The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

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Bruges Group Blog

Spearheading the intellectual battle against the EU. And for new thinking in international affairs.

Another nail in the coffin of the Single Market

Last month, an event occurred which got little fanfare, but is likely to have a significant effect on the future of the UK, especially after Brexit. What happened was that the WTO Trade Facilitation Agreement has now entered into force.

10th March 2017

The Single Market

Lord Lamont, the former UK Chancellor of the Exchequer wrote in The Telegraph:wto

‘The single market is open to all advanced economies, in exchange for paying a relatively modest tariff of 3 to 4 per cent, something that evidently does not stop non-EU countries from selling within it.

‘Every developed country has access to the single market. The EU has a relatively low external tariff with the exception of certain goods such as agriculture.’[i]

When taken prima facie, Lord Lamont’s comments are seemingly correct. Only those countries who are essentially rogue states or have violated international agreements don’t have the ability to conduct trade with the EU, and the EU’s external tariffs are fairly low.

But Tariffs are only half of the story.

The problem of tariffs could be easily addressed by the UK signing a goods Free Trade Agreement (FTA) with the EU. Given the high volume of UK- EU 27 trade, this is seemingly a given.

A basic FTA need not take long to complete. The EU’s earlier iteration the European Economic Community (EEC) concluded basic FTAs in the early 70’s that took 6-7 months to agree, sign and come into force.

But the other half of the story relates to non-tariff barriers (NTBs), sometimes called "Non-Tariff Measures (NTMs)". These comprise everything else that can slow down trade or make it more expensive or complex.

The European Commission describes the Single Market as:

‘…one territory without any internal borders or other regulatory obstacles to the free movement of goods and services. The Commission works to remove or reduce barriers to intra-EU trade and prevent the creation of new ones so enterprises can trade freely in the EU and beyond. It applies Treaty rules prohibiting quantitative restrictions on imports and exports (Articles 34 to 36 TFEU ) and manages the notification procedures on technical regulations (2015/1535) and technical barriers to trade.’[ii]

So the Single Market goes beyond tariff reduction, and encompasses far more than just a Free Trade agreement. This is why the ‘remain’ side in the EU referendum campaign were so concerned about the UK leaving the European Union’s Single Market.

‘Remainers’ believe that after Brexit, even if the UK does get a Free Trade Agreement, our importers and exporters will be deluged with red tape, endless forms, checks and other barriers to entry as we will be operating outside the Single Market.

These are valid concerns, but we believe they are largely exaggerated – and here are the reasons why:

wcoThe EU has signed up to the WCO

In July 2007[iii], the EU signed up to the World Customs Organization (WCO) which works to enhance customs co-operation between signatory countries and works to simplify issues such as Rules of Origin (ROO).

From the European Commission’s own press release:

On 30 June 2007, the Council of the World Customs Organization (WCO) decided to accept the request of the European Union to join the WCO as of 1st July 2007. This decision grants to the European Union rights and obligations on an interim basis akin to those enjoyed by WCO Members.

‘The WCO plays an important role in promoting international customs co-operation and addressing new challenges for customs and trade. It is deeply involved in designing and implementing policies worldwide that integrate measures, which help ensure supply chain security, combat counterfeiting, promote trade and development, as well as guarantee efficient collection of customs revenues. Membership of the WCO highlights and confirms the central role and competence of the EU in international discussions on customs issues including customs reform. EU involvement in the WCO will focus on the full spectrum of customs issues, in particular the following broad areas:

  • Nomenclature and classification in the framework of the Harmonised system;
  • Origin of goods;
  • Customs value;
  • Simplification and harmonisation of customs procedures and trade facilitation;
  • Development of supply chain security standards;
  • Development of IPR enforcement standards;
  • Capacity building for customs modernisation and reforms, including in the context of development cooperation;
  • Mutual Administrative Assistance for the prevention, investigation and repression of customs offences.

‘The EU is a contracting party to several WCO Conventions, and contributes to the work of this organisation, including by ensuring presence and coordination with the Member States in defining and representing EU positions in the relevant bodies managing these conventions.’

The UK signed up to the WCO in the 1950’s and is a signatory in its own right, so will be able to address customs issues with the EU via this body after Brexit.

 

Harmonisation with EU rules

The UK’s rules and regulations are already synchronised with EU/EEA (European Economic Area) regulations and standards after decades of membership. This will also be true on the day after Brexit due to the Great Repeal Bill. Hence a strong (if not overwhelming) argument for ‘rules equivalence’ can be made.

