Introduction
The choices of the UK government made during this Brexit negotiations provided person with a great set of challenges – but she has to adjust for – and multiple windows of opportunity. For example, having left the European single market Britain lost a guaranteed access to its largest market, located right on her doorstep, as well as opportunity to shape world-class regulations affecting more than 500 million people.
Likewise, the U.K.’s withdrawal from the European Union Customs Union, stripped Britain away from the collective negotiating power of the 27 Member States of the European Union, as well as the block's free trade agreements Britain has been contributing to for more than 40 years.
Quit Civil War with the Civil Service
Gladly, the UK separation from the European Economic Area created enough space for the government to deliver a comprehensive domestic market regulatory reform that combines both the public and UK’ international commitment to upholding highest possible standards in consumer, labour, environmental, and competition protections, while also accommodating the need for more business friendly, agile, efficient, and flexible regulation. Moreover, having an independent framework of balances and checks, as well as fairly autonomous regulators that enjoy jurisdiction over almost all aspects of the UK Internal Market, while preserving the union of the United Kingdom with greater regional and devolved representation.
Unfortunately, as it turns out, having every post and independent regulatory framework may backfire greatly: the United Kingdom Internal Market Authority has recently announced its motion to investigate and potentially axe Britain’s free-trade agreements with Japan and Australia amidst increasing competition concerns.
Increasingly regionalised pressure from Scotland and Wales to tear down compromises on consumer protection, particularly in the agricultural sector, resulted in a quiet and largely unseen war between the Department of Trade and UKIMA. The government decides to proceed with the deal no matter of the costs, while a notable share of Conservative MPs, that was the majority of Britain's regulators staunchly opposed the agreements, citing deeply-rooted imbalances and the lack of comprehensive commitment on the field of UK's score export: services and finance.
This whole quiet, almost cut-throating fight behind the closed doors, as formally surrounded group of more protectionist members of the Cabinet stick to their guns, with UKIMA’s support in line, resulted into something truly unprecedented.
Apart from massively postponing publication of the United Kingdom trade strategy papers, it highlighted the need for greater coordination between different departments and borders of Whitehall, especially the newly established ones, since a group young group of UK Internal Market regulators that already managed to unleash bleeding wounds within the Government – Just falling short of exposing those to the public, as the Civil Service, that staffs UK regulators, neutrality principle entered the game.
UK Agrees on How to do Trade
Fortunately for the Conservatives, that can be quite robust to internal fights, this whole thing didn’t actually turn in light to the public, well that’s by-product: the United Kingdom International Trade Affairs Commission seeing the light of the day instead.
To ensure the stability of new mechanism, the Commission was granted with delegated powers and the exclusive competence over the United Kingdom’s foreign trade and customs policy – with the HMRC rather implementing and caring out the regulations of UKITAC – with a unique power to negotiate, implement, oversight, and authorise Britain’s international economic partnership agreements on the behalf of England, Scotland, Wales, and Northern Ireland.
Apart from being an independent body, therefore being equipped with a Policy Committee – comprised of UK consumer, labour, environmental, stakeholders, and devolved, competition authorities, HM Government Department of International Trade – and Review Committees, the Commission also quarters a Civil Assembly and a parliamentary select committee to oversight UKITAC activities.
Considering quite consensual nature of the Commission, the newly signed United Kingdom Agreement on Foreign Trade, comes out as both a surprise as predictable outcome.
The Agreement negotiated by the UK Government with the Department for International Trade, English UKIMA representatives, the devolved governments of Scotland, Northern Ireland, Wales, and the UK Internal Market Authority more broadly, resulted into compromise arrangement to accommodate both more LPF and consumer, labour, and green protections of Wales and Scotland, with much more radical free-market approach to trade focused on maximum market access credentials of the DoT and the Government.
Next Generation Free Trade?
To facilitate all of those interests, the 0-0-X “Double-Zero-X” – also ladled Dynamic Trade Agreements – model being installed, combining the position with zero-tariff zero-quota – committing all participants to having trade in goods free from any quotative or tariff restrictions – with a flexible set of procedures that include:
- Dynamic Mutual Recognition Agreements (DMRAs) – are used to deliver a more flexible and robust mutual recognition framework. Unlike standard, and even enhanced Mutual Recognition Agreements, where both countries agreed to consider each other’s regulations equivalent and interchangeable – therefore abolishing the need for compliance checks on the border – the dynamic ones are able to evolve through time. DMRAs commit the signatories to maintain mutually equivalent standards and regulations, while ruling out any demands for further regulatory harmonisation. Most importantly, this type of mutual recognition enables national regulators to cooperate under an extensive framework, jointly developing new rules, mutually assessing policies, even creating joint bodies and jurisdictions – mainly through Combined Regulatory Authorities – if all participants agree. Agreements also allow national agencies to withdraw mutual recognition and equivalence either unilaterally or after a joint investigation, when divergence becomes to wide to manage. Equally, it is possible for a previously uncovered area industry to be included into mutual recognition framework by national regulatory bodies.
