future relationship. The UK wants a comprehensive free trade agreement (CFTA) covering substantially all trade to be supplemented by nine international agreements covering, principally, fisheries, law enforcement and judicial cooperation in criminal matters, transport, and energy. The UK’s position is that all these agreements should have their own appropriate governance arrangements, with no role for the EU Court of Justice. On the other hand, the EU wants a single package formed of general agreements, economic arrangements and security arrangements. Should a dispute raise a question of interpretation of Union law, the EU suggests that the arbitration panel should refer the question to the CJEU as the sole arbiter of Union law, for a binding ruling. The arbitration panel should decide the dispute in accordance with the ruling given by the CJEU.
The NFU agrees with the UK position that the CJEU should not be the final sole arbitrator in any disputes arising from the future relationship. This is a significant aspect relating to sovereignty and one which threatens to derail progress on the future relationship. It is essential that both sides find an acceptable compromise.
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