Summary of key points in the ‘Chequers White Paper’.

The UK Government’s Brexit White Paper (The Future Relationship Between the UK and the EU, July 2018) is a formalisation of the UK government’s position regarding how it wishes to see the future economic relationship between the UK and the EU once the UK leaves the EU in March 2019. The full White Paper is available here.

The key points are:

A new EU-UK free trade area

A new free trade area using a common rulebook for trade in goods (including agri-food). The common rulebook would be applied by the UK parliament (and devolved governments) only when necessary to provide frictionless trade at the border.

The continued participation in EU agencies that facilitate goods coming into the EU market.

A new Facilitated Customs Arrangement (FCA).

A phased introduction of a new Facilitated Customs Arrangement (FCA), that would remove the need for customs checks and controls as if the UK and EU were in a combined customs territory, as well as enable the UK to control tariffs for its own trade with the rest of the world and ensure businesses pay the right tariff.

The UK would apply the EU’s trade policy and tariffs on goods coming into the UK, but destined for the EU, while applying its own policy and tariffs on goods coming into the UK and destined for the UK.

The UK and the EU should agree a mechanism for the remittance of relevant tariff revenue and employ a trusted trader scheme.

New arrangements on services and investment

New trade arrangements on services and investment that provide ‘regulatory flexibility’, incuding new arrangements on financial services which help preserve the mutual benefits of integrated markets while protecting financial stability, noting that these could not replicate the EU’s passporting regimes.

Mobility

The ending of free movement, by introducing a new framework which enables the UK to control its borders, and allows UK and EU citizens to continue to travel and businesses and professionals to provide services, as well as help students and young people to enjoy the opportunities and experiences available in the UK and the EU.

Digital trade

The introduction of new arrangements on digital trade to enable the UK and the EU to respond quickly to new opportunities and challenges presented by emerging technologies.

Fair competition

The application of a common rulebook relating to the promotion of open and fair competition, including common rules on state aid, and the reciprocal maintenance of standards relating to the environmental and employment.

Co-operation

Cooperation in energy and transport.

Independent trade policy

The establishment of an independent trade policy , with the UK representing itself at the WTO.

The UK will also be seeking specific arrangements for the Crown Dependencies, Gibraltar and the other Overseas Territories, taking into account the significant and mutually beneficial economic ties between these economies and EU Member States.

 

 

1.2   Goods

9.   The UK and the EU have deeply integrated goods markets, covering manufactured, agricultural, food and fisheries products. The UK is an important market for the EU, and vice versa. In 2017 the value of imports and exports between the UK and the EU stood at over £423 billion, with the UK reporting an overall trade deficit in goods with the EU of £95 billion.In the same year, the EU accounted for 70 per cent of UK agricultural imports.The close trading relationship between the UK and the EU has developed over many decades. It will continue to be important in the future, given the importance of geographical proximity for goods trade.

10.   While there has been a trend towards the opening up of services markets, existing trading relationships involve greater liberalisation on goods than on services. Regulatory frameworks draw a distinction between goods, which are physical products that tangibly cross a border, and services.

11.   The UK proposes the establishment of a free trade area for goods, including agri-food. This would avoid friction at the border, protect jobs and livelihoods, and ensure that the UK and the EU meet their commitments to Northern Ireland and Ireland through the overall future relationship. The UK and the EU would maintain a common rulebook for goods including agri-food, with the UK making an upfront choice to commit by treaty to ongoing harmonisation with EU rules on goods, covering only those necessary to provide for frictionless trade at the border. This common rulebook would be legislated for by the UK Parliament, as set out in detail in chapter 4.

The UK’s overseas territories are: Anguilla, Cayman Islands, Falkland Islands, Gibraltar, South Georgia and the South Sandwich Islands, Montserrat, Pitcairn, Saint Helena, Ascension and Tristan da Cunha, British Antarctic Territory, British Indian Ocean Territory, Turks and Caicos Islands, British Virgin Islands, Bermuda, and the Sovereign Base Areas. 4 ‘UK Economic Accounts: all data (January to March 2018)’, ONS, June 2018 5 ‘Agriculture in the UK: 2017′ (p97), DEFRA, May 2018. Agri-food products referred to are food, feed and drink

12.         The UK’s proposal for a free trade area includes:

a.      the phased introduction of a new Facilitated Customs Arrangement that would remove the need for customs checks and controls between the UK and the EU as if in a combined customs territory, while enabling the UK to control tariffs for its own trade with the rest of the world and ensure businesses pay the right tariff;

b.      the elimination of tariffs, quotas and routine requirements for rules of origin for goods traded between the UK and the EU;

c.      a common rulebook for manufactured goods, alongside UK participation in EU agencies that facilitate goods being placed on the EU market;

d.      a common rulebook for agriculture, food and fisheries products, encompassing rules that must be checked at the border, alongside equivalence for certain other rules, such as wider food policy; and

e.      robust domestic market surveillance and cooperation between the UK and the EU to ensure the rules are upheld in both markets.

