The EU-UK Trade and Cooperation Agreement

January 13, 2021January 14, 2021

The EU-UK Trade and Cooperation Agreement

Let us be clear at the outset. Brexit was always going to be a lose-lose situation for both the UK and the EU. Having said that, the Trade and Cooperation Agreement (TCA) agreed on Christmas Eve between the UK and the EU which provisionally entered into force on 1 January this year was a very significant achievement for the two negotiating teams.

It represents a significant improvement over the ‘no deal’ Brexit that had threatened in the previous weeks. Critically, it prevents the imposition of tariffs on UK-EU trade, although subject to rules of origin to determine eligibility for the zero-tariff preferences. As important, it provides an agreed basis on which to develop the longer-term relationship between the two parties. This is far preferable to the outcome we would have faced if there had been a bad-tempered break-up followed by a debilitating blame game.

The Agreement respects the red lines of both parties. It allows the UK to enter its own trade deals, establish its own regulatory standards, regain control of its fisheries (after a transition period of five and a half years), and removes any role for the European Court of Justice. This requires that it leaves both the customs union and the single market. On the EU side, it minimises the economic damage by establishing a largely goods-only free trade agreement while preventing significant cherry-picking of the benefits of the single market. The EU was negotiating while looking over its shoulder at the precedents it might set for other countries (for example, Norway) that might see advantages in a Brexit-style trade deal.

The Agreement is only provisionally applied and is not yet home and dry. It has been adopted by the UK Parliament but has yet to be approved by the European Parliament. It will also require unanimous approval in the EU Council. Both steps are expected to happen by the end of February, although this date can be postponed. Although in EU legal terms the TCA is an association agreement, Member States will not be parties to it and it will not require ratification by the individual Member States in their own right. My view is that the UK deal is a high-water mark, given the size of the UK economy, and that other countries wishing to leave the single market would struggle to replicate its provisions.

However, ratification of the agreement is unlikely to end the Brexit saga. Negotiations are likely to continue on different issues. First, there are no provisions on mutual recognition of product testing (so-called ‘conformity assessment’), although the EU has such arrangements with various countries, including Canada, Japan, US and Switzerland. Second, there is no process for recognising equivalence of food safety measures, such as the EU has agreed with Canada. Third, there is no framework for mutual recognition of professional qualifications (although the qualifications of Union and UK professionals recognised prior to the end of the transition period will continue to be recognised in the other party under the Withdrawal Agreement).

Perhaps more important are the frequent opportunities for review and termination of the Agreement itself. The Agreement will be reviewed every five years (FINPROV.3). Either side can give notice to terminate the agreement without giving reason and it will end 12 months later (FINPROV.8). There are also many provisions on the termination or suspension of specific parts of the treaty. A review of the Agreement can also be triggered if a Party considers that the “rebalancing mechanism” (discussed in the following post) has been used frequently or if a measure which has a material impact on trade or investment has been in place for more than 12 months. If the Parties cannot agree on amendments to the Agreement, either Party may terminate the trade part of the Agreement which would also terminate the road transport part and, in certain circumstances, the aviation part. In addition, the Northern Ireland Protocol (part of the Withdrawal Agreement, not the TCA) rests on periodic consent by the Northern Irish Assembly, which must approve its continuation for the first time in 2024. At that point, the relationship with Europe might be back on the table.

This post reviews the early experience of implementing the Agreement focusing on tariff and non-tariff issues, It does not discuss the special provisions of the Northern Ireland Protocol which is governed by the Withdrawal Agreement even though it also entered into force on 1 January 2021. One of the major sticking points in negotiating the Agreement in the final stages was how to ensure a level playing field with respect to taxation, state aids, competition policy, labour and environmental standards. We look at the level playing field issues in a separate post tomorrow.

Tariff provisions

The Agreement provides for zero tariffs and quotas on trade in goods between the two parties, the first time the EU has agreed full liberalisation in a trade agreement. However, this is not as unrestricted as it sounds. Any free trade agreement (as distinct from a customs union) comes with a set of rules of origin.

These rules determine whether a particular product originates in the partner country and thus can benefit from tariff-free access. They are designed to avoid ‘tariff-hopping’ where a third country transships its goods through the United Kingdom to avail of the zero tariff preferences that the Agreement offers.

