Brexit Free Trade Agreements and Preferential Origin ACITA

Brexit, Free Trade Agreements and Preferential Origin ACITA AGM/National Meeting – 6 th February 2019 Yves Melin, Partner, Steptoe & Johnson LLP www. steptoe. com

What is a trade policy for? • Purpose: • Increase prosperity: wealth, manufacturing, jobs, etc. • Achieve foreign policy objectives • How? • Improving market access for domestic products: lowering tariff and removing barriers to trade on foreign markets. Requires leverage. • Protect domestic markets from foreign products. Requires autonomy 2 www. steptoe. com

What does leaving the EU mean for the UK’s trade policy and the existing EU FTAs the UK benefits from? • Before Brexit: the UK pooled its trade policy with 27 other countries • The EU’s common commercial policy • Increased leverage to open foreign markets • Not a UK trade policy: need to take the interests of the other Member States into account • After leaving the EU: • Autonomous UK trade policy • Reduced leverage (smaller domestic market, less to offer, less of a threat) • Focus on purely UK interest • Brexit is not about free trade, it is about protectionism 3 www. steptoe. com

The UK’s free trade agreements today (1): the EU The UK’s free trade agreements today (1) 4 www. steptoe. com

The UK’s free trade agreements today (2): the EU’s FTAs 5 www. steptoe. com

The UK’s free trade agreements on 30 March 2019 • If the withdrawal agreement is ratified: • the UK retains access to the EU market during the transition period (reduced access afterwards) • the UK will cease to be a member of the Union, and therefore won’t be a member of the EU’s FTAs. • UK goods won’t count for the calculation of preferential origin anymore • UK goods will lose preferential access to EU FTA countries • Goods from EU FTA countries will continue to have access to the UK market (through the customs union) • If the withdrawal agreement is not ratified: • The UK loses preferential access to the EU market, and the markets of the EU FTA countries • EU and EU FTA products lose access to the UK market too. 6 www. steptoe. com

Preferential origin under EU FTAs and UK goods in the EU on Brexit day • Question: could some UK goods still be valid EU content for the purpose of calculating preferential origin under the EU’s FTAs? • How safe is it use UK goods (safest on top, least safe at the bottom): • finished goods with UK content are imported in third countries before Brexit • finished goods exported from the EU before Brexit • finished goods manufactured before Brexit • UK goods in inventory before Brexit. • UK goods in EU 27 territory before Brexit • UK goods at the port and not subject to customs declaration at the time of Brexit • UK goods in the territorial waters of the EU (12 Nautical Miles) on Brexit • The needs of business: as much UK goods as possible need to qualify for EU preferential origin • Practical consideration: customs cooperation for preferential origin verification 7 www. steptoe. com

What could an EU-UK FTA look like? • Unless the EU’s red lines move, the EU is unlikely to conclude an FTA with the UK unless the UK were to agree to something similar to the backstop: customs union and regulatory alignment in Northern Ireland. • If this is agreed, the FTA could be more or less ambitious (lowering of tariffs on goods at one end of the spectrum, EFTA plus customs union on the other hand). • Now, who knows what the EU-UK relations will look like after a hard Brexit? They may be damaged for a generation. Or the EU may realize that nothing happened in Northern Ireland, and agree to negotiate a regular FTA with the UK without customs union and regulatory alignment for Northern Ireland. 8 www. steptoe. com

Does it make sense for the UK to replicate the EU’s FTA with third countries? • Each FTA and its rules of origin reflect the balance between the two negotiating economies (EU + third country) and their respective economies. • Preferential origin claimed by third countries producers under the EU’s FTAs is often based on the use of EU parts from several Member States. • The UK’s industrial base is small: • Could UK manufacturers acquire preferential origin under thresholds designed to be met with the whole of the EU in mind? • Could third country producers acquire preferential origin if they cannot use parts from, say, Germany? Will they find those parts in the UK? 9 www. steptoe. com

Would the UK’s trade policy be stronger within the EU? • Withdrawal of Article 50 notification may be possible: • If CJEU follows opinion of AG (likely) • Must be done before 30 March 2019 • Could be done unitarily by the UK government • Rebate and other UK perks would remain • After 30 March 2019 • The UK need to reapply for membership, under Article 49 TFEU. • Any MS can oppose the UK’s membership (Spain, Cyprus, etc. ) • Easier to do in the transition period, when the UK’s rules are still aligned with the EU’s. • As an EU member state: • The UK would have the ability to influence the EU’s policies (the UK has had a major impact on the EU’s trade policy in the past 40 years) • Rule making, not rule taking 10 www. steptoe. com

Thank You ! Yves Melin Steptoe & Johnson LLP ymelin@steptoe. com Linked. In: yvesmelin 11 www. steptoe. com