1.2.1   Facilitated Customs Arrangement

13.         Upon its withdrawal from the EU, the UK will leave the Customs Union. The UK has been clear that it is seeking a new customs arrangement that provides the most frictionless trade possible in goods between the UK and the EU, while allowing the UK to forge new trade relationships with partners around the world. The arrangement must also allow the EU to protect the integrity of its Single Market and Customs Union.

14.         The UK’s proposal is to agree a new FCA with the EU. As if in a combined customs territory with the EU, the UK would apply the EU’s tariffs and trade policy for goods intended for the EU. The UK would also apply its own tariffs and trade policy for goods intended for consumption in the UK.

15.         Mirroring the EU’s customs approach at its external border would ensure that goods entering the EU via the UK have complied with EU customs processes and the correct EU duties have been paid. This would remove the need for customs processes between the UK and the EU, including customs declarations, routine requirements for rules of origin, and entry and exit summary declarations. Together with the wider free trade area, the FCA would preserve frictionless trade for the majority of UK goods trade, and reduce frictions for UK exporters and importers. The UK’s goal is to facilitate the greatest possible trade, whether with the EU or the rest of the world.

16.        This would mean:

a.      where a good reaches the UK border, and the destination can be robustly demonstrated by a trusted trader, it will pay the UK tariff if it is destined for the UK and the EU tariff if it is destined for the EU. This is most likely to be relevant to finished goods; and

b.      where a good reaches the UK border and the destination cannot be robustly demonstrated at the point of import, it will pay the higher of the UK or EU tariff. Where the good’s destination is later identified to be a lower tariff jurisdiction, it would be eligible for a repayment from the UK Government equal to the difference between the two tariffs. This is most likely to be relevant to intermediate goods. Under the UK’s proposals, it is estimated up to 96 per cent of UK goods trade would be most likely to be able to pay the correct or no tariff upfront, with the remainder most likely to use the repayment mechanism.6

17.        The UK recognises that this approach would need to be consistent with the integrity of the EU’s Customs Union and that the EU would need to be confident that goods cannot enter its customs territory without the correct tariff and trade policy being applied. The UK therefore proposes a range of areas for discussion with the EU.

a.      The UK and the EU should agree a mechanism for the remittance of relevant tariff revenue. On the basis that this is likely to be the most robust approach, the UK proposes a tariff revenue formula, taking account of goods destined for the UK entering via the EU and goods destined for the EU entering via the UK. However, the UK is not proposing that the EU applies the UK’s tariffs and trade policy at its border for goods intended for the UK. The UK and the EU will need to agree mechanisms, including institutional oversight, for ensuring that this process is resilient and verifiable.

b.      The UK and the EU should agree a new trusted trader scheme to allow firms to pay the correct tariff at the UK border without needing to engage with the repayment mechanism. This is most likely to be relevant to finished goods.

c.      The UK and the EU should agree the circumstances in which repayments can be granted, which is most likely to be relevant to intermediate goods. To support UK and EU businesses, particularly smaller businesses, the UK proposes that repayment should occur as soon as possible in the supply chain – for example, at the point at which the good is substantially transformed into a UK product, rather than at the point of final consumption. The UK proposes to explore an approach with the EU using existing concepts such as those within the Regional Convention on pan-Euro-Mediterranean preferential rules of origin. The UK recognises that the rules and processes governing eligibility for repayment, including risk profiling and effectively targeted audit and assurance activity, must be sufficiently robust to ensure the mechanism cannot be used to improperly evade EU or UK tariffs and duties, through methods such as re-exporting of goods from the UK to the EU, or vice versa.

6 Based on 2017 data on trade flows, proportion of goods classified as intermediate/unfinished and MFN tariff schedules. UN Comtrade statistics, World Integrated Trade Solution tariff data, Broad Economic Category data, EU Customs and Taxation Union website

d.      The UK would maintain a common rulebook with the EU, including the Union Customs Code and rules related to safety and security, and would apply and interpret those rules consistently with the EU. The UK already applies the Union Customs Code, and the new Customs Declarations Service (CDS), due for implementation by 2019, is fully compatible with it.

e.      There will need to be appropriate mechanisms for the UK to implement new rules related to customs with the EU, to provide for the proper functioning of the arrangement. There will need to be mechanisms to ensure that rules are applied appropriately, interpreted and enforced consistently, and that disputes between the UK and the EU related to those rules are resolved effectively. Further detail is set out in chapter 4.

18.         To ensure that new declarations and border checks between the UK and the EU do not need to be introduced for VAT and Excise purposes, the UK proposes the application of common cross-border processes and procedures for VAT and Excise, as well as some administrative cooperation and information exchange to underpin risk-based enforcement. These common processes and procedures should apply to the trade in goods, small parcels and to individuals travelling with goods (including alcohol and tobacco) for personal use.