Rules of origin lay down the minimum amount of processing that must take place in the exporting country to claim ‘origin’ and thus the right to benefit from the tariff preference. For example, for electric cars exported between the UK and the EU after 2027, at least 55pc of the content must be of UK or EU origin if the car is to benefit from the zero tariff preference.

Rules of origin are also relevant to trade in food particularly for composite food products where some ingredients, such as sugar, cereals, coffee or cocoa, are sourced from third countries. Rules of origin create an incentive to use locally-produced inputs in the production of food and drink for export to ensure eligibility for the zero tariff preference.

Another instance concerns distribution channels where goods are exported from an EU country to a supermarket distribution centre in the UK. Some of these goods may be sent further to the supermarket’s stores in another EU country. Even though the product originated in the EU, it appears such transshipped goods may not qualify for zero-tariff preferences under current EU rules. The EU’s position appears to be that the UK should not expect to act as a distribution centre for goods moving within the EU in the future.

Non-tariff barriers

Even if trade is in principle free of tariffs, the TCA does not avoid the introduction of additional trade costs due to customs procedures, additional physical inspections when goods enter the UK or the EU, the need for health certificates for specific food products, changes in the treatment of VAT, and time and transport delays. In the longer term, if standards diverge, producers wishing to cater to both markets must meet both sets of standards and fulfil all applicable compliance checks by the appropriate bodies. These are an inevitable consequence of the UK leaving the EU customs union and single market.

Of importance for agriculture and food trade are the provisions for cooperation on sanitary and phytosanitary (SPS) measures. These are set out in Chapter 3 of the GOODS Title that also lays down separate provisions regarding cooperation on animal welfare, antimicrobial resistance and sustainable food systems. The SPS provisions do not go beyond WTO rules. As far as the EU is concerned, standard EU rules applicable to imports from third countries will apply to UK imports, and UK rules will apply to imports from the EU. For example, there is no provision for a reduced rate of inspections of animal products. Both parties have agreed to recognise each other’s organic certification.

The provisions for geographical indications acknowledge the status quo as set out in the Withdrawal Agreement. All EU geographical indications including for wines and spirits already registered in the EU by end December 2020 (the “stock”) will be protected in the UK by virtue of the Withdrawal Agreement. However, the UK refused to agree to protection of geographical indications that the EU could register in the future. Here it clearly wanted to keep open its options if negotiating free trade agreements with countries such as the US and others that take a different view to the EU with respect to geographical indications protection.

The full implications of these additional trade costs may have been masked in the first two weeks of the TCA as traffic volumes have been considerably lower than normal, due to pre-Christmas stockpiling, COVID restrictions, and because exporters are taking a wait-and-see attitude to how the new regulations will be implemented. Also, although the EU has applied full third country controls since 1 January, the UK is phasing in its controls over a six-month period. Pre-notification of products of animal origin and regulated plants and plant products will not be introduced until April 2021 and full customs declarations as well as physical checks and the taking of samples in relation to plants, animals and their products at Border Control Posts are delayed until July 2021.

Still, there have been many reports of disruption to trade over the past two weeks. Many of those affected are small companies that are not used to handling the requirements for exporting to third countries. Larger companies that handle the great majority of agri-food exports will have such systems in place and are likely to be less affected. Many of these problems are teething problems as importers and exporters learn to navigate the new procedures and will be resolved fairly quickly. The real impact of these additional trade frictions will take time to become apparent.

The TCA provides for arrangements such as mutual recognition of trusted traders programmes to ensure lighter customs formalities and smoother flow of goods. It also allows the possibility that Member States can enter into bilateral agreements with the UK concerning administrative cooperation in the field of customs and VAT, subject to Commission consent. For countries such as Ireland with significant trade with the UK, it would make sense to explore this option to increase co-operation with the UK authorities and to minimise the cost of these new trade arrangements.

Conclusions

The Trade and Cooperation Agreement between the UK and the EU is now in place. It is a bare-bones agreement, with the potential to evolve over time. A Partnership Council will supervise the operation of the Agreement at a political level, providing strategic direction. Any decisions made will be by mutual consent. The Partnership Council will be supported by a network of other committees, including on trade. The Commission will represent the EU in the Partnership Council, acting under the guidance of the EU Council. Each Member State will also be represented in the EU delegation on the Partnership Council and other joint bodies. These governance arrangements remain untested at this point. Also, compared to other EU free trade agreements, the TCA is potentially quite unstable, with many opportunities for review and termination in the coming years.

