The Trade Bill and the implementation of trade agreements after Brexit

22 Nov 2017

On 7 November 2017, the Government presented to Parliament the Trade Bill. This is one of the eight bills that were envisaged in the 2017 Queen’s speech in order to manage Brexit.

The Trade Bill provides for

  • the power to implement the Government Agreement on Procurement,
  • the power to implement trade agreements with third parties which mirror those the latter have with the EU,
  • the establishment of a Trade Remedies Authority.

This blog entry will examine the power to implement trade agreements.

The power to implement international trade agreements

This power is laid down in s 2(1) which reads as follows:

An appropriate authority may by regulations make such provision as the authority considers appropriate for the purpose of implementing an international trade agreement to which the United Kingdom is a signatory…

The subject-matter of this power is about agreements with countries which have a trade agreement with the EU either at the time of Brexit or at an earlier time when the above regulations are made.

Why the power to implement trade agreements?

The power to implement trade agreements is provided for two main reasons. The first is practical and is about ‘continuity in the UK’s existing trade and investment relationships’ (para. 38 of the Trade Bill Explanatory Notes) with the countries with which the UK, pursuant to its EU membership, shares a trade agreement. The Explanatory Notes suggest that the aim of the Bill is ‘to establish a UK trade agreement with each partner country based, as closely as possible, on the corresponding trade agreement that country has with the EU’ (ibid).

The second reason for which the power to implement trade agreements is introduced in the Trade Bill is related to EU law. The UK is prevented from negotiating and concluding trade agreements whilst still an EU Member State. This is one of the reasons for which the Department for International Trade has been engaged in a scoping out exercise in third countries, merely exploring the possibility for possible trade deals in the future.

What is the scope of the power to implement trade agreements?

The scope of the power to implement trade agreements is broad.

First, it covers free trade agreements (FTAs) or agreements that mainly relate to trade (but it does not cover tariff provisions, as these would be dealt with under the Taxation (Cross‐Border Trade) Bill). This definition is quite broad and may catch a wide range of agreements. In the context of EU law, for instance, there is a solid body of case-law addressing the question which agreements relate mainly to trade. The definition provided in the Trade Bill would clearly cover, amongst others, mutual recognition agreements. The EU has free trade agreements with more than 50 countries (here) and is currently negotiating with an even greater number of  countries.

Second, the power to implement trade agreements is not confined to existing agreements between the EU and third countries, but also covers any agreements that the EU may sign with a third country prior to the Brexit date.

Third, the power to implement is about

  • modifying primary legislation that is retained EU law;
  • conferring functions on the Secretary of State or any other person, including conferring a discretion;
  • delegating functions;
  • providing for penalties for failing to comply with the regulations.

Fourth, the duration of the power is 5 years. This may be renewed for no more than 5 years at a time.

What lies underneath: implementation of trade agreements presupposes renegotiation

The power to implement trade agreements pursuant to the Bill appears to be about the transitional application of existing trade agreements. It may also appear to amount to grandfathering or rolling over existing trade agreements. In legal terms, neither of these positions is entirely accurate.

The power to implement pursuant to the Trade Bill presupposes the post-Brexit application to the UK of the existing agreements between the EU and third countries. Such application, however, requires the consent of the contracting parties under international law. While the UK is currently bound by trade agreements with third countries concluded either by the EU alone (such as the Agreements with South Africa on trade in wine) or by the EU and the Member States (such as the Free Trade Agreement with South Korea), both types of agreements would cease to apply to the UK after Brexit: the former because the UK is not a party to them; the latter, known as ‘mixed agreements’, because they are in essence of a bilateral character, even though the UK is a contracting party (the status of such agreements post Brexit was examined in this blog last year (here).

In the light of the above, the extension of the application of the existing agreements to the UK post Brexit presupposes the consent of the other contracting parties. This consent would require a modification of the existing agreements. It is for this reason that the Explanatory Notes to the Trade Bill state that ‘the new UK-third country agreements that are implemented through use of this power will be legally distinct from the EU-third country agreements on which they are based’ (para. 53).

There is no information as to the form of these ‘new UK-third country agreements’. Their scope, however, may vary. The existing EU-third country agreements would certainly require some amendments to their wording, so that they reflect their application to a state which is no longer an EU Member State. They may well require more than technical modifications. For instance, it may be necessary to adjust some of their provisions to the new post-Brexit trade reality.