- Regulatory Divergence Adjustment Mechanisms (RDAMs) – Or applied to manage different regulations between trade jurisdictions. This means that enable national bodies to withdraw equivalence and implement “compensatory measures” (i.e., introducing nontariff barriers to trade) if either party believes that fair competition is undermined. In more specific terms, a mutually framework of rating and grading is proposed, for national regulators to assess and spotlight potential gaps or contradictions, as well as different levels of standards. While strictly prohibiting direct restrictions to trade, such as closing market access, introducing tariffs or quotas, RDAMs allow to downgrade or upgrade products and services providers under a jointly agreed set of criteria, based on the regulatory framework in the domestic country read that consumer protection, competition regime, labour rights, or environmental standards.
For example, this would chlorinate chicken and hormone-treated beef Australia ladled “C” in the UK, to warn British consumers about lower quality of the product, while British agricultural exports would be “A” rated, since complying with much UK higher standards. Accordingly, banks from Ghana selling to Canada would be graded “B” – though still being allowed to provide their services to Canadians – reflecting lower regulatory capacities and general performance issues of the national banking system. Canada's banks on the other hand are likely to be receiving “A” from Ghana financial regulator. In fact, this is a sort of agreement with both parties mark each other’s regulator and jurisdictions, then applying those to exported products and services.
Notably, having RDAMs in place is likely to rather help Britain’s partners then the UK itself, since London has already deployed rating & grading frameworks under the UK Internal Market Agreement, gradually expanding it cover exports as well.
- Trade Adjustment Mechanisms (TAMs) permit the use of state aid and wider incentives for deprived communities – without formally violating any competition agreements – in case policies remain applicable to other participating countries' companies as well. Such approach involves open tenders for public funding, universal access to fiscal incentives, and clear prohibition of any market access restriction or discrimination in state aid.
- Regulatory Partnership Agreements (RPAs) – ensure smaller jurisdictions are being able to challenge regulatory supremacy of larger economies, such as the United States, China, or the European Union, by establishing joint regulators or creating common rules, launching common stakeholder associations. Different regulators are also free to borrow different practices from their colleagues, as well as apply foreign regulation in their jurisdiction, with the agreement to go in as far as providing courts the right to use regulations and cases from different jurisdictions during their own judicial process. RPAs also enable information sharing between different regulators, as well as mutual recognition of qualification and work experience in civil service.
- Reciprocal Investment & Capital Movements Agreements (RICMAs) demand the participants to treat foreign and domestic investors equally, with identical rules applied across the economy, with no restrictions applied to provision of services or capital movement, except for sensitive sectors and security concerns listed under the agreement.
- Competitive Markets Support Agreements (CMSAs) is a specific type of regulatory cooperation concerning competition and anti-trust policy to provide legal certainty, providing the ground for joint investigation and enforcement. This also allows to set up common competition regulators and intermediating bodies when needed, provides for a free flow of data, with national competition bureaus becoming able to argue against their own either foreign government policies on someone's behalf, coupling with overseas peers if needed.
- Mutual Agreements on Competitive Advantage Maximisation (MACAMs) reframes the concept of the “Level Playing Field” applying to market access and flagman industries with a ratchet clause in place. MACAMs can be used to counter regulatory protectionism off the ground of comparative advantage, to open up previously locked sectors and regimes. The Agreement obliges the participants to recognise each other’s relative advantage, opening up largest export sectors and markets first. It can be also applied to deliver support for developing industries – if full market access is provided for foreign players maintained – without breaching competition provisions, or “catch up” domestic industries falling behind their international peers. It should be noted such agreements are mainly aimed at dispute resolution, linking broader issue of competition and fair play to market access instead of just aligning standards.
- Meaningful Dispute Resolution Mechanisms (MDRMs) effectively transfer trade dispute resolution and adjustment negotiations from diplomatic into an exclusively law matter, with legally binding decisions concerning national policies being carried out. Different pathways are available, with setting up a joint arbitrage panel being preferred. The panel shall interpret national laws of the participants as well the agreements they’ve concluded, to issue a final say concerning the dispute. More importantly, such panel must include national judicial representatives to agree on final interpretation of a national law(s) and/or an agreement, with business, consumer, labour, and other groups whose interests are concerned from the Member States.
The practice of including national judicial and stakeholder representatives is likely to result into heavily consensus-driven dispute resolution with maximum transparency and robust legitimacy in the public eyes, replacing the long-hated secret tribunals.
The panel may also be called by any concerned entity or individual, be that a government, an individual, a union, or a court itself.
