The post-Brexit EU-UK trade relationship

The post-Brexit EU-UK trade relationship

Overview: risks of a trade deal

Following the December 2019 general election, it now looks likely that the UK's economic relationship with the EU will take the form of a free trade agreement (FTA).

The EU is by far the UK’s most important trading partner. In 2018, 53% of UK imports were from the EU, and 45% of UK exports went to the EU. However, the UK's trade deal with the EU will go far beyond goods tariffs as we also ‘trade’ extensively in service industries like public transport, utilities and banking, and digital trade in digital products, services and data is growing swiftly. These topics, and the regulatory issues that accompany them, are likely to loom large within the EU-UK negotiations. This deal will therefore have significant impacts on life in the UK, reaching into areas that seem remote from international trade like the NHS, our rights at work and the protection of our environment.

A free trade deal between the UK and the EU is not just ‘less integration’ than EU membership, it is a very different kind of integration. The sole ambition of a trade deal is to make trade easier, and because it is mainly multinational companies that trade across borders, it will focus on providing what those companies want. A free trade deal is not designed to secure workers rights, protect the environment, co-ordinate energy and transport networks, or fulfil any other functions covered by EU competences, nor are trade deals suited to supporting public ownership of services like the NHS as these kind of 'monopolies' limit opportunities for investors. Where a deal touches on these areas, it will refer to them either simply as the ‘broad context’ within which the trade agreement sits, or consider them in terms of whether they are barriers to trade.

Shifting from EU membership to a free trade deal inevitably channels our linkages with Europe through a 'free trade' filter. Unless we succeed in getting a radical kind of deal, deatures of our society such as public ownership and high standards may be framed as 'trade irritants' and be under threat from the new trade rules. Our rights and standards will also lose the protection of EU law enforcement, which will be difficult to replicate through a bilateral treaty arrangement or in national law. Specific features of trade deals such as investor-state dispute settlement and ratchet clauses add to these wider issues, creating serious concerns about the future EU-UK deal.

The particular risks we face in an EU-UK deal include:

  1. Locking in the privatisation of public services
  2. Erosion of workers rights, environmental standards and other regulations by submitting them to ‘free trade’ principles and further corporate lobbying
  3. Scrapping the tools that could make the digital world work for people and planet
  4. Submitting to new ‘corporate courts’ that sue the public purse over changes to regulation
  5. Allowing important rules to be made undemocratically, behind closed doors

This page explores these risks in more detail, and explains what TJM is doing to influence the EU-UK negotiations.

A joint briefing from UK civil society organisations, co-ordinated by the Trade Justice Movement, which outlines priorities for the EU-UK deal is available here.

A detailed proposal for what a good trade deal with the EU could look like, developed by TJM in partnership with civil society organisations, is available here.

Today I can announce that I will push for three key things: Firstly, the UK will aim to revolutionise the rulebook on digital trade. Secondly, we will put services at the heart of our trade policy. And thirdly, we will continue to fight trade protectionism and improve international economic co-operation.”

Liam Fox, Secretary of State for International Trade (2018)

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Public services

Services have been a key target for trade negotiations since the 1980s. The WTO has already gone some way in commodifying services and making them a marketable ‘product’: this is discussed in full on our Services page. However the UK government and EU are keen to extend ‘free trade’ rules more deeply into our service industries. This could take the form of a Services chapter in an EU-UK FTA. This raises two key concerns:

  • Locking in the privatisation of public services like the NHS, utilities and public transport
  • Deepening the deregulation process that began within the EU

The EU has attempted to create a Single Market for service industries, most recently through the Services Directive 2006. Despite this being described as ‘the greatest exercise in deregulation in recent European history’ the UK government has made clear their view that the Directive in fact did not go far enough. They further state that, “FTAs can provide opportunities to agree ‘GATS-plus’ provisions.” The UK therefore seems keen to apply stricter free trade rules on Services than we are already subject to via the EU or the WTO.

Free trade deals pose specific risks, as they can contain problematic provisions that don’t exist within current EU services law:

1. A 'negative list' system for specifying which sectors the deal applies to

The EU Services Directive uses a hybrid 'positive' and ‘negative’ list, which specifies both the sectors that are covered by liberalisation measures and those that are not. Importantly, within the EU sectors like healthcare and public transport are not covered. Use of a negative list in the EU-UK trade deal would mean all sectors are covered except those specifically excluded when the agreement is signed.

The UK government has viewed the exclusion of public services like healthcare and social security from EU liberalisation as a lost opportunity, stating, “These services can represent a significant portion of EU GDP, so disregarding the Single Market framework entirely would limit the potential benefits of competition.” The UK may therefore push for the extension of free trade rules to services like healthcare that are not currently liberalised within the EU. Even if services like healthcare are apparently written out, such exclusions may be not legally watertight in all cases, as the way that exclusions must be written in trade deal schedules is extremely specific, so it is easy for aspects of services like the NHS to be inadvertently covered by liberalisation rules.