19.         The UK is seeking to be at the cutting edge of global customs policy. In addition to the mechanisms set out above, the UK also proposes a range of unilateral and bilateral facilitations, to reduce frictions for UK trade with the rest of the world, and promote the greatest possible trade. In particular, the UK will look to:

a.      accede to the Common Transit Convention: the UK has already begun the application process for accession;

b.      agree mutual recognition of Authorised Economic Operators (AEOs);

c.      introduce a range of simplifications for businesses, including implementing self-assessment over time to allow traders to calculate their own customs duties and aggregate their customs declarations;

d.      speed up authorisations processes, for example through increased automation and better use of data; and e.      make existing simplified procedures easier for traders to access.

20.         The FCA is designed to ensure that the repayment mechanism is only needed in a limited proportion of UK trade, and to make it as simple as possible to use for those who need to use it. The UK will take into account the views of third countries, to ensure that the UK’s tariff offer is as valuable to them as possible and to continue to explore options to use future advancements in technology to streamline the process. This could include looking to make it easier to allow traders to lodge information in one place. This could include exploring how machine learning and artificial intelligence could allow traders to automate the collection and submission of data required for customs declarations. This could also include exploring how allowing data sharing across borders, including potentially the storing of the entire chain of transactions for each goods consignment, while enabling that data to be shared securely between traders and across relevant government departments, could     reduce the need for repeated input of the same data, and help to combat import and export fraud.

21.        There will need to be a phased approach to implementation of this model, which the UK and the EU will need to agree through discussions on the future economic partnership.

1.2.2  Tariffs and rules of origin

22.        A necessary underpinning of a UK-EU free trade area, in addition to the FCA, would be an agreement not to impose tariffs, quotas or routine requirements for rules of origin on any UK-EU trade in goods. This would recognise that goods coming into the UK would have faced the same treatment at the border as goods coming into EU Member States, so there would be no need for further restrictions between the UK and the EU.

23.        To ensure the trade in goods between the UK and the EU remains frictionless at the border, the UK proposes:

a.      zero tariffs across goods (including manufactured goods, agricultural, food and fisheries products), with no quotas;

b.      no routine requirements for rules of origin between the UK and EU; and

c.      arrangements that facilitate cumulation with current and future Free Trade Agreement (FTA) partners with a view to preserving existing global supply chains. This would allow EU content to count as local content in UK exports to its FTA partners for rules of origin purposes, and UK content to count as local content in EU exports to its FTA partners. Diagonal cumulation would allow UK, EU and FTA partner content to be considered interchangeable in trilateral trade.

1.2.3  Manufactured goods

24.        The UK and the EU are both home to strong manufacturing sectors such as automotives, aerospace, chemicals, electronics, machinery and pharmaceuticals. The production of manufactured goods rarely takes place in one location, with modern manufacturing seeing increasingly specialised firms, with complex supply chains that stretch across multiple countries and operate on a ‘just-in-time’ basis. Both the UK and the EU will want to ensure that European manufacturing continues to thrive in an increasingly competitive global market.

25.        The UK’s proposal for a common rulebook would underpin the free trade area for goods. It would cover only those rules necessary to provide for frictionless trade at the border. In the case of manufactured goods, this encompasses all rules that could be checked at the border, as they set the requirements for placing manufactured goods on the market, and includes those which set environmental requirements for products, such as their energy consumption. Certainty around a common rulebook would be necessary to reassure the UK and the EU that goods in circulation in their respective markets meet the necessary regulatory requirements, removing the need to undertake regulatory checks at the border. It would also ensure interoperability between UK and EU supply chains, and avoid the need for manufacturers to run     separate production lines for each market. As now, UK firms would be able to manufacture products for export that meet the regulatory requirements of third countries.

26.         A common rulebook for manufactured goods is in the UK’s interests. It reflects the role the UK has had in shaping the EU’s rules throughout its membership, as well as the interests of its manufacturers, and the relative stability of the manufactured goods acquis. The UK would also seek participation – as an active participant, albeit without voting rights – in EU technical committees that have a role in designing and implementing rules that form part of the common rulebook. This should ensure that UK regulators could continue to contribute their expertise and capability to EU agencies, including preparing expert opinions that facilitate decisions about individual products.

27.         The UK has long advocated a convergence of rules and standards for goods, whether as a member of the EU or on the global stage. The adoption of a common rulebook means that the British Standards Institution (BSI) would retain its ability to apply the “single standard model” – so that where a voluntary European standard is used to support EU rules, the BSI could not put forward any competing national standards. This would ensure consistency between UK and EU standards wherever this type of standard is adopted, with input from businesses, by the European Standards Organisations (ESOs). It would ensure consumers do not face multiple standards for the same products. It would also enable the UK to continue playing a leading role in the ESOs, and with the EU on a global stage, for example in the International Organization on Standardization (ISO), to ensure that there is greater convergence at the international level.

28.         In the context of a common rulebook, the UK believes that manufacturers should only need to undergo one series of tests in either market, in order to place products in both markets. This would be supported by arrangements covering all relevant compliance activity, supplemented by continued UK participation in agencies for highly regulated sectors including for medicines, chemicals and aerospace. This would be underpinned by strong reciprocal commitments to open and fair trade and a robust institutional framework.