 

The WTO Agreement on Rules of Origin (ROO)

This agreement encourages WTO countries (including all EU countries) to have fair and transparent rules pertaining to Rules of Origin:

 wtostructure

These rules state that:

‘Rules of origin shall not themselves create restrictive, distorting, or disruptive effects on international trade.  They shall not pose unduly strict requirements or require the fulfilment of a certain condition not related to manufacturing or processing, as a prerequisite for the determination of the country of origin….rules of origin are administered in a consistent, uniform, impartial and reasonable manner’.[iv]

 

Guidelines in the EU treaties

treatylisbonArticle 8 of the Lisbon Treaty states that:

‘The Union shall develop a special relationship with neighbouring countries, aiming to establish an area of prosperity and good neighbourliness, founded on the values of the Union and characterised by close and peaceful relations based on cooperation.’[v]

As the UK will become a new ‘neighbouring country’ after Brexit, the EU is compelled to deal with us according to the Article 8 terms.

 

WTO Technical barriers to trade Agreement

The TBT agreement is key – it means that signatories (again, including the EU) agree to abide by rules about international product and technical standards. From the European Commission’s website:

The TBT notification procedure helps prevent the creation of international technical barriers to trade. It was introduced by the Agreement on Technical Barriers to Trade (the TBT Agreement), a multilateral agreement administered by the World Trade Organisation (WTO). It gives participants advanced knowledge of new technical regulations or conformity assessment procedures envisioned by other countries. The EU’s participation in the TBT Agreement helps businesses in EU countries access markets outside the EU.’

 

 

Aim of the TBT notification procedure

To avoid any potential technical barriers to trade, WTO Members submit national legislation at draft stage to other members of the TBT Agreement. They can then assess the impact on their exports and identify any provisions breaching the Agreement.

While allowing all WTO Members to maintain their right to adopt regulations, the TBT Agreement aims to:

  • prevent the creation of unnecessary and unjustified technical barriers to international trade;
  • prevent the adoption of protectionist measures;
  • encourage global harmonisation and mutual recognition of technical standards;
  • Enhance transparency.[vi]

The commission somewhat downplays the TBT agreement, however. What it actually states is that:

‘Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.

‘Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade.

‘Where technical regulations are required and relevant international standards exist or their completion is imminent, Members shall use them, or the relevant parts of them, as a basis for their technical regulations. Members shall give positive consideration to accepting as equivalent technical regulations of other Members, even if these regulations differ from their own, provided they are satisfied that these regulations adequately fulfil the objectives of their own regulations.’[vii]

Since UK regulations and standards will be equivalent to their EU counterparts from day one, and will continue to meet international standards going forward, it will be extremely difficult for the EU to reject UK products sold into the EU market.

 

WTO Trade Facilitation Agreement

The most recent agreement, the WTO Trade Facilitation Agreement (TFA) will further increase trade co-operation.

As the WTO website states:

‘The TFA contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area.’[viii]

Perhaps especially important for Northern Ireland post-Brexit, the TFA also states that:

‘Each Member shall ensure that its authorities and agencies responsible for border controls and procedures dealing with the importation, exportation, and transit of goods cooperate with one another and coordinate their activities in order to facilitate trade.

‘Each Member shall, to the extent possible and practicable, cooperate on mutually agreed terms with other Members with whom it shares a common border with a view to coordinating procedures at border crossings to facilitate cross-border trade.’

The WCO welcomed the ratification of the TFA agreement in their press release of 22 February 2017, in which they wrote:

‘The World Customs Organization (WCO) congratulates the World Trade Organization (WTO) on the entry into force today of the WTO Trade Facilitation Agreement; an agreement that will expedite the movement, release and clearance of goods, including goods in transit, and which sets out measures for effective cooperation between Customs and other authorities, as well as provisions for technical assistance and capacity building in this area.

‘The WCO takes this opportunity to highlight that it will continue to seek improvements throughout the global supply chain to obtain the highest levels of safety, security and integrity, which will enhance trade facilitation for compliant actors. This will ultimately have a positive effect on the relationship between all border agencies and the Private Sector.

‘The entry into force of the Trade Facilitation Agreement (TFA) is an important milestone for the international trade and Customs community, coming about as a result of the fact that it has been ratified by 110 WTO Members, which pushes it above the threshold needed to take effect, namely ratification by two-thirds of the WTO’s 164 Members.’[ix]

 

In conclusion:

  • The volume and UK and EU will likely at least sign a basic goods FTA; meaning tariff-free goods trade will continue.
  • The UK’s rules and regulations are already synchronised with EU regulations and standards. This will also be true on the day after Brexit.
  • The UK and EU are signed up to the WCO, which exists to help simplify and resolve customs issues.
  • The WTO TBT agreement prohibits the EU from banning UK goods that meet international standards.
  • The WTO agreement on Rules of Origin means that the EU will have to ensure rules of origin are administered “in a consistent, uniform, impartial and reasonable manner” when dealing with exports from the UK.
  • The WTO Trade Facilitation agreement means the EU must co-operate with the UK on issues around the “movement, release and clearance of goods”.

