The House of Lords released a 130-page report Brexit: Trade in Goods this week. The report builds on extensive input from key British industries and a variety of independent consultancies and academics.
What is striking in this report is an apparent mismatch between what the UK’s leading industries care about and the Department for International Trade and DExEU’s current objectives, for example on which trade agreements with non EU member states to prioritise after Brexit, or how far to remain involved in EU regulatory agencies.
Business top worries – regulatory proximity with EU, smooth supply chains
The report works from the assumption that the UK will leave the Single Market and the customs union of the EU and that there will be a free trade agreement with the EU over time: this is indeed official UK policy.
The report calls for a transitional agreement between the two arrangements.
Below, a run through what business says on these post-transition arrangements.
Britain’s pharmaceutical and chemicals industry worries that “the cost of providing the proof of origin for a chemical or other manufactured product could outweigh the value of tariff reductions under an FTA” with the EU, so the House of Lords report.
That industry wants Britain to actively participate in the European Medicines Agency – which is currently located in London but will be relocated to another EU member state. Continued compliance with REACH, the chemicals regulation, and COMAH, the Control of Major Accident Hazard Regulations, remains important to the industry so as to be in a position to trade with the EU in future.
The capital goods and machinery industry wants continued membership of the EU’s single market. Rules of origin in the future UK-EU FTA are “a concern to the sector”, so the report.
The UK’s food and drinks industry fears losing its major EU export market if Britain’s food standards and regulations start to diverge from the EU’s. The sector wants “ongoing participation in the EU’s Rapid Alert System for Food and Feed (RASFF)”.
Oil and petroleum industries would like to maintain COMAH, and to “continue to influence” EU environmental and energy market standards. In the EU it is the organisation CEN that sets technical standards for the downstream sector, and Brexit “should make no difference”, said Chris Hunt, the head of the UK Petroleum Industry Association.
Autos are particularly concerned about rules of origin. “The current level of imported materials would be contrary to EU rules of origin if the UK were outside the EU”, the report explains, and this would be “a threat” to future investment in Britain’s so far flourishing car industry, so Mike Hawes, who heads the industry’s association SMMT. The SMMT is alarmed about the future status of the EU’s Whole Vehicle Type Approval system.
Aerospace and defence is also among those most concerned about the rules of origin of a future EU UK free trade agreement. The industry is worried it could lose the benefits of the EU’s Inward Processing Relief regime, by which the industry can import parts and components of products that are re-exported. In a free trade agreement with the EU, rules of origin would be “a particular challenge”, for the sector the House of Lords report says.
Industry representatives want the UK to remain in the European Aviation Safety Agency.
Non EU FTAs – priority in EU neighbourhood and Korea
Almost all industrial sectors interviewed by the Lords want the government to preserve as a first priority the benefits of the EU’s free trade agreement with Korea – this is particularly important to pharma and chemicals, capital goods and machinery, food and beverages, and autos.
Industry also wants to replicate the EU’s arrangement with Switzerland (a complex set of trade agreements, within the EFTA framework) – this is the case for pharma and chemicals, and capital goods and machinery.
Capital goods and machinery also want the UK to prioritise relations with Turkey – with which the EU is in a customs union -, and Mexico, which which the EU has an FTA in force that is currently being upgraded.
Britain’s food and beverages industry insists on preserving EU Africa Caribbean Pacific trade arrangements, including the South African EPA that was signed in 2016. The sector would also welcome “future trade deals with Canada, Vietnam, North Africa, the US, China, and Japan”, the report says.
Is the government listening?
The government for its part has said almost nothing on these precise topics. The only concrete information we obtain on ideas for rules of origin, is that the government is considering North American Free Trade Area or NAFTA style ‘diagonal cumulation’ for supply chains.
On standards, the government is considering conformity assessment arrangements similar to those in place between the EU and Switzerland, or between the EU and Canada, namely its regulatory cooperation forum, we learn in the report.
On the issue of whether to remain in EMA and EASA, Lord Bridges – who recently left the DExEU – is cited in the report as telling the House of Lords that the government was considering each EU regulatory agency individually and that it would look to “continue to play some sort of role” in some agencies.
Meanwhile, the UK government has established working groups on trade with Australia, China, Israel, India, New Zealand Norway, Turkey, South Korea, the Gulf Cooperation Council, and has announced regular talks with the United States.
What the UK government intends to do with Turkey and Norway (EEA) remains very unclear. In the spring 2017, Liam Fox visited the Philippines, Malaysia and Indonesia – none of these are countries cited as of immediate concern by businesses.
There are signs the government is hearing business on Africa: DIT has started to talk to SACU about the future of UK relationships with the southern African trade bloc this month, and announced this spring that it would maintain the EU’s trading relationships with least-developed countries (anything-but-arms trade preferences). Whether it will maintain the current EU General System of Preferences remains however unclear, despite the importance the food and drinks industry has placed on it.