As well as privatisation pressures, dragging health and other services under EU-UK liberalisation could erode regulations that protect citizens, workers and the environment. According to the EU, “Hundreds of requirements have been abolished in important service sectors,” as a result of the EU Services Directive. If the EU-UK trade deal covers even more sectors than the Directive, we could lose vital rules and standards governing health workers, medicines and public transport.

2. A standstill or ratchet clause

Standstill and ratchet mechanisms, which are not contained in EU law but are increasingly contained in free trade agreements, require countries to maintain or increase their level of 'market openness'. They effectively ban countries from re-nationalising public services, which would make it very difficult for the UK to roll-back NHS privatisation or the selling off of railways, utilities and the Royal Mail.

3. A stronger necessity test on regulation

Necessity tests are clauses in international agreements that broadly say ‘governments may only make companies follow rules that are necessary’. The specific wording is important: the EU Services Directive currently contains a medium-strength necessity test in which regulations must be ‘non-discriminatory, necessary, and proportional’. Previously both the UK government and the EU have supported using the extremely deregulatory COO principle in Services, which would have allowed service providers from one EU member state to operate in another while following potentially much weaker labour, safety and environment regulations from their home state rather than local rules. Given this background, there is a risk that they may attempt to put a stronger necessity test in an EU-UK trade deal than exists in the EU Services Directive. This could lead to lawsuits against governments by other states or private investors, as well as regulatory chill as policy-makers try to avoid falling foul of the rules.

Use of a negative list, a standstill or ratchet clause, or a stronger necessity test could generate major impacts on jobs and workers rights, patient and customer care, and on the ability of councils and government to provide the strong public services and local economies that citizens demand. Excluding public services from trade deals is essential if we are to preserve and rebuild our health service, state schools, public transport and other key services we rely on.

Regulations and standards

A key concern for many civil society organisations in the UK is how we can hold onto decent rights at work, environmental protections and other important standards that are currently legislated, monitored and enforced by the EU. Details of different models used for co-operating on regulation are outlined on our Regulatory Cooperation page.

The Labour party, along with Trade unions, environmental groups and other civil society organisations have called for ‘dynamic alignment’ with EU regulations, by which they mean the UK commits to raise its standards in line with EU improvements. The aim of this alignment is to ensure that UK workers don’t end up with worse working conditions than their EU counterparts, and our environment and other standards continue to receive strong protection.

There is no precedent for achieving dynamic alignment through a free trade agreement. 'Regulatory Cooperation' of the kind found in CETA has tended to create pressures to lower regulations in order to align them, rather than the upward-alignment that people hope to achieve through our deal with the EU. Corporate capture is a serious risk, as Regulatory Cooperation has historically given corporations a meaningful voice in discussions on standards, while civil society views have been sidelined. Furthermore, Regulatory Cooperation does not provide anything close to the level of alignment with EU standards that many are seeking.

The EU-UK trade deal is expected to be based on the Political Declaration, which forsees a degree of alignment in certain areas but not others, and aims to apply 'strong disciplines' (i.e. limitations on rule-making) on several key areas of regulation. This presents serious concerns from a trade justice perspective, as important standards such as food standards, environmental protections and labour rights could be eroded, with little protection provided by the EU-UK deal.

Trade agreements also touch on labour and environment regulation through Trade and Sustainable Development (TSD) chapters. These usually provide vague and non-binding commitments, for instance that the parties should apply international standards such as the core ILO Conventions. There may be potential to improve upon existing TSD chapters by making their provisions much stronger and giving them legal force. However, this is a long way off, and in their current form they cannot provide any meaningful support to UK standards, so they are not covered in any depth here.

Digital trade

“Research shows that the value of data flows has overtaken the value of global trade in physical goods.” OECD (2016)

The digital economy reaches deeply into our lives, and much trade in goods and services as well as the transfer and use of data now falls under the title ‘digital trade’, aka e-commerce. The EU-UK trade deal is an opportunity for global ‘platform’ companies to cement their market dominance and erode our ability to manage digitalisation for the public good.

To date, digital trade within the EU has been governed by the E-Commerce Directive (2000), which mainly codifies common-sense rules on topics like online advertising, contracts and 'spam'. The EU's Digital Single Market strategy is working to bring down 'barriers' to digital trade within the EU, but the full agenda is not yet clear and the focus seems to be on practical co-operation projects on topics such as the use of robotics in farming.