When we combine these factors together we see that after Brexit, UK trade with the EU will be very similar after Brexit as before Brexit.

The EU has signed up to many agreements and treaties which in effect reduce the uniqueness of the single market.

Britain can therefore essentially have almost duplicate trade relationship by falling back on these international agreements (if necessary) which would mean that the UK could have the majority of the benefits of Single Market membership, but be free to choose which rules to obey when not exporting to the EU 27 countries or for domestic sale.

The TFA might not then be the final nail in the Single Market coffin (it is still useful to EEA members), but it is one substantial step towards reducing the importance of the Single Market to a post-Brexit UK.


[i] http://www.telegraph.co.uk/news/2016/06/13/not-only-can-britain-can-leave-the-eu-and-have-access-to-the-sin/

[ii] https://ec.europa.eu/growth/single-market_en

[iii] https://ec.europa.eu/taxation_customs/business/international-affairs/international-customs-cooperation-mutual-administrative-assistance-agreements/world-customs-organization_en

[iv] https://www.wto.org/english/docs_e/legal_e/22-roo_e.htm

[v] http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-european-union-and-comments/title-1-common-provisions/6-article-8.html

[vi] https://ec.europa.eu/growth/single-market/barriers-to-trade/tbt_en

[vii] https://www.wto.org/english/docs_e/legal_e/17-tbt.pdf

[viii] https://www.wto.org/english/tratop_e/tradfa_e/tradfa_introduction_e.htm

[ix] http://www.wcoomd.org/en/media/newsroom/2017/february/wco-welcomes-entry-into-force-of-the-wto-trade-facilitation-agreement.aspx

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Comments 4

Guest - KBL on Thursday, 16 March 2017 22:30

I agree that the TFA is helpful in the sense that the EU can't just turn round and say "We're not going to do any sort of deal with you on customs arrangements etc." But surely the real issue is more at a practical level. The Channel ports, for example, are not geared up for the kind of customs checks we will need once outside the Customs Union (which is different from the Single Market - EEA-EFTA States are in the Single Market but not the Customs Union). It's estimated that customs declarations will increase from around 85 million to 300 million. HMRC's IT system, CHIEF, was never designed for that. Yes, it is being upgraded, but it's not projected to be ready until 2019 - which leaves no time for slippage unless we get some transitional arrangements from the EU (e.g. allowing us to stay in the Customs Union for several more years until we really are ready). The new US customs system, ACE, has suffered repeated delays and is still not fully implemented, despite having an initial go-live date of 2015. There would also need to be additional facilities at Channel ports to carry out more customs inspections, so new physical infrastructure would be needed - all of which requires time and money. If we haven't got an efficient system in place, the resulting delays will cause serious congestion (each ro-ro ferry contains about 2 miles of traffic) - and delays to HGV traffic will cause chaos with the just-in-time delivery systems that most businesses rely on these days. Ports in France and elsewhere will face the same problem - and they too will need time to adjust (so even if we have a super-efficient system, HGVs will be backed up in the UK because they can't get through customs in France). No doubt in the fullness of time, these problems could be ironed out - but I would like to know how you think an orderly Brexit can be achieved given the scale of these problems, particularly if we end up leaving without any sort of deal, as has been threatened by the Prime Minister. If we walk out of negotiations, the EU will be within its rights to say "You chose to walk out - so we are no longer under any obligation to be nice to you based on the TFA."

I agree that the TFA is helpful in the sense that the EU can't just turn round and say "We're not going to do any sort of deal with you on customs arrangements etc." But surely the real issue is more at a practical level. The Channel ports, for example, are not geared up for the kind of customs checks we will need once outside the Customs Union (which is different from the Single Market - EEA-EFTA States are in the Single Market but not the Customs Union). It's estimated that customs declarations will increase from around 85 million to 300 million. HMRC's IT system, CHIEF, was never designed for that. Yes, it is being upgraded, but it's not projected to be ready until 2019 - which leaves no time for slippage unless we get some transitional arrangements from the EU (e.g. allowing us to stay in the Customs Union for several more years until we really are ready). The new US customs system, ACE, has suffered repeated delays and is still not fully implemented, despite having an initial go-live date of 2015. There would also need to be additional facilities at Channel ports to carry out more customs inspections, so new physical infrastructure would be needed - all of which requires time and money. If we haven't got an efficient system in place, the resulting delays will cause serious congestion (each ro-ro ferry contains about 2 miles of traffic) - and delays to HGV traffic will cause chaos with the just-in-time delivery systems that most businesses rely on these days. Ports in France and elsewhere will face the same problem - and they too will need time to adjust (so even if we have a super-efficient system, HGVs will be backed up in the UK because they can't get through customs in France). No doubt in the fullness of time, these problems could be ironed out - but I would like to know how you think an orderly Brexit can be achieved given the scale of these problems, particularly if we end up leaving without any sort of deal, as has been threatened by the Prime Minister. If we walk out of negotiations, the EU will be within its rights to say "You chose to walk out - so we are no longer under any obligation to be nice to you based on the TFA."
Robert Oulds on Thursday, 16 March 2017 23:31
Thank you for your comment. That was covered first in the Bruges Group paper What it will look Like: https://www.brugesgroup.com/media-centre/papers/8-papers/1243-what-it-will-look-like-how-leaving-the-eu-and-the-single-market-can-be-made-to-work-for-britain
Guest - KBL on Saturday, 18 March 2017 16:34

