A post-Brexit EU-UK trade deal

A post-Brexit EU-UK trade deal

Overview: Hard-won protections become ‘barriers to trade’

Although both ‘no deal’ and remaining in the EU Single Market may resurface as options, the UK and EU’s current proposal is to frame their future relationship through a free trade agreement (FTA). This deal will have significant impacts on life in the UK, reaching into areas that seem remote from international trade like the NHS, schools, our rights at work and the protection of our environment.

The EU is by far the UK’s most important trading partner. In 2017, 56% of UK imports were from the EU, and 45% of UK exports went to the EU. The UK and EU also ‘trade’ extensively in service industries like banking, education and legal services, and digital trade in both products and data is growing swiftly. These topics are likely to loom large within the EU-UK negotiations. The corporate court system known as Investor-State Dispute Settlement (ISDS) will also be on the table, probably in its new guise as an ‘Investment Court System’ (ICS).

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. Where a deal touches on these areas, it will refer to them either as the ‘broad context’ within which the trade agreement sits but not as binding upon any trade activity, or consider them in terms of whether they are barriers to trade.

This creates a serious risk that our linkages to Europe will become funnelled through a harmful 'free trade' filter, whereby public ownership, environmental protections and workers' rights are treated as 'barriers to trade'. Once the UK is no longer subject to enforcement by the European Court of Justice, we will need strong new protections if we are to keep up the rights and standards that we are used to. This page summarises the risks for trade justice as the UK seeks to form a new trading relationship with the EU.

In depth: Key issues in a future EU-UK free trade agreement

The UK's trade deal with the EU will go far beyond goods tariffs, and will likely include chapters on services, regulation, digital trade and investment protection. Key risks of a 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

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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Service industries: The NHS, utilities and public transport

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.

Regulation: Environment, workers’ rights and other key 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.

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 a model of Dynamic Alignment that stands between the extremes of third country status (such as Canada’s relationship in CETA) and Single Market participation (such as Norway). Both these models present challenges. Regulatory Cooperation of the kind found in CETA raises important questions about democratic oversight, deregulation and corporate capture, and it does not provide anything close to the level of alignment with EU standards that many are seeking. Regulatory alignment within the Single Market is more comprehensive, as EU law and fundamental rights are applied via the EEA courts, which gives labour rights and environmental protections some direct effect. However the Single Market is still fundamentally a trading entity, and the key purpose of sharing regulations is to facilitate cross-border trade. Furthermore, the Single Market faces political opposition from some in the UK due to its free movement of labour provision, so this option may not be on the table as a means of achieving Dynamic Alignment.

It is in this context that the Chequers model was proposed, as a way of ensuring alignment in certain areas but not others. This faces political opposition from the EU since it is interpreted as splitting the four freedoms. Even if the EU were to accept this model, it still has limitations. The Chequers proposal is primarily about trade facilitation (to avoid the need for a hard border in Northern Ireland) rather than achieving environmental or social objectives. It therefore might not be strong enough to give workers, the environment and other standards decent protection.

Environmental groups, trade unions and other civil society organisations campaigning for Dynamic Alignment are therefore likely to find themselves calling for something distinct from the existing models. The following criteria should be taken into account:

  1. Non-trade focus: Civil society organisations should ensure that Dynamic Alignment is framed in terms of environmental and social objectives rather than trade facilitation. This means avoiding necessity tests and CETA-style Regulatory Cooperation.
  2. Bindingness: Civil society organisations should seek something more guaranteed than a commitment from the UK government in primary legislation. Dynamic alignment with EU regulations should instead form a formal part of an EU-UK treaty (though not necessarily a trade treaty), with clear legal recourse for civil society organisations and members of the public if the treaty is breached.
  3. Workability and political feasibility: Civil society organisations should extrapolate from existing models of regulatory alignment to articulate how they want Dynamic Alignment to be distinct from these. They should also aim to ensure proposals are politically feasible. This means recognising the EU’s objectives - not to split the freedoms of the Single Market and to ensure a Level Playing Field; as well as the UK’s - only to commit to alignment with the EU if this delivers sufficient market access in return.

Given the current options on the table, comprehensive Dynamic Alignment may only be available through UK participation in the Single Market, while a weaker form of Dynamic Alignment could potentially be achieved as an add-on to a CETA-style FTA. In both cases there will be trade-offs and compromises.

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. For this reason, they are far from being an adequate replacement for Dynamic Alignment, so are not covered in any depth here.

Digital trade rules: Cementing the dominance of tech platforms

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 digitisation for the public good.

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

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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 to date 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 new e-commerce agenda.

This e-commerce agenda mainly consists of bans on governments using various tools to manage digitisation. 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.

ISDS and ICS: One-sided corporate advantage

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. There is therefore no need to introduce ISDS between the EU and the UK through a free trade deal. More information about ISDS is available here.

Trade democracy?

The lack of democracy in trade negotiations is currently a major concern, as the UK parliament, civil society and the public get very little chance to input into-, critique or block trade deals under existing legislation. 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. 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 any 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 foreign investment, government procurement, e-commerce and services. 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 would have major knock-on effects on economies, social rights and environmental protections in the global South.

What TJM is doing about it

TJM is 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 laura@tjm.org.uk