Project Practicality – the WTO Deal
Written by Caroline Bell
Far from “No-Deal” (or as it should more correctly be termed, a return to full sovereignty trading under WTO rules) being a disaster or a “cliff-edge” scenario, a deal based on WTO rules looks more and more like the best deal on offer.
As we draw closer to EU Exit Day on 29 March 2019, with no viable “deal” on the table, we are still deafened daily by the strident voices of those seeking to stop Brexit screeching that leaving without an agreement – as we will do by law – is akin to jumping over a cliff-edge, tumbling into an abyss, waking up on 30 March to chaos, confusion and disaster. Such wild and emotive assertions lend little credit to the arguments of these arch-Remainers, who would prefer permanent subjection to EU laws over which we will have no say to the many opportunities for growth and prosperity offered by self-government and independent trade, foreign, defence, social, environmental, energy and research and development policies. After all, 55% of our trade is already with non-EU countries, and our non-EU trade runs a surplus – unlike our trade with the EU, with which we run a whopping £95 billion annual trade deficit.
The desperate claims of Remainer MPs are even more risible than those of media pundits, since they cast serious doubt on their ability to read or even take note of the masses of no-deal Brexit legislation that has already been passed by Parliament to ensure there is no “cliff-edge” on 29 March 2019. Parliament, after all, has already legislated for a “no-deal” Brexit, principally through the European Union (Withdrawal Act) 2018 and the Taxation (Cross-border Trade) Act 2018, both of which seek to make the transition to an independent future as smooth as possible by domesticating EU systems businesses are used to precisely to avert the “chaos and confusion” so gleefully predicted by Remainer MPs.
The EU, too, has not been idle. It published a whole raft of no-deal preparedness notices on 19 December 2018, after the first vote on the Withdrawal Agreement was pulled, and announced further measures in January and February. Since then EU27 member states have published more bilateral arrangements to enable life to continue as normal after 29 March – bar a few formalities which are nothing to anyone used to travelling or trading further than the Continent.
Far from “No-Deal” (or as it should more correctly be termed, a return to full sovereignty trading under WTO rules) being a disaster or a “cliff-edge” scenario, it is looking more and more like the best deal on offer. It provides complete certainty under international law and conventions to which the UK has long subscribed. It prevents endless prevarication and delay while years are wasted trying to hammer out terms with an intransigent EU. And it delivers Brexit in full – no multi-billion pound divorce settlement, an immediate release from the jurisdiction of the ECJ, no requirement to follow EU rules over which we have no say, no border in the Irish Sea, no customs union, no EU control over our economy, agriculture, fisheries, no risk of new EU taxes being imposed on a UK that will have no ability to vote them down.
Below, we pull together some of the many announcements on trade, citizens and other areas that give a clear outline of what this WTO Deal looks like. Altogether, it presents a very attractive package of measures based on practical common-sense and mutual self-interest, just as a good business deal should.
The government has yet to publish the UK’s no-deal tariff, due to political arguments, but recent reports suggest that a low tariff model is now the preferred option. Cutting tariffs is at zero cost to the Exchequer, since all customs duties currently raised are collected on behalf of the EU, with only 20% retained to cover administrative costs.
DIT has, however, already published a list of EU trade remedies it will delete (66) as well as 43 it will retain to protect British businesses and consumers after Brexit. These figures alone show that having to implement the EU’s trade policy in full, as the Withdrawal Agreement and Political Declaration oblige us to do, could be very detrimental to our own commercial interests.
Despite not being able to commence any trade deals until after a complete Brexit (which means no backstop and no customs union as envisaged by the Political Declaration), the UK has rolled over some important trade and mutual recognition agreements to enable trade flows to continue unhindered in a no-deal Brexit – with the USA, Australia, New Zealand, Switzerland, Israel and South Africa among others.
Talks are continuing with a host of other partners, including Japan, with agreements expected to be in place by 29 March. It is obvious that third countries with EU agreements are waiting to see what status the UK will have in relation to the EU before they sign transitioning agreements, which makes uncertainty about the Withdrawal Agreement something of a blocker.
The government has joined the WTO Government Procurement Agreement, an annual market of public sector contracts worth £1.3 trillion, which British businesses will be able to bid for.
Several mitigation measures have now been made to prevent a legal black hole for cross-border financial services, which could have severe repercussions on the already fragile Eurozone banking sector. On 19 December 2018, the EU published a range of contingency measures for a no-deal Brexit, including equivalence guarantees to enable the continuation of derivatives contracts in the City. Regulations and decisions followed to give these measures legal effect. The Bank of England and UK Debt Office were given mutual recognition statusfor all key market areas on 30 January. In February 2019, ESMA (the European Securities & Markets Authority) recognised UK clearing houses (LCH Limited, ICE Clear Europe Limited and LME Clear Limited) as able “to provide their services in the EU in the event of a no-deal Brexit… in order to limit the risk of disruption in central clearing and to avoid any negative impact on the financial stability of the EU”.