Interestingly, DTAs consider abolition of all tariffs and quotas combined with weaker Mutual Recognition a precursor condition to the Double-Zero-X kind of deals. All participating parties involved legally commit to stop using tariffs and quotas in their trade with other participants, even as a retaliatory measure. Such a drastic shift from zero-tariff zero-quota being a “gold standard” to downgrading it to the “basic requirement” – apart from putting an unusually hight bar for UK trade deals – also reflect the current realities of global trade. Since over 60 per cent of modern trade barriers being derived from non-tariff and regulatory barriers, Britain seems to target deeper liberalisation and focus almost exclusively on regulation and dispute resolution advancements, putting tariffs out of the game with its trade partners. Which somewhat unsurprising, as the largest UK sector comprised of services and finance has never been that dependent on customs but rather national regulations and law.
Bearing this in mind, one more “basic” red line of the UKITAC claiming full – rather than diagonal or bilateral – accumulation for the rules of origin doesn’t seem that unusual at all:
- Assuming all UK trade deals involve zero-tariff zero-quota instead of more complex reduction frameworks, it becomes apparent RoOs are unlikely to play a massive role in Britain’s’ future trade agreements, with the UK preferring its trade agreements to be trated as a single territory in terms of rules of origin.
UK's New Passporting: Global Hub for Services
Brought back to services, UK’s ambitions become apparent in light of its decision to launch a new system for certification of the industry and capital transfers largely designed after EU Financial Passporting regime. Not just all UK-based companies being automatically granted with a right to provide services and invest across the Internal Market – being later rated by UKIMA & Co., – UK Investment & Services Passporting Regime creates a somewhat unique “case-by-case” equivalence for foreign providers, varied by industry.
UKISPR creates a way for a foreign company located in a third country to receive a right to provide their services, as well as raise and operate British capital on UK stock exchanges with no intermediaries.
Most importantly, having UK Investment & Services Passport allows a foreign company to enjoy all the benefits of being considered a resident of the United Kingdom without setting up a different company. This includes same access to consumers and labour market, capital & funding, as well as interacting with other UK companies and market architecture such as payment systems.
Crucially, however, UKISP schemes enable foreign companies to access UK legal and judicial system, with the English (and by extent the Scots) Law being applied on the same grounds as to local companies. This also entails equal responsibilities and charges besides the field of taxation where foreign passporting certificates holders are obliged to pay an annual percentage of their UK revenues in a fee to avoid double-taxing with the company’s jurisdiction. The scheme is quite flexible and can be applied to an individual: be that a self-employed or an entrepreneur – with legal protections limited to their work filed and low-level certificated issues unless they are ready to confirm their expertise and credentials – with most of the market rights retained.
For better or worse, the system is quite restrictive when it comes to voting and stakeholder powers, with such foreign companies having no meaningful say over the Internal Market policies and regulations, unless being ready to either set up a subsidiary of visit the UK personally to apply for an enhanced passporting that require extensive checks and digging by Britain’s regulators.
The greatest advantage of the Passporting for overseas holders is its digital nature: it’s possible to apply for the license online without ever visiting the United Kingdom itself. Therefore, the regime heavily capitalises on the UK Nomad Visa, effetely expanding it cover companies and provide fairly enhanced rights.
As for global trade is concerned, the UK offers other countries to mutually recognise its Passporting Regime, allowing national services providers operate freely across the UK Internal Market and enjoy meaningful protection of Britain’s justice and legal system – permitting authorised companies to opt for brining cases under the UK legal umbrella – with the UK signing up for a reciprocal freedom for their companies when a similar scheme is being set up by a partnering country.
Deals List Outlined
Considering the U.K.’s departure from the European Union has not been fully and completely passed away, with Britain still has to conclude comprehensive trade agreements with countries that formally had negotiated deals with the EU.
UK makes a broader offer for “double-xero-X”/Dynamic Trade Agreements with to reaped current FTAs and the rollover deals. The proposal is aimed at the following countries:
- Albania
- Andean Community
- Equator
- Cameroon
- CARIFORUM (Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Saint Lucia, Saint Vincent and the Grenadines, Saint Kitts and Nevis, Suriname, Trinidad and Tobago)
- Columbia & Ecuador – via Andean Communities (Bolivia, Colombia, Ecuador and Peru)
- Central America Region
- Chile
- Côte d’Ivoire
- Eastern & Southern Africa Common Market (Burundi, Comoros, Congo, Dem Rep., Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe)
- Faroe Islands
- Chana
- EEA & EFTA nations
- Georgia
- Israel
- Jordan
- Kenya
- Kosovo
- Mexico
- Morocco
- Singapore
- South Korea
- SACUM (Botswana, Eswatini, Lesotho, Namibia, South Africa and Mozambique)
- Serbia
- Turkey
- Vietnam
- Ukraine
- DTA coupled with mutual passporting agreement has been offered to update Japan-UK CEPA deal.
- A comprehensive agreement with isolated fully accumulated rules of origin and common passporting agreement – permitting all Member State residents to provide serveries & capital and mutual legal protection across the Area – ladled Comprehensive & Strategic Economic Partnership Area (CSEPA) is put on the table for a common trade area between Canada, New Zealand, Australia, Singapore, and the United States.
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