What does the UK’s draft EU FTA text tell us about the negotiations?
The UK’s legal text provides welcome clarification on the negotiations as we approach the halfway mark.
The UK Government yesterday published a draft legal text of a proposed Comprehensive Free Trade Agreement with the EU, as well as annexes to the agreement and the legal text of other proposed partnership agreements such as on Transport, Aviation and Fisheries.
The documents published yesterday include all of the legal text of the UK’s negotiating position. These were submitted to the European Commission earlier on in the year on a confidential basis and have now been shared with Member States and the public for the first time.
The EU published its own draft version of a future relationship partnership with the UK on 18 March.
The text released by the UK provides some welcome clarification on the Command Paper published by the UK Government on 27 February providing more detail on the UK’s approach to the negotiations and pinpointing where there is agreement between the UK and the EU, and where there are differences – useful as we approach the halfway point in the transition period.
Below is a high-level summary of some of the detail provided in the legal text across key areas for the UK tech sector, as well as an update on the state of the negotiations and other key parts of the future relationship, such as data adequacy.
While progress has been made in some parts of the negotiations, the UK and EU have not been able to reconcile key differences on major framework issues. These include level playing field provisions, competition and state aid, and the overall governance structure of the agreement.
The differences between the two sides on these framework issues are now preventing the negotiating teams from moving onto advanced stages in their discussions, such as consolidating and agreeing final text, even in chapters where there is a high degree of agreement.
This impasse has halted progress across the breath of the negotiations, and it seems that until these framework issues can be resolved limited further progress will be possible.
The UK's Cheif Negotiatior, David Frost has set out the UK's concerns regarding this impasse in a letter to the EU Cheif Negotiator Michel Barnier which can be viewed here.
In any normal free trade agreement negotiations these kinds of disagreements would be expected at this stage, however given the unique nature of this agreement where returning to the status quo is not an option, and the tight timeframes, there is increased pressure to resolve the impasse quickly.
If this impasse can be bridged the progress made so far along with the legal texts of both sides point to several possible landing zones. There is nothing preventing a mutually beneficial agreement from being reached if the two sides can resolve their differences at the political level.
If techUK members have any additional information or further queries on the future relationship, please contact Neil Ross.
The UK’s proposed Free Trade Agreement with the EU:
Services and investment: One of the key chapters for tech UK members is the rules governing services and investment.
The UK Government set out four principles for the trade in services in its Command Paper in February.
- no limits on market access,
- reciprocal non-discriminatory national treatment,
- limitation of mode 3 (the requirement for a national presence) and,
- the application of the most favored nation principal so the agreement can be updated over time to reflect any new EU FTAs which go beyond the provisions agreed in this negotiation.
These principals are put into legal text in the UK’s proposed free trade agreement with some additional detail supporting the temporary stay of professionals for work purposes including intra-corporate transfers and graduate trainees.
The UK also proposes to allow the temporary entry of short-term business visitors without the requirement of a work permit, economic needs test or other prior approval procedures.
These will be welcome clarifications for techUK members, and it is good to see these commitments broadly reflected in both the UK and the EU texts.
Both sides have reported good progress on the services and investment chapter. This is credited to the UK’s asks being heavily based in existing precedent such as the EU’s agreement with Canada and a similar level of ambition between the two sides on what the services chapter should include.
This progress is good, as services chapters can be difficult and time intensive when consolidating text.
However, despite the good progress, there remain some areas of disagreement. For example, on the mutual recognition of professional qualifications where the UK’s asks have a higher level of ambition than has been given in previous EU free trade agreements.
The trade in goods: The two sides share the objective of tariff free and quota free trade, and while good progress has been made, there remain significant barriers to moving this part of the agreement forward. Particularly as the goods and technical barriers to trade chapters are most exposed to the EU’s demands on level playing field provisions and alignment on competition and state aid rules.
The UK’s proposals on the trade in goods are a mixed bag. While many are similar to those agreed between the EU and other partners such as Canada and Japan, others go further than this, or are novel suggestions without precedent in existing free trade agreements, for example the UK’s asks on rules of origin.
While these asks are good for market access they will require additional time to test and negotiate due to their additional complexity and how they push on the boundaries of what the EU has agreed with others in previous free trade agreements.
As such reports have highlighted that there has been more limited progress on the goods chapters, likely due to these larger framework issues and the added complexity.
techUK members will be concerned that limited progress has been made between the EU and the UK on proposals for mutual recognition agreements and conformity assessments.
Both sides will be aware that a failure to reach an agreement on these issues will create significant additional costs for businesses. It is therefore important that both the UK and the EU seek to make progress on this part of the agreement as soon as possible. As if no agreement is reached businesses in both the UK and EU will need to make costly changes to how they manufacture and supply certain products.
Digital Trade: The UK chapter on digital trade is well structured and includes proposals which echo the recommendations of techUK’s report A Vision for UK Digital Trade.
These include asks from the UK on preventing customs duties on electronic transfers, anti-data localisation provisions and commitments to a dialogue on emerging technologies and regulatory co-operation between the two sides on digital trade matters.
There has been good reported progress on the digital trade chapter which will be welcome news to members as we seek to encourage the UK Government to become a leading advocate for digital trade in its international trade strategy more broadly.
The wider future relationship discussions:
While negotiations continue on the free trade agreement there are a number of other key discussions which make up the wider future relationship that are of importance to members.
Data adequacy: The UK and the European Commission have made good progress in a positive environment on the UK’s data adequacy assessment. techUK understands that the UK Government is providing sufficient legal and technical support for the completion of this process and good progress between the two sides has been made.
We have been encouraged by the UK Government’s transparency on this by publishing a full explanatory framework for the adequacy discussions. While the timetable to complete the assessment by the end of December 2020 remains tight it is welcome to see signs of good progress in this vitally important area.
You can see an full explainer on data adequacy and the future relationship here.
UK Global Tariff: As well as publishing the legal text for the UK’s proposed free trade agreement with the EU the Department for International Trade has also set out the UK’s new global tariff which will replace the EU’s Common External Tariff on 1 January 2021.
These tariffs will apply to all imports regardless of where they originate from if not covered by a preferential agreement or a free trade agreement. For examples these tariffs will apply to goods imported from the EU if no trade deal is reached.
The released tariffs have clarified that the UK will reduce tariffs to 0% across much of the electronics sector, however a number, disappointingly remain above this level, such as the 14% duty on TVs/monitors.
The UK will also remove nuisance tariffs and has simplified a number of tariffs to reduce them to the nearest round number, with lithium ion batteries being a beneficiary of this.
You can see a techUK insight with more details on the UK Global Tariff here.
Research partnerships: Unfortunately, in the texts released yesterday the UK Government has not provided further information on the UK’s approach research and funding partnerships such as Horizon Europe.
Continuing participation European science and research programmes are of vital importance to the UK tech sector. UK universities and researchers have been at the heart of the success of the UK tech sector and maintaining the global links of our world leading institutions will be vital for this continued success.
Participation in these programmes will also be central to the Governments policy objectives on R&D and turning the UK into a ‘science superpower’.
The Government has said that these details will be published in due course.
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