29.        In order to achieve this, the UK’s proposal would cover all of the compliance activity necessary for products to be sold in the UK and EU markets.

This includes:

a.      testing products to see if they conform to requirements, including conformity assessments and type approval for vehicles, as well as other tests and declarations. It would also apply to labels and marks applied to show they meet the regulatory requirements;

b.      accreditation of conformity assessment bodies – testing the testers within a jointly agreed accreditation framework, to provide mutual reassurance that UK and EU conformity assessments are robust;

c.      manufacturing and quality assurance processes, such as Good Laboratory Practice and Good Manufacturing Practice, which ensure production methods are being respected, and that declarations are made during manufacturing;

d.      the role of nominated individuals, such as the “responsible persons” for certain high-risk products, who interact with authorities or perform a specific role during and after production;

e.      bespoke provisions for human and animal medicines which reflect their unique status, including the release of individual batches by a qualified person based in the UK or EU, and the role of the qualified person for pharmacovigilance, responsible for ongoing safety monitoring of potential side effects; and

f.        licensing regimes and arrangements, such as export licenses, for the movement of restricted products.

Example: mutual recognition of Vehicle Type Approvals

The common rulebook would include the type approval system for all categories of motor vehicles. The UK and the EU would continue recognising the activities of one another’s type approval authorities, including whole vehicle type approval certificates, assessments of conformity of production procedures and other associated activities. Member State approval authorities would continue to be permitted to designate technical service providers in the UK for the purpose of EC approvals and vice versa. Both the UK and the EU would continue to permit vehicles to enter into service on the basis of a valid certificate of conformity. Once in production, the UK and the EU would continue to recognise the ongoing role of type approval authorities, including monitoring of a manufacturer’s conformity of production procedures and issuing any extensions or revisions to existing type approval certificates. UK and EU type approval authorities would continue to uphold their current obligations, including working closely with other authorities to identify non-conformities and ensure appropriate action is taken to rectify them.

30.        In some manufactured goods sectors where more complex products have the potential to pose a higher risk to consumers, patients or environmental safety, a greater level of regulatory control is applied. The European Medicines Agency (EMA), the European Chemicals Agency (ECHA) and the European Aviation Safety Agency (EASA) facilitate part of these regulatory frameworks. In line with the UK’s objective of ensuring that products only go through one approval mechanism to     access both markets, the UK is seeking participation in these EU agencies, as an active participant, albeit without voting rights, which would involve making an appropriate financial contribution. The UK would want to secure access to relevant IT systems, ensuring the timely transfer of data between UK and EU authorities.

In addition, it would seek:

a.      for EASA, becoming a third country member via the established route under Article 66 of the EASA basic regulation, as Switzerland has;

b.      for ECHA, ensuring UK businesses could continue to register chemical substances directly, rather than working through an EU-based representative; and

c.      for the EMA, ensuring that all the current routes to market for human and animal medicine remain available, with UK regulators still able to conduct technical work, including acting as a ‘leading authority’ for the assessment of medicines, and participating in other activities like ongoing safety monitoring and the incoming clinical trials framework.

31.         To ensure that there is no market disruption as the UK and the EU transition from the implementation period to this new free trade area, the UK proposes that all manufactured goods authorisations, approvals, certifications, and any agency activity undertaken under EU law (for example, to register a chemical), completed before the end of the implementation period, should continue to be recognised as valid in both the UK and the EU. Moreover, any such processes underway as the UK and the EU transition from the implementation period should be completed under existing rules, with the outcomes respected in full.

1.2.4   Agriculture, food and fisheries products

32.         There is extensive trade between the UK and the EU in agriculture (food, feed and drink) products and the EU is the UK’s single largest trade partner.70 per cent of UK agri-food imports came from the EU in 2017.Food and drink manufacturing is the UK’s largest manufacturing sector, contributing £27.8 billion in Gross Value Added (GVA) in 2017.Much like manufactured goods, the agri-food sector relies on complex international supply chains.

33.         Under the existing constitutional settlements in Scotland, Wales and Northern Ireland, each devolved administration and legislature generally has competence to make its own primary and secondary legislation in relation to agriculture, as well as in related areas such as animal health and welfare, food safety, plant health and fisheries. The UK Government will work closely with the devolved administrations, who share high ambitions for a sustainable agricultural industry in the UK, as the UK withdraws from the EU, and will ensure future arrangements within the UK work for the whole of the UK.         7 ‘Agriculture in the UK’ (p96), Defra, May 2018. Agri-food products referred to are food, feed and drink 8 ‘Agriculture in the UK: 2017’ (p97), Defra, May 2018. Agri-food products referred to are food, feed and drink 9 ‘UK GDP(O) low level aggregates’ (using SIC codes 10 and 11), ONS, June 2018

34.        There are three broad categories of rules that apply to agriculture, food and fisheries products:

a.      those that must be checked at the border, including relevant Sanitary and Phytosanitary (SPS) rules, which safeguard human, animal and plant health;

b.      those relating to wider food policy, such as marketing rules that determine how agri-food products can be described and labelled, which do not need to be checked at the border; and

c.      those relating to domestic production, such as the Common Agricultural Policy (CAP) and the Common Fisheries Policy (CFP).