Thanks for your response. I assume you mean the statement on page 24 of the paper that "David Davis’ Department for Exiting the European Union must focus on addressing the logistical trade hurdles of delays at customs posts. The alternative will be even worse congestion on the M20 after Brexit than that which exists at present." I couldn't agree more. There is, however, precious little evidence that Dexeu is doing anything of the sort or that it even appreciates the gravity and urgency of the situation.

With respect, your recent blog posts still seem to be in campaign mode, arguing (essentially) that Brexit is going to be much more straightforward than some commentators suggest and all will be well. But we are now leaving the EU, so you have won that argument; surely the focus now should be on how to achieve successful implementation of Brexit? That may sometimes involve speaking truth to those in power - and asking why we are not hearing more from government about what they plan to do to address the serious challenges posed by Brexit. As you rightly identify in your paper, the customs issue is one of these, although I couldn't see where you explained what the solution would be. There was a mention of electronic systems and I would agree that technology such as numberplate recognition (in the case of HGVs) can help, but history suggests that projects of this type are rarely straightforward to implement and usually require more than 2 years to get them up and running properly. I can't see how we can possibly be ready for customs controls in 2019, in which case the only solution will be to seek some form of transitional customs union with the EU to give us more time to prepare after 2019. If you disagree, I'd be interested to hear how you think the problem can be addressed.

Thanks for your response. I assume you mean the statement on page 24 of the paper that "David Davis’ Department for Exiting the European Union must focus on addressing the logistical trade hurdles of delays at customs posts. The alternative will be even worse congestion on the M20 after Brexit than that which exists at present." I couldn't agree more. There is, however, precious little evidence that Dexeu is doing anything of the sort or that it even appreciates the gravity and urgency of the situation. With respect, your recent blog posts still seem to be in campaign mode, arguing (essentially) that Brexit is going to be much more straightforward than some commentators suggest and all will be well. But we are now leaving the EU, so you have won that argument; surely the focus now should be on how to achieve successful implementation of Brexit? That may sometimes involve speaking truth to those in power - and asking why we are not hearing more from government about what they plan to do to address the serious challenges posed by Brexit. As you rightly identify in your paper, the customs issue is one of these, although I couldn't see where you explained what the solution would be. There was a mention of electronic systems and I would agree that technology such as numberplate recognition (in the case of HGVs) can help, but history suggests that projects of this type are rarely straightforward to implement and usually require more than 2 years to get them up and running properly. I can't see how we can possibly be ready for customs controls in 2019, in which case the only solution will be to seek some form of transitional customs union with the EU to give us more time to prepare after 2019. If you disagree, I'd be interested to hear how you think the problem can be addressed.
Robert Oulds on Monday, 20 March 2017 10:09

Earlier we also covered those points here:
http://www.brugesgroup.com/blog/trade-issues-which-must-be-solved-by-david-davis-brexit-department
And in my 2013 book on he EU:
http://www.brugesgroup.com/component/content/article/8-papers/710-everything-you-wanted-to-know-about-the-eu?Itemid=101
The other blogs to which you refer cover different areas and show that the technicalities can be resolved, of course the issue of logistical issues caused through the trade procedures is still very relevant. We do speak frankly about this and I know the government are aware of this. With regards to campaigning, we have won a very large battle and continue to do so, but Brexit is still a long way from being delivered and implemented let alone secured. This is a long term political struggle for a post-EU Britain and post-EU Europe. Reform at home and abroad is still needed.

Earlier we also covered those points here: http://www.brugesgroup.com/blog/trade-issues-which-must-be-solved-by-david-davis-brexit-department And in my 2013 book on he EU: http://www.brugesgroup.com/component/content/article/8-papers/710-everything-you-wanted-to-know-about-the-eu?Itemid=101 The other blogs to which you refer cover different areas and show that the technicalities can be resolved, of course the issue of logistical issues caused through the trade procedures is still very relevant. We do speak frankly about this and I know the government are aware of this. With regards to campaigning, we have won a very large battle and continue to do so, but Brexit is still a long way from being delivered and implemented let alone secured. This is a long term political struggle for a post-EU Britain and post-EU Europe. Reform at home and abroad is still needed.
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Friday, 28 April 2017