The immediate focus in the next two months will be on the ratification procedures in the EU and, in particular, the consent of the European Parliament. The Parliament only has an up-down vote, it cannot amend the Agreement. However, it is likely to want to strengthen its role in some of the procedures on the EU side in implementing the Agreement, for example, in monitoring implementation and Commission initiatives in raising issues in the Partnership Council. Brexit may be formally over, but post-Brexit life is only beginning.

This post was written by Alan Matthews

Image credit: Image by Conolan used under a Pixabay licence.

A shorter version of this post appeared in the Farming Independent, 12 January 2021.

June 17, 2014

Food safety in the US-EU TTIP negotiations

There is widespread concern that the ongoing negotiations on a transatlantic free trade area between the US and the EU, known as the Transatlantic Trade and Investment Partnership (TTIP), may result in a watering-down of EU food safety standards under US pressure to remove measures which are perceived as barriers to trade.
According to a report from the US-based NGO the Centre for Food Safety, “many analysts believe that a central aim of the negotiations is to dismantle many food safety regulations that corporations view as impediments to trade and profitmaking.”
Less dramatically, the European Consumer Organisation BEUC notes in its position paper that: “[…] the EU food legislative framework guarantees consumers a high level of protection and information. BEUC believes the TTIP should not lead to a downward harmonisation and that the EU should remain free to maintain, strengthen and enforce the rules it deems necessary to preserve the interests of consumers in areas such as food safety, GMOs, the use of growth promoters in livestock production or cloning.” (bolding in the original).
Does the EU have higher food safety standards?

Behind these concerns lies the assumption, often made explicit, that the EU food safety system guarantees a higher level of consumer protection than the US one. For some observers, this comes down to the fact that the EU gives greater weight to the precautionary principle in its food risk assessment, whereas the US approach is based more on a cost-benefit approach when reviewing food safety standards.
For others, the difference lies in the fact that the US tends to focus on achieving its food safety objectives by regulating the end product, while the EU has the tendency to regulate the whole production process.
Yet another difference is that the US regulatory authorities rely mainly on scientific risk assessment; in the EU risk assessment is science-based and centralised in the European Food Safety Agency EFSA, but EU risk management has allowed a wider range of factors, including social, economic, tradition, ethics and environmental factors, to be taken into account.
This perception that the EU has the more stringent food safety regulations is relatively recent, and dates mainly from the 1990s. As David Vogel, a professor of political science at Berkeley, California has observed in his book The Politics of Precaution, prior to then food safety regulation in the US was more risk-averse and precautionary than in the EU.
A good example was the Delaney Clause which established a policy of zero tolerance for any residue of carcinogenic pesticides or additives in processed food, no matter how small the risk or how tenuous the relationship between the results of the animal tests establishing carcinogenity and human exposure, at a time when no EU country had addressed this issue.
Vogel notes a number of the high-profile regulations introduced by the EU since around 1990 which are more stringent than in the US. They include: beef hormones – banned in the EU in 1985 but still permitted in the US; ractopamine, widely used as a feed additive in the US but banned in the EU in 1996; the milk hormone BST – approved for use in the US in 1993, but permanently banned in the EU in 1999; the introduction of GM plants, food and animal feed – permitted in the US since 1986, but restricted in the EU beginning in 1990; and antibiotics in animal feed – significantly restricted in the EU in 1998 and banned for non-medical use in 2006. The reasons for this role reversal are discussed in his book and summarised in this post.
Despite these high-profile differences (and others could be added, such as attitudes to pathogen reduction treatments for meat and poultry products), food safety regulation in both the US and the EU has similar objectives. The EU General Food Law (Regulation EC/178/2002) and the recent sweeping revision of US food law in the Food Safety Modernization Act 2011 (FSMA) share a basic mandate and contain many similarities in approach, such as the food industry’s primary responsibility for ensuring food safety, process-based regulation aimed at the whole supply chain, and linking international standards.
However, within these broad shared principles the differences in regulatory approaches noted above continue. They are summarised in the BEUC position paper in the following table. For example, under current FDA practices, food manufacturers can self-determine whether their products are safe and should be granted ‘Generally recognised as safe’ (GRAS) status and can just notify the Food and Drug Administration (FDA) about it. The FDA has no obligation to review manufacturers’ assessment.