None of the EU rules already in place bear much resemblance to the emerging global e-commerce agenda that is being promoted by the US, EU and other richer countries, and resisted strongly by India and the WTO's African Group. The UK and EU both want ‘strong commitments’ on digital trade in their FTA. It is likely that these ‘commitments’ will be free trade-oriented, in line with the e-commerce norms being negotiated at the WTO and already established in free trade agreements such as USMCA.

This e-commerce agenda mainly consists of bans on governments using various tools to manage digitalisation. Without these tools it will become increasingly difficult to build the kind of digital economy that we want, and to manage the issues that have arisen from unmanaged digital expansion, such as:

The UK and EU should maintain shared rules for the internet, for instance to standardise the use of e-signatures and fight spam. However, these should not be developed through trade discussions because these have a narrow remit that excludes broader social considerations. There are better forums, both in the EU and beyond, that we should use to regulate the digital economy and build the internet that we want. Information about e-commerce provisions to watch, and about positive alternatives, can be found on our Digital Trade page.

Corporate courts: ISDS and ICS

ISDS – short for ‘Investor-state dispute settlement’ – is an obscure parallel legal system that is created through trade deals and could be included in the EU-UK free trade agreement. Following public outcry, it has been reborn in the EU as the Investment Court System (ICS). Lawyers involved in ISDS are expecting an increase in cases during and following Brexit.

A huge range of government policies have been challenged by ISDS, including:

ISDS is included in many of the EU’s existing FTAs and the UK’s Bilateral Investment Treaties (BITs). Public opinion is not on side however, and distrust of ISDS was a key reason behind public opposition to the EU’s now-defunct TTIP trade deal. Countries have begun rejecting ISDS: South Africa, India, Ecuador, Tanzania, Indonesia and New Zealand have all taken steps to limit or terminate existing ISDS deals and refuse to sign new ones. The EU's emerging trade deal with New Zealand will not include ISDS due to public pressure, so there is a growing precedent for it to be left out of FTAs.

Importantly, there is no ISDS mechanism within the EU Single Market either: the European Court of Justice seeks justice for EU citizens and provides no special privileges to investors. Where bilateral investment treaties (which contain ISDS provisions) exist between individual EU countrie, these are now being terminated as they are seen to conflict with EU jurisdiction.

There is therefore no need to introduce ISDS between the EU and the UK through a free trade deal - this would be a new and potentially harmful mechanism, that countries can keep out of trade deals if they want to. It is vital that we avoid introducing it to the EU-UK relationship via the trade deal. More information about ISDS is available here.

Trade democracy?

In order to have any impact on the topics above, it is first vital that we secure a voice and vote for our elected representatives in trade discussions. Under current legislation, the UK parliament gets shockingly little input into trade talks. They do not decide whether or not to start talks, or what they should cover, and they are not even guaranteed a vote on whether to accept the final deal.

The Brexit process so far has broken this mould, with MPs carving out an unprecedented role for themselves in the treaty negotiations. This included securing amendments to Johnson's original Withdrawal Agreement Bill to ensure they had a meaningful role and a vote on the future EU-UK trade negotiations. However Johnson plans to bring back this legislation in its unamended form, so this future trade scrutiny would be lost.

Given the strength of UK public opinion around the EU-UK relationship, it is clearly unacceptable for this trade deal to be negotiated without public and parliamentary involvement. Civil society, along with many parliamentarians, business organisations and others, are applying heavy pressure on the government to change course. For more on this see our Trade Democracy page.

Impacts beyond the UK and EU

The content of the EU-UK free trade agreement will also have an impact far beyond the UK and EU, as a result of:

  • Most Favoured Nation (MFN) rules and;
  • The creation of trade policy norms that are later applied to developing countries

Most Favoured Nation clauses exist in most of the EU's other FTAs. These mean that many of the advantages (with some exceptions) that the EU extends to the UK must also be granted to the EU's other FTA partners, including South Korea, Canada, Vietnam and probably future partners like the US. This gives the EU-UK deal a wider reach, a factor which must be borne in mind when deciding which provisions and terminology we want to include. This also may constrain what the EU will be willing to put on the table in the EU-UK negotiations.

The EU-UK deal may also impact developing countries. Southern nations have resisted the trade agenda pushed by richer countries (the ‘Singapore issues’ and the ‘post-Bali trade agenda’) that aims to liberalise areas like services, foreign investment, government procurement and e-commerce. The future EU-UK FTA may cover these topics, and in doing so establish new norms. Once established, there will be added pressure for these norms to be adopted in other trade agreements including at the WTO. This could have major knock-on effects on economies, social rights and environmental protections in the global South.

What TJM is doing about it

Since early 2019, TJM has been working with its member organisations and wider partners, including trade unions, environmental groups, women's organisations and development campaigns, to develop a shared analysis of what is at stake in the future EU-UK trade deal, and to co-ordinate campaigning and lobbying to secure a better outcome.

If your organisation would like to be involved in this work, please contact