The range and depth of such changes would depend to a great extent on the approach of the other contracting parties. Trade treaties, after all, are the outcome of long and complex negotiations and of package deals and compromises reached in a very specific policy context.  The Trade Bill presupposes the good will of third countries to extend existing deals to a completely new context. It may not prevent, however, these countries from seeking to unravel specific aspects of these deals in order to maximise the benefits for their economy.

The challenges of achieving what the power to implement trade agreements presupposes

In addition, therefore, to the negotiations that the UK carries out with the EU in the context of Article 50 TEU, there is an international trade layer to the current efforts to manage Brexit. It involves the third parties with which the UK currently shares trade agreements pursuant to its EU membership. The timely and successful outcome of such negotiations may be facilitated considerably by the cooperation between the UK and the EU – after all, the EU is a party to all the trade agreements to which the Trade Bill refers and which currently govern the UK’s relations with a considerable number of third countries.

The UK-EU cooperation on this issue is mentioned expressly in the Guidelines for Brexit Negotiations that the European Council adopted on 29 April 2017 (‘a constructive dialogue with the United Kingdom on a possible common approach towards third country partners, international organisations and conventions concerned should be engaged’, para. 13) (here). Similarly, the negotiating directives adopted by the Council on 22 May 2017 state that ‘a constructive dialogue should be engaged as early as practicable with the United Kingdom during the first phase of the negotiation on a possible common approach towards third country partners, international organisations and conventions in relation to the international commitments contracted before the withdrawal date, by which the United Kingdom remains bound, as well as on the method to ensure that the United Kingdom honours these commitments’ (para. 17) (here).

Two points about such a common approach are worth making. First, the overall climate of the Article 50 negotiations is bound to have an impact on how smooth and efficient the post-Brexit adjustment of the UK’s existing trade treaties would be.

Second, and following from the point made in the previous section, the willingness of third countries to accept the arrangements proposed by the UK or by the UK and the EU should not be presumed. In fact, the challenges of this process have already become apparent in the World Trade Organisation (WTO) context. In September 2017, the UK and the EU reached agreement about the adjustment of tariff rate quotas on the basis of historical averages. Before, however, they even notified the Permanent Representatives of the other WTO parties formally, they received a letter from the representatives of the United States, Canada, Brazil, Argentina, New Zealand, Thailand, and Uruguay in which this approach was rejected (here). In other words, adjustment or extension of existing trade relations post-Brexit would require negotiation.

The reliance upon Henry VIII powers

The power to implement trade agreements pursuant to the Trade Bill is a power for the executive. As it provides for the amendment by the executive of primary legislation that has the status of retained EU law (in the meaning of the Withdrawal Bill), it introduces Henry VIII clauses in the area of implementing international agreements. Whilst the power to implement is exercised by unamendable statutory instruments, its renewal is subject to a resolution of each House of Parliament (Schedule 2(4)).

The extensive use of Henry VIII clauses is a thread that runs through the Brexit Bills that have been presented to Parliament (see in this blog). It is a controversial aspect of the Withdrawal Bill that is being debated in the House of Commons at the time of writing. In the specific context of the Trade Bill, the scope of the power to implement is broad and is not be confined to merely technical adjustments. As the Department for International Trade acknowledges in a memorandum on delegated powers that accompanies the Trade Bill, the power ‘is broad enough to allow implementation of substantial amendments, including new obligations’ (para. 46). (here).

There is a disjunction between the implementation of trade agreements pursuant to Henry VIIl clauses and the increasing emphasis on transparency and accountability in international trade law. The latter has emerged in the last few years in response to the strong public disquiet about international trade deals and their implications for domestic legal orders. Whilst the extensive use of Henry VIII powers may appear to provide the process of the implementation of trade agreements with flexibility, it feeds into the growing concern about the lack of accountability in the area.

What is missing from the Trade Bill

The Trade Bill does not deal with trade agreements that the UK intends to negotiate once it has left the EU. It is also silent on the direction of the future trade policy of the UK. Instead, it merely provides the main elements of a mechanism for implementing existing trade agreements once the latter have been adjusted in order to deal with Brexit. In doing so, as this blog suggested, the Trade Bill leaves important issues open.