35.        The UK’s proposal for a common rulebook on agri-food encompasses those rules that must be checked at the border. The UK and the EU have set the global standard for the protection of human, animal and plant health, and both have set an ambition to maintain high standards in the future. As for manufactured goods, certainty around a common rulebook is necessary to reassure the UK and the EU that agri-food products in circulation in their respective markets meet the necessary regulatory requirements. This would remove the need to undertake additional regulatory checks at the border – avoiding the need for any physical infrastructure, such as Border Inspection Posts, at the border between Northern Ireland and Ireland. A common rulebook would also protect integrated supply chains, trade between the UK and the EU, and consumers and biosecurity.

36.        There are wider food policy rules that set marketing and labelling requirements. It is not necessary to check these rules are met at the border, because they do not govern the way in which products are produced, but instead determine how they are presented to consumers. These rules are most effectively enforced on the market, and as such it is not necessary to incorporate them into the common rulebook. Indeed there are differences between Member States currently on aspects of food policy, for example food labelling. Tailoring the regulatory environment to best suit businesses operating in the local market is better for consumers, businesses and the environment. The UK will tailor its food policy to better reflect business needs, improve value for money and support innovation and creativity.

37.        For these rules, there are existing precedents of equivalence agreements covering testing and approval procedures. For example, the EU has reciprocal equivalence arrangements or agreements for organic production rules and control systems with a number of countries: Canada, Chile, Israel, Japan, the Republic of Korea, Tunisia, the US and New Zealand. The UK wants equivalence arrangements on wider food policy rules. The UK has high standards in place on food policy, including areas of UK leadership such as unfair trading practices.

38.        Included in the remit of wider food policy rules are the specific protections given to some agri-food products, such as Geographical Indications (GIs). GIs recognise the heritage and provenance of products which have a strong traditional or cultural connection to a particular place. They provide registered products with legal protection against imitation, and protect consumers from being misled about the quality or geographical origin of goods. Significant GI-protected products from the UK include Scotch whisky, Scottish farmed salmon, and Welsh beef and lamb.

39.         The UK will be establishing its own GI scheme after exit, consistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). This new UK framework will go beyond the requirements of TRIPS, and will provide a clear and simple set of rules on GIs, and continuous protection for UK GIs in the UK. The scheme will be open to new applications, from both UK and non-UK applicants, from the day it enters into force.

40.         The UK will be leaving the CFP and CAP: these and other areas of domestic production are not relevant to the UK’s and the EU’s trading relationship, and so would not be captured by the common rulebook or any form of regulatory equivalence. The EU’s view at the WTO is that direct payments under CAP are not market distorting – and the EU has deep relationships on fisheries with the other North Sea countries on the basis of annual negotiations. The UK will be free to design agricultural support policies that deliver the outcomes most relevant to its market, within the confines of WTO rules. The UK has been clear that it will seek to improve agricultural productivity and deliver improved environmental outcomes through its replacement for CAP. Similarly, on the CFP, the UK will be an independent coastal state, able to control access to its waters and the allocation of fishing opportunities. The UK’s proposals for fisheries are covered in chapter 3.

41.         By being outside the CAP, and having a common rulebook that only applies to rules that must be checked at the border, the UK would be able to have control over new future subsidy arrangements, control over market surveillance of domestic policy arrangements, an ability to change tariffs and quotas in the future, and the freedom to apply higher animal welfare standards that would not have a bearing on the functioning of the free trade area for goods – such as welfare in transport and the treatment of live animal exports.

42.         In acknowledging the specific situation in respect of Northern Ireland and Ireland, all North-South cooperation on agriculture flowing from the Belfast (‘Good Friday’) Agreement has been mapped in detail through the joint mapping exercise conducted in Phase 1, and will be protected in full. Northern Ireland and Ireland form a single epidemiological unit. The UK is fully committed to ensuring that the Northern Ireland Executive and North South Ministerial Council can, through agreement, continue to pursue specific initiatives, such as the All Ireland Animal Health and Welfare Strategy.

1.2.5  Market surveillance

43.         As now, all products that enter the UK market will need to comply with the UK’s regulations and standards. The new free trade area for goods, including agri-food, would need to be supported by robust domestic market surveillance and cooperation, to ensure that rules are upheld in both markets.

44.         Following its withdrawal from the EU, the UK intends to maintain its robust programme of risk-based market surveillance to ensure that dangerous products do not reach consumers. This includes the ability to intercept products as they enter the UK, check products already on the market, and gather information through a variety of intelligence sources.

45.        UK regulators propose establishing cooperation arrangements with EU regulators to ensure that authorities on both sides can take appropriate, consistent and coordinated action to prevent non-compliant products from reaching consumers or patients, or harming the environment. This should be complemented by the exchange of intelligence, including information received directly from businesses and consumers, and reporting mechanisms.