Despite differences in regulatory practices, what matters at the end of the day are the outcomes. While there are a range of food-borne hazards to health, including pathogens, toxins, pesticides, chemicals and other contaminants, the most common food-borne illnesses are due to harmful bacteria, such as campylobacter found in raw milk or undercooked poultry; salmonella from raw chicken, eggs, or green onions; listeria bacteria from soft cheeses and lunch meats; or E. coli in undercooked hamburger or bacteria-laden lettuce.
Does the US have higher rates of food-borne illnesses (food poisoning) than the EU? Not according to figures put together by Jennifer McEntire of the Acheson Group, which is a food risk consulting group, based on data from EFSA in the EU and the Centers for Disease Control and Prevention in the US for 2012.

There are, of course, numerous problems in comparing data from two jurisdictions collected under very different circumstances, which are discussed in detail in this follow-up post by Jennifer McEntire. Nonetheless, there is no clear evidence from these data that the EU food safety system is far and away superior to the US one.
Regulatory convergence as a TTIP objective

Food safety regulations are just one example of the broader range of non-tariff or ‘behind-the-border’ measures. Where different regulations apply in the US and the EU, the need for firms to demonstrate compliance with both sets of regulations raises the cost of entering the other market and reduces the amount of competition to the detriment of consumers.
On the other hand, common for these non-tariff measures, whether they address food safety, health, environment, business conduct or labelling requirements, is that they are put in place in order to protect or benefit consumers. Such regulations are adopted after extensive debate and consultation, and there is a justifiable concern that such regulations should not be altered simply as part of a trade agreement.
The US-EU High Level Working Group on Jobs and Growth, whose recommendations in 2013 led to the launch of the TTIP negotiations, saw enhancing the compatibility of regulations and standards as well as the elimination, reduction or prevention of unnecessary ‘behind-the-border’ non-tariff measures as a significant opportunity to increase transatlantic trade and investment. Their final report foresaw five basic components of TTIP provisions tackling regulatory issues:
1. an SPS plus chapter which would build upon the key principles of the WTO Sanitary and Phytosanitary Agreement, and provide for improved dialogue and cooperation on addressing bilateral SPS issues;
2. a TBT plus component which would build upon the principles enumerated by the WTO Technical Barriers to Trade as regards to technical regulations, conformity assessment and standards;
3. cross-cutting disciplines on regulatory coherence and transparency for the development and implementation of efficient, cost-effective, and more compatible regulations for goods and services, including early consultations on significant regulations, use of impact assessments, periodic review of existing measures and application of good regulatory practices;
4. sectoral annexes containing commitments for specific goods and services sectors;
5. a framework for identifying opportunities for and guiding future regulatory cooperation, including provisions that provide an institutional basis for future progress.
The negotiations so far appear to have been closely followed this structure. A possible horizontal chapter laying down the principles for future regulatory cooperation apparently foresees a Regulatory Cooperation Council (RCC) and a more or less permanent dialogue between regulatory agencies on both sides of the Atlantic.
While TTIP will not alter the regulatory decision-making process in either the US or the EU (joint decision-making is not foreseen), the way in which sectoral agreements reached under the RCC process will be incorporated into EU law and what sanctions or enforcement mechanism might apply to ensure this remain to be decided.
SPS negotiations in TTIP

The EU position on food safety issues in the TTIP negotiations is set out in the SPS (Sanitary and Phytosanitary) paragraphs of its June 2013 negotiating mandate and a later paper on the EU initial negotiating position on SPS issues published by DG Trade. While the mandate remains a restricted document, it is widely available on the internet or in documents such as the annex to this Notre Europe report.
The EU’s aim is to negotiate an agreement which builds on but goes beyond existing WTO disciplines in this area through a so-called ‘SPS-plus’ chapter. As in other regulatory areas, it seeks a greater degree of regulatory convergence while underlining that there are some red line issues.
The mandate can be summarised in three elements:
• Minimise the negative effect of existing SPS measures on trade
• Without prejudice to the right of both parties to adopt and enforce measures to pursue legitimate public policy goals such as public health and safety
• While strengthening cooperation between regulators when drawing up future standards and increasing their cooperation in standard setting at the international level.
Under the first heading, the negotiating position envisages that existing SPS measures should be revisited with the aim to remove unnecessary barriers. The EU proposes to ensure predictability and transparency in the approval and authorisation process applicable to imported products, including risk assessments, timelines and technical consultations where necessary. Also under this heading, the EU seeks more recognition of equivalence where standards may be different but lead to equivalent levels of food safety, so that firms certified to sell in one market will also be able to sell in the other.
Under the second heading, the EU insists that the agreement should recognise the right of both parties to appraise and manage risk in accordance with the level of protection that each side deems appropriate, in particular, when relevant scientific evidence is insufficient (a nod to the precautionary principle). As the DG Trade issues paper puts it: “Regulatory convergence shall be without prejudice to the right to regulate in accordance with the level of health, safety, consumer and environmental protection that either Party deems appropriate, or to otherwise meet legitimate regulatory objectives.”
The third element recognises that TTIP cannot resolve all SPS issues ex ante and references the idea that this will be a ‘living agreement’ based on extensive future cooperation between the respective regulatory agencies. Behind this idea is the hope that, if the US and the EU can agree on common standards, there is a good prospect that these standards will then be adopted, either de facto or de jure, by other trading countries.
Is TTIP a threat to EU food safety regulation?

