The EU’s Chief Brexit Negotiator has decisively rejected the United Kingdom’s proposal to manage its post-Brexit trade in goods with the EU. The UK’s White Paper – “The Future Relationship Between the United Kingdom and the European Union”proposes the creation of a “deep and comprehensive economic partnership” between the EU and the UK. (Click here for a summary of the White Paper.)

Three primary concerns drive the UK Brexit proposal with respect to trade in goods:

  • The reality of decades of participation in the EU integration process which has resulted in integrated supply chains between the UK and the EU. Currently, through its participation in the EU customs union, a product manufactured in the UK complies with relevant EU rules and is treated like a good manufactured in any other EU member;
  • The reality that the EU is currently the UK’s largest single trading partner. In 2017, 70% of UK agri-food imports came from the EU to support the complex international supply chains that comprise the food and drink manufacturing industry, the UK’s largest manufacturing sector;
  • The reality that a complete departure from the EU customs union will re-establisha border between Northern Ireland, which remains part of the UK, and the Republic of Ireland, which remains in the EU.

The UK will leave the EU Customs Union, the UK White Paper affirms.To address the above concerns, the proposal is to replace UK membership in the EU customs union with an EU-UKfree trade area for goods that incorporates a Facilitated Customs Arrangement.

Proposed Facilitated Customs Arrangement

The proposed free trade area for goods would have the following components:

  1. Zero tariffs on goods
  2. No quotas
  3. Application of selected EU standards on goods entering the UK
  4. No “routine requirements” for rules of origin

Under the proposed Facilitated Customs Arrangement –

  • Goods destined for the EU would enter and leave via the UK in compliance with EU tariffs and rules,but the UK would apply its own tariffs and rules to other goods;
  • The EU would continue to apply EU tariffs and policies with respect to its goods destined for the UK;
  • The UK would maintain a common rulebook of EU rules, including the Union Customs Code of rules and procedures applied in the EU customs union, and which UK agencies would apply and interpret consistent with the EU;
  • The UK would implement screening and repayment mechanism for goods to minimize the likelihood of goods being imported through the UK to evade EU requirements; and
  • The UK would apply EU cross-border processes and procedures for VAT and duty -excise purposes with respect to trade in goods, small parcels, and to individuals travelling with goods – including alcohol and tobacco – for personal use.

With these proposals, the UK hopes to keep its place within the integrated EU supply chain and protect the “just-in-time” processes that have developed “across the UK and the EU over the last 40 years”. There would be no need for border checks on goods entering under EU rules. UK firms would continue to manufacture for export products that could be considered “EU” goods.

In sum, the UK proposes an arrangement that would allow it to continue to operate as if it remained within the EU customs union, while selectively applying EU customs rules. These rules would be included in a Common Rulebook that would be legislated into UK law.

The Common Rulebook – Applying EU Requirements at the UK Border

The common rulebook would include only those EU rules that the UK considers necessary for frictionless trade. These, the proposal considers, consist primarily of rules to enforce environmental and health (sanitary phyto-sanitary or SPS) requirements.

The UK would commit upfront to ongoing harmonization with the common rulebook. Itwould also continue to participate actively, but without voting rights, on EU technical committees that have a rule in designing and implementing the rules that form part of the common rulebook.

Among the rules that would be excluded from the Common Rulebook are –

  1. Marketing and labelling requirementswhich the UK proposal considers are most effectively enforced on the market.
  2. Common Fisheries Policy (CFP) and Common Agricultural Policy (CAP) as the UK would set up its own domestic support policies
  3. EU Geographic Indicator rules as the UK proposes to establish its own GI scheme consistent with WTO-TRIPS-plus (to protect Scotch whisky, Scotch salmon, Welsh lamb).

Concluding Words

Leaving aside the challenges of implementing this complex scheme, Brexiters are not pleased with a proposal for the UK to continue to apply EU rules, however selectively,but without a voice in making those rules. The EU Chief Brexit Negotiator has rejected the idea of EU rules being enforced by a “non-member who would not be subject to the EU’s governance structures”.

The UK has not given up and has dispersed Cabinet Ministers to several EU capitals to make its case. It is likely, though, that the EU leaders, however sympathetic, will remind the UK that the offer to remain in the EU Customs Unionis still on the table.

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