A memorandum of understanding between the UK’s Financial Conduct Authority and ESMA allows asset management firms to continue trading as normal after a no-deal Brexit
Insurance firms are covered by a separate MoU between the UK’s Prudential Regulatory Authority and the EU’s equivalent regulators, although less than 0.5% of existing insurance business is not covered by no-deal preparations.
Elsewhere, the UK has signed a deal with the USA to enable mutual recognition, regulatory cooperation and the continuance of the £45 trillion worth of derivatives traded each year between the two countries (about a third of the £230tn of derivatives contracts traded in the City every year come from US companies, more than from any other jurisdiction).
Newspaper reports and surveys confirm that the post-Brexit landscape for financial institutions is now very clear, with contingency plans already triggered. The City of London is expected to retain its position as a global financial centre.
On 7 March, the British government provided a guarantee that flights to and from the EU would continue unchanged after Brexit: “Measures put forward by the UK and the EU will ensure that flights can continue in any scenario; deal or no deal. This is good news, not only for the industry but most importantly it reaffirms the fact that passengers can book flights with confidence, as normal.”
Here, the UK government sets out in detail its reciprocal arrangements to the EU’s no-deal offer on aviation, in many cases going beyond the EU’s offer to maximise competition and offer better choice to consumers.
The UK has already signed open skies aviation agreements with the USA and Canada, and as all other third country flights will operate under international law and the 1944 Chicago Convention, leaving the EU will make no difference to non-EU aviation.
Eurotunnel has made it quite clear that its services and business model remain unaffected by Brexit:
“Yes – the Channel Tunnel will definitely be open after Brexit, and Eurotunnel will be operating as normal whatever form Brexit takes,” it has announced.
The Channel Tunnel is operated under the Anglo-French bilateral Treaty of Canterbury, and not under EU law, with both countries committed to facilitating “as frictionless trade as possible”. Eurotunnel goes on to explain:
There has been a recent story in the press about The European Commission providing authorisation for the Tunnel to continue to operate as it does now for 90 days after Brexit in the case of a “no deal”. This is just because agreed safety and operating licences can’t be signed between the UK and the EU unless the UK actually is a “third party” at the moment of signing. The 90 days means that these agreements will be physically signed after the 29th of March, without the service being affected in any way. We are Brexit-ready and pleased to let customers know they can book with confidence.”
Train scanners funded entirely by Eurotunnel at their hub at Calais-Fréthun can scan freight wagons for customs as they cross into France without trains needing to stop, thus opening up the possibility of rail freight from the UK all the way to China.
In addition to guarantees from Eurotunnel, French authorities have given repeated assurances that there will be no long queues due to new controls at Calais in the event of a no-deal Brexit.
The French government has now gone one step further, launching its smart customs border at Calais for 29 March 2019 to enable people and goods to keep flowing. The main incentive, as the promotional video says, is to maintain France’s dominant position in cross-Channel trade.
The “smart border” will operate for both ferry traffic and shuttle trains through the Channel Tunnel, enabling business to automate goods crossings by HGV through electronic pre-declaration of goods, a barcode linking the declaration to the goods and the registration plate of the vehicle, and dedicated lanes as drivers reach the port – green for “no checks” and orange if the vehicle needs to be checked..
This simply takes existing trusted trader schemes and electronic declarations and customs pre-clearance to its logical conclusion.
The idea of a 50-mile lorry queue in Kent often portrayed by Project Fear is, of course, dependent on hold-ups at Calais for ferries leaving the UK – and the French are not anticipating any problems. Nor is the port of Dover anticipating any more checks than it currently operates for lorries entering the UK. DFDS seaways has been focusing its resources on helping businesses deal with electronic customs, and this is, of course, the key to a frictionless border.
Certain legislative measures have already been made to ease traffic at RoRo ports, and the UK’s accession to the Common Transit Convention as an independent state greatly reduces customs formalities, allowing goods to move across multiple customs borders on a single transit declaration. CTC membership also moves certain customs formalities away from ports, thereby easing the pressure on these potential pinch points.
HMRC has offered guidance and even £8 milllion for training and IT grants to help traders to familiarise their staff and upgrade their systems for customs processes. Businesses used to importing from the rest of the world will already be familiar with the system, since the UK’s standalone customs regime is designed to keep rules essentially the same in order to minimise confusion and disruption. However, the government has just made legislation that will reduce the checks and formalities required at RoRo ports for a period of up to twelve months (Customs Managed Transition Procedure). Coupled with the simplified electronic processes already announced, the aim is “to keep trade flowing” by making customs compliance as easy as possible.