The concern of the critics is that this process of regulatory convergence in the SPS area will erode existing regulatory rules in the EU. Even if the rules themselves are not changed, the critics fear that the mutual equivalence principle would allow US food exports produced to different standards to be sold on the EU market.
Future standards or modifications to existing standards will need to take greater account of US concerns, although we should be wary of assuming that the US will always seek a lower standard of consumer protection than the EU. Also, in many areas food trade is now governed by more demanding private standards which firms on both sides of the Atlantic must meet, regardless of the level of public standards that are agreed.
The Commission has repeatedly stated that EU food safety laws will not be changed as a result of a TTIP agreement. That goes for genetically modified food and hormone-treated beef as much as for other products, according to Trade Commissioner Karel de Gucht. This is a large carve-out from an agreement focused on regulatory convergence.
The US position, as spelled out by the Business Coalition for Transatlantic Trade, is to seek the elimination of “illegitimate” SPS barriers and to eliminate the use of the precautionary principle in favour of “science-based decision making” in setting both current and future SPS standards. Obligations that go beyond the WTO should be subject to TTIP enforcement mechanisms. These positions are echoed in the US Trade Representative’s (USTR) negotiating objectives in the SPS area where the aim is “eliminate or reduce non-tariff barriers […] such as unwarranted sanitary and phytosanitary (SPS) restrictions that are not based on science…”
In principle, it makes good sense to identify ways to reduce costs associated with regulatory differences by promoting greater compatibility between regulatory systems in the US and the EU. But, in the case of food, it seems likely that the cultural, political and institutional differences between the two jurisdictions will continue to result in different perceptions of risk, and thus different regulatory outcomes.
As noted in this IPC report, both the US and the EU have signed up to the same set of principles in the WTO SPS Agreement, but nonetheless most of the agriculture-related disputes between the two jurisdictions have concerned SPS measures. According to reported remarks of US Agriculture Secretary Tom Vilsack in April this year, SPS issues are proving “very, very difficult” in the TTIP negotiations.
There are commitments that the EU can make to address US SPS concerns without altering its existing food safety rules. In the case of GMOs, for example, adhering to its own deadlines for the approval process for new GM events would be a major change from current practice.
With respect to decontamination treatments, the EU has already accepted beef sprayed with lactic acid to clean animal carcases. While it continues to resist poultry imports washed with chlorinated water, permission to use a peroxyacetic acid (PAA) solution during processing to reduce pathogens on poultry carcasses and meat is currently going through the EFSA approval process. In neither case is there anything harmful in the use of these treatments; the EU opposition is based on the belief that, with proper hygiene and handling throughout the total food chain, there is no need for these pathogen reduction treatments.
Whether small movements on these specific issues would be sufficient to persuade US agriculture to support a deal may depend on what is agreed about the way SPS regulations are made in the future. The objective on both sides is to reach agreement on an SPS-plus chapter, that is, on provisions that go beyond those agreed in the WTO SPS Agreement and that are enforceable under the TTIP dispute settlement process.
But exactly what might be agreed as part of this ‘Plus’ package, whether and how this would impinge on the EU decision-making process for food safety standards, and what rights would be given to the US to challenge the outcomes of this process in the future remains unclear at this stage of the negotiations.
If the negotiators do come to an agreement on a draft proposal, there must be sufficient time for all concerned to consider its implications. Trade is a legitimate interest to take into account in setting food safety standards, but it cannot be the determining factor.
Photo credit: Wikipedia, used under a Creative Commons licence.
This post was written by Alan Matthews