Brexit, Free Trade Agreements and Preferential Origin ACITA AGM/National Meeting – 6th February 2019 Yves Melin, Partner, Steptoe & Johnson LLP

What is a trade policy for? Purpose: Increase prosperity: wealth, manufacturing, jobs, etc. Achieve foreign policy objectives How? Improving market access for domestic products: lowering tariff and removing barriers to trade on foreign markets. Requires leverage. Protect domestic markets from foreign products. Requires autonomy

What does leaving the EU mean for the UK’s trade policy and the existing EU FTAs the UK benefits from? Before Brexit: the UK pooled its trade policy with 27 other countries The EU’s common commercial policy Increased leverage to open foreign markets Not a UK trade policy: need to take the interests of the other Member States into account After leaving the EU: Autonomous UK trade policy Reduced leverage (smaller domestic market, less to offer, less of a threat) Focus on purely UK interest Brexit is not about free trade, it is about protectionism

The UK’s free trade agreements today (1) The UK’s free trade agreements today (1): the EU

The UK’s free trade agreements today (2) The UK’s free trade agreements today (2): the EU’s FTAs

The UK’s free trade agreements on 30 March 2019 If the withdrawal agreement is ratified: the UK retains access to the EU market during the transition period (reduced access afterwards) the UK will cease to be a member of the Union, and therefore won’t be a member of the EU’s FTAs. UK goods won’t count for the calculation of preferential origin anymore UK goods will lose preferential access to EU FTA countries Goods from EU FTA countries will continue to have access to the UK market (through the customs union) If the withdrawal agreement is not ratified: The UK loses preferential access to the EU market, and the markets of the EU FTA countries EU and EU FTA products lose access to the UK market too.

Preferential origin under EU FTAs and UK goods in the EU on Brexit day Question: could some UK goods still be valid EU content for the purpose of calculating preferential origin under the EU’s FTAs? How safe is it use UK goods (safest on top, least safe at the bottom): finished goods with UK content are imported in third countries before Brexit finished goods exported from the EU before Brexit finished goods manufactured before Brexit UK goods in inventory before Brexit. UK goods in EU 27 territory before Brexit UK goods at the port and not subject to customs declaration at the time of Brexit UK goods in the territorial waters of the EU (12 Nautical Miles) on Brexit The needs of business: as much UK goods as possible need to qualify for EU preferential origin Practical consideration: customs cooperation for preferential origin verification

What could an EU-UK FTA look like? Unless the EU’s red lines move, the EU is unlikely to conclude an FTA with the UK unless the UK were to agree to something similar to the backstop: customs union and regulatory alignment in Northern Ireland. If this is agreed, the FTA could be more or less ambitious (lowering of tariffs on goods at one end of the spectrum, EFTA plus customs union on the other hand). Now, who knows what the EU-UK relations will look like after a hard Brexit? They may be damaged for a generation. Or the EU may realize that nothing happened in Northern Ireland, and agree to negotiate a regular FTA with the UK without customs union and regulatory alignment for Northern Ireland.

Does it make sense for the UK to replicate the EU’s FTA with third countries? Each FTA and its rules of origin reflect the balance between the two negotiating economies (EU + third country) and their respective economies. Preferential origin claimed by third countries producers under the EU’s FTAs is often based on the use of EU parts from several Member States. The UK’s industrial base is small: Could UK manufacturers acquire preferential origin under thresholds designed to be met with the whole of the EU in mind? Could third country producers acquire preferential origin if they cannot use parts from, say, Germany? Will they find those parts in the UK?

Would the UK’s trade policy be stronger within the EU? Withdrawal of Article 50 notification may be possible: If CJEU follows opinion of AG (likely) Must be done before 30 March 2019 Could be done unitarily by the UK government Rebate and other UK perks would remain After 30 March 2019 The UK need to reapply for membership, under Article 49 TFEU. Any MS can oppose the UK’s membership (Spain, Cyprus, etc.) Easier to do in the transition period, when the UK’s rules are still aligned with the EU’s. As an EU member state: The UK would have the ability to influence the EU’s policies (the UK has had a major impact on the EU’s trade policy in the past 40 years) Rule making, not rule taking

Thank You ! Yves Melin Steptoe & Johnson LLP ymelin@steptoe.com LinkedIn: yvesmelin