Further easements for excise duty movements and VAT have also just been published. This handy tracker keeps up to date with the latest no-deal statutory instruments.
People – citizens’ rights
Gallons of ink and much vitriol has been expended on citizens’ rights, yet it’s one of the few areas in the Brexit debate on which all parties have largely agreed. No one thinks it’s fair for people who have based their life choices on an existing system to be disadvantaged because that system has changed.
EU citizens already in the UK
The UK has unilaterally committed to protect the rights of EU citizens in the UK and has offered generous terms to enable them to complete the necessary formalities in order to obtain settled status. Applications must be made by 30 June 2021 and there is no fee. The process is simple, and applicants can receive confirmation of their rights by email after scanning documents through a Home Office app.
EU short stay visitors
Rules for EU visitors to the UK will not change either in a no-deal Brexit, with visa-free entry for visits of up to 90 days guaranteed. The EU has offered to reciprocate for UK visitors to the EU.
Rules for EU immigrants in a no-deal Brexit give them the same opportunity to live, study and work in the UK as now, up until 2021, provided they apply for a European Temporary Leave to Remain. If they wish to remain after 2021, they will still be eligible to apply for settled status.
In effect, this means that free movement of EU/EEA citizens for work and study continues until 2021 under a WTO Brexit. There is therefore no “cliff-edge” when it comes to recruiting and retaining staff from the EU.
UK citizens living in the EU27 countries
It’s unfortunate that the EU, which has made such a fuss about citizens’ rights, has not been able to reciprocate the UK’s generous offer. Whilst it had the authority to negotiate under the Article 50 talks, it doesn’t have a mandate to make bilateral arrangements, although it has encouraged all EU27 member states to guarantee the rights of UK citizens living in their countries.
Many countries have now published their guarantees to protect the rights of British expats in the event of a no-deal Brexit, including: France, Germany, Italy, Spain, Portugal, Belgium, the Netherlands, Sweden, Denmark, Finland, Austria, Ireland (which is of course covered by a separate bilateral treaty). However, some of these offers are not quite clear, since they are based on reciprocity for those countries’ nationals living in the UK – rights which the UK has more generously protected as outlined above.
The UK has already signed an agreement with the EEA countries (including Norway, which has 30,000 British residents) to enable current residence rights to continue, and the citizens’ rights agreement with Switzerland could perhaps serve as the template for bilateral treaties with the EU27.
UK visitors to the EU
The EU runs a very profitable tourist trade on visitors from the UK, and one of the first no-deal offers from Brussels was a 90-day visa waiver for short stay visitors from the UK provided there was reciprocity – which there has been. Portugal is so keen to ensure British holidaymakers still choose to visit that it has proposed fast-track UK-only passport lanes at its airports. It is an idea that is likely to catch on in hotspots popular with British tourists as destinations compete for business.
People – study & research
Students – Erasmus
Both the UK and the EU have proposed the continuation of current Erasmus programmes for the 14,000 EU students and researchers currently in the UK and the 7,000 UK students in the EU. The EU has published a regulation to come into force on Exit Day, while the UK government has guaranteed funding for all current programmes and students for the current cycle that ends in 2020, even for projects that continue beyond that date.
The government intends to seek a continuation of Erasmus participation in the event of a no-deal Brexit, and as this is set out as an objective in the Political Declaration, it is likely to meet with a receptive hearing.
Researchers – Horizon 2020 and beyond
The government has also guaranteed to underwrite Horizon 2020 projectsentered into before 29 March 2019 for the lifetime of the projects entered into by Exit Day. The government has also committed to develop a new UK research strategy providing a fund for research and development fund of 2.7% of GDP by 2027. In essence, research funds currently sent to Brussels and dished out through a complicated process between several countries will be able to be focused on projects run entirely from the UK (with or without overseas partners).
New Horizons…. In June 2018, the EU set out proposals for its next Horizon Programme, 2020-2027, in which non-EU countries will be able to participate for a fee. This concession is clearly aimed at keeping the UK within the Horizon programme.
It can be seen from all of the above that – to quote a hackneyed phrase – as the clock ticks down to 29 March, there is nothing whatsoever to fear from leaving the EU without an agreement and reverting to WTO rules. These rules have been long-established, are universally accepted, and present no change at all for the majority of our exporters. Only then will the UK gain the leverage it needs to propose the kind of free trade deal with the EU that would maximise the benefits of Brexit – when control of our borders, law and money has been repatriated to these shores.