46.        In order to support these cooperation arrangements, the UK is seeking access to the EU’s communications systems, such as the Rapid Alert System for Food and Feed (RASFF), Rapid Alert System for Serious Risk (Rapex), and the Information and Communication System for Market Surveillance (ICSMS). This would ensure that UK and EU authorities could issue alerts to one another to respond in an effective and timely manner when they had identified unsafe or non-compliant products.

1.3 Services and investment

47.        The UK is world leading in many services sectors, including legal, business and financial services. In 2017, services made up 79 per cent of total UK GVA worth £1.46 trillion.10 In 2017, 21 per cent of EU27 services imports came from the UK, and 20 per cent of EU27 services exports went to the UK.11 Globally services trade is growing rapidly; UK services trade with non-EU countries grew by 73 per cent between 2007 and 2017.12

48.        The UK is proposing new arrangements for services and digital that would provide regulatory flexibility, which is important for the UK’s services-based economy. This means that the UK and the EU will not have current levels of access to each other’s markets.

49.        The UK’s proposal builds on the principles of international trade and the precedents of existing EU trade agreements, and reflects its unique starting point.

It would include:

a.      general provisions that minimise the introduction of discriminatory and non-discriminatory barriers to establishment, investment and the cross-border provision of services, with barriers only permitted where that is agreed upfront;

b.      a system for the mutual recognition of professional qualifications, enabling professionals to provide services across the UK and EU;

c.      additional, mutually beneficial arrangements for professional and business services; and

d.      a new economic and regulatory arrangement for financial services.           10 ‘UK GDP(O) low level aggregates’, ONS, June 2018 11 ‘European Union and euro area balance of payments – quarterly data (BPM6) [bop_eu6_q]’, Eurostat, June 2018 12 ‘UK Economic Accounts: all data (January to March 2018)’, ONS, June 2018

1.3.1   General provisions

50.         The WTO’s General Agreement on Trade in Services (GATS) provides a framework for global services trade and defines four modes of services supply:

a.      a service crossing a border (for example, a service being provided over the telephone);

b.      a consumer of a service crossing a border (for example, tourism);

c.      a service provider establishing a legal presence across a border (for example, a retail chain opening a new establishment in another country); and

d.      a service provider crossing a border to a consumer (for example, a lawyer going to another country to provide legal advice to a client).

51.         Under GATS, FTAs are obliged to cover all modes of services supply and to have substantial sectoral coverage. But each new FTA is unique to the parties involved, giving service providers different market access rights. Over time FTAs have promoted a more liberalising approach to services trade.

52.         The UK proposes arrangements with broad coverage, ensuring that service suppliers and investors are allowed to operate in a broad number of sectors without encountering unjustified barriers or discrimination unless otherwise agreed.

Specifically, the UK is seeking:

a.      broad coverage across services sectors and the modes of supply, in line with GATS obligations;

b.      deep Market Access commitments, eliminating, among other things, explicit restrictions on the number of services providers from one country that can operate in another;

c.      deep commitments on National Treatment, to guarantee that foreign service providers are treated the same as equivalent local providers, with any exceptions kept to a minimum;

d.      provisions to ensure the free and timely flow of financial capital for day-to-day business needs, including payments and transfers; and

e.      best-in-class arrangements on domestic regulation, which ensure that all new regulation is necessary and proportionate.

1.3.2  Mutual recognition of professional qualifications

53.        The EU regime for the recognition of professional qualifications enables UK and EU professionals to practise across both the UK and the EU on a temporary, longer-term or permanent basis, without fully having to retrain or requalify. Since 1997 the UK has recognised over 142,000 EU qualifications, including for lawyers, social workers and engineers.13 Over 27,000 decisions to recognise UK qualifications have been undertaken in the EU.14

54.        The UK agrees with the position set out in the European Council’s March 2018 Guidelines, which stated that the future partnership should include ambitious provisions on the recognition of professional qualifications. This is particularly relevant for the healthcare, education and veterinary/agri-food sectors in the context of North-South cooperation between Northern Ireland and Ireland.

55.        The UK’s arrangements with the EU should not be constrained by existing EU FTA precedents. CETA includes some of the EU’s most ambitious third country arrangements on the mutual recognition of professional qualifications. Yet CETA only sets a framework within which regulators may negotiate recognition agreements for professional qualifications; it does not itself provide for mutual recognition.

The UK proposes establishing a system that:

a.      is broad in scope, covering the same range of professions as the Mutual Recognition of Qualifications Directive;

b.      includes those operating either on a permanent or temporary basis across borders;

c.      is predictable and proportionate, enabling professionals to demonstrate that they meet the necessary requirements, or to undertake legitimate compensatory measures where there is a significant difference between qualifications or training, in a timely way; and

d.      provides transparency, with cooperation between regulators to facilitate the exchange of information about breaches of professional standards, and to review changes to professional qualifications over time.                       13 ‘Regulated professionals database’ (search results are produced by entering the country of qualification as all EU countries, the host country as the UK, for the year 2016), European Commission, accessed April 2018 14 ‘Regulated professionals database’ (search results are produced by entering the country of qualification as the UK, the host country as all EU countries, for the year 2016), European Commission, accessed April 2018

1.3.3   Professional and business services

56.         The UK and EU economies rely on the cross-border provision of professional services. This includes legal services, where the UK is the destination for 14.5 per cent of total EU legal services exports.15 It also includes accounting and audit services. In 2016, UK firms provided over 14 per cent of EU27 audit and accountancy imports.16 57.         In addition to the general services provisions, the UK proposes supplementary provisions for professional and business services, for example, permitting joint practice between UK and EU lawyers, and continued joint UK-EU ownership of accounting firms. The supplementary provisions would not replicate Single Market membership, and professional and business service providers would have rights in the UK and the EU which differ from current arrangements.

1.3.4   Financial services

58.         The UK and EU financial services markets are highly interconnected: UK-located banks underwrite around half of the debt and equity issued by EU businesses;17 UK-located banks are counterparty to over half of the over-the-counter interest rate derivatives traded by EU companies and banks;18 around £1.4 trillion of assets are managed in the UK on behalf of European clients;19 the world-leading London Market for insurance hosts all of the world’s twenty largest international (re)insurance companies; and more international banking activity is booked in the UK than in any other country. This interconnected market has benefits for consumers and businesses across Europe. For example, one study has found that if new regulatory barriers forced the fragmentation of firms’ balance sheets, the wholesale banking industry would need to find £23-38 billion of extra capital.20 These are costs that would ultimately be borne by consumers and businesses.

59.         This interconnectedness also highlights the UK’s and the EU’s shared interest in financial stability. The UK is host to all 30 global systemically important banks and is the home regulator for four of them. Given its scale, the International Monetary Fund (IMF) has described financial stability in the UK as a “global public good”.21 Alongside its European partners, the UK has developed an institutional framework to manage financial stability while ensuring the regulatory system supports a global financial centre.     15 ‘International trade in services (since 2010) (BPM6) (bop_its6_det)’, Eurostat, January 2018 – covers BPM6 codes SJ211 16 ‘International trade in services (since 2010) (BPM6) (bop_its6_det)’, Eurostat, January 2018 – covers BPM6 codes SJ212 17   ‘Financial Stability Report: June 2017 Issue No. 41’ (page viii), Bank of England, June 2017 18   ‘Financial Stability Report: June 2017 Issue No. 41’ (page viii), Bank of England, June 2017 19 ‘Asset Management in the UK 2016-2017: The Investment Association Annual Survey’ (page 17), The Investment Association, September 2017 20 A study undertaken by Oliver Wyman: ‘One Year on from the Brexit Vote: A briefing for the wholesale banks’, Oliver Wyman, 2017. Original figures $30-50 billion, converted to £ using Bank of England daily spot exchange rate for 30 June 2017 21 ‘United Kingdom financial sector assessment program’, International Monetary Fund, June 2016

60.        As the UK leaves the EU and the Single Market, it recognises the need for a new and fair balance of rights and responsibilities. The UK can no longer operate under the EU’s “passporting” regime, as this is intrinsic to the Single Market of which it will no longer be a member.

61.        In addition, given the importance of financial services to financial stability, both the UK and the EU will wish to maintain autonomy of decision-making and the ability to legislate for their own interests. For example, in some cases, the UK will need to be able to impose higher than global standards to manage its financial stability exposure. In other areas, the UK market contains products and business models that are different to those found elsewhere in the EU, and regulation would need to reflect these differences. The decision on whether and on what terms the UK should have access to the EU’s markets will be a matter for the EU, and vice versa. However, a coordinated approach leading to compatible regulation is also essential for promoting financial stability and avoiding regulatory arbitrage.

62.        The EU has third country equivalence regimes which provide limited access for some of its third country partners to some areas of EU financial services markets. These regimes are not sufficient to deal with a third country whose financial markets are as deeply interconnected with the EU’s as those of the UK are. In particular, the existing regimes do not provide for:

a.      institutional dialogue, meaning there is no bilateral mechanism for the EU and the third country to discuss changes to their rules on financial services in order to maximise the chance of maintaining compatible rules, and to minimise the risks of regulatory arbitrage or threats to financial stability;

b.      a mediated solution where equivalence is threatened by a divergence of rules or supervisory practices;

c.      sufficient tools for reciprocal supervisory cooperation, information sharing, crisis procedures, or the supervision of cross-border financial market infrastructure;

d.      some services, where clients in the UK and the EU currently benefit from integrated markets and cross-border business models. This would lead to unnecessary fragmentation of markets and increased costs to consumers and businesses; or

e.      phased adjustments and careful management of the impacts of change, so that businesses face a predictable environment.

63.        In this context, the UK proposes a new economic and regulatory arrangement with the EU in financial services. This would maintain the economic benefits of cross-border provision of the most important international financial services traded between the UK and the EU – those that generate the greatest economies of scale and scope – while preserving regulatory and supervisory cooperation, and maintaining financial stability, market integrity and consumer protection.

64.         This new economic and regulatory arrangement would be based on the principle of autonomy for each party over decisions regarding access to its market, with a bilateral framework of treaty-based commitments to underpin the operation of the relationship, ensure transparency and stability, and promote cooperation. Such an arrangement would respect the regulatory autonomy of both parties, while ensuring decisions made by either party are implemented in line with agreed processes, and that provision is made for necessary consultation and collaboration between the parties.

65.         As part of this, the existing autonomous frameworks for equivalence would need to be expanded, to reflect the fact that equivalence as it exists today is not sufficient in scope for the breadth of the interconnectedness of UK-EU financial services provision. A new arrangement would need to encompass a broader range of cross-border activities that reflect global financial business models and the high degree of economic integration. The UK recognises, however, that this arrangement cannot replicate the EU’s passporting regime.

66.         As the UK and the EU start from a position of identical rules and entwined supervisory frameworks, the UK proposes that there should be reciprocal recognition of equivalence under all existing third country regimes, taking effect at the end of the implementation period. This reflects the reality that all relevant criteria, including continued supervisory cooperation, can readily be satisfied by both the UK and the EU. It would also provide initial confidence in the system to firms and markets.

67.         Although future determinations of equivalence would be an autonomous matter for each party, the new arrangement should include provisions through the bilateral arrangement for:

a.      common principles for the governance of the relationship;

b.      extensive supervisory cooperation and regulatory dialogue; and

c.      predictable, transparent and robust processes.   Common principles for the governance of the relationship

68.         As established in many existing EU provisions, this approach would be based on an evidence-based judgement of the equivalence of outcomes achieved by the respective regulatory and supervisory regimes. The UK and the EU would set out a shared intention to avoid adopting regulations that produce divergent outcomes in relation to cross-border financial services. In practice, as the UK and the EU have since the financial crisis, the UK will continue to be active in shaping international rules, and will continue to uphold global norms. To reflect this, the UK-EU arrangement should include common objectives, such as maintaining economic relations of broad scope, preserving regulatory compatibility, and supporting collaboration – bilaterally and in multilateral fora – to manage shared interests such as financial stability and the prevention of regulatory arbitrage.

Extensive supervisory cooperation and regulatory dialogue

69.        The UK proposes that the UK and the EU would commit to an overall framework that supports extensive collaboration and dialogue.

a.      Regulatory dialogue: for equivalence to be maintained over the long term, the UK and the EU should be able to understand and comment on each other’s proposals at an early stage through a structured consultative process of dialogue at political and technical level, while respecting the autonomy of each side’s legislative process and decision-making.

b.      Supervisory cooperation: in a close economic relationship between the UK and the EU financial services sectors, it would be necessary to ensure close supervisory cooperation in relation to firms which pose a systemic risk and/or that provide significant cross-border services on the basis of equivalence. It will be essential for the UK and the EU to commit to reciprocal and close cooperation to protect consumers, financial stability and market integrity with codified procedures for routine cooperation and for coordination in crisis situations. This should include appropriate reciprocal participation in supervisory colleges, which are coordination structures that bring together regulatory authorities involved in the supervision of banks and other major financial institutions – as well as other supervisory structures, including information exchange, mechanisms for consultation over decisions affecting the other party, and arrangements for the supervision of market infrastructure.

Predictable, transparent and robust processes

70.        To give business the certainty necessary to plan and invest, transparent processes would be needed to ensure the relationship is stable, reliable and enduring. The UK envisages that some of these processes would be bilaterally agreed and treaty- based; others would be achieved through the autonomous measures of the parties.

a.      Transparent assessment methodology: the process for assessing equivalence should be based on clear and common objectives; make use of consultation with industry and other stakeholders; and include the possibility of using expert panels.

b.      Structured withdrawal process: if circumstances arise that cause either party to wish to withdraw equivalence, there should be an initial period of consultation on possible solutions to maintain equivalence. Either party may also indicate to the other that it no longer seeks equivalence in a certain area. There should then be clear timelines and notice periods, which are appropriate for the scale of the change before it takes effect. There should also be a safeguard for acquired rights to avoid risks to financial stability, market integrity or consumer protection from sudden changes to the regulatory environment.

c.      Long-term stabilisation: in accordance with WTO principles, there should be a presumption against unilateral changes that narrow the terms of existing market access regimes, other than in exceptional circumstances. This would mean each side trying to avoid future changes that assess equivalence in entirely new ways that could destabilise an established relationship. Existing equivalence decisions should only lapse after a new decision has been taken.

71.         Finally, where disputes arise between the UK and the EU on the binding treaty-based commitments, the institutional arrangements set out in further detail in chapter 4 should apply.

1.4 Framework for mobility

72.         EU citizens are integral to communities across the UK, with 3.5 million EU citizens living in the UK.22 Approximately 800,000 UK nationals play an equally important role in communities across the EU.23 The UK and the EU have already reached an agreement on citizens’ rights which provides EU citizens living in the UK and UK nationals living in the EU before the end of the implementation period with certainty about their rights going forward. Individuals will continue to be able to move, live and work on the same basis as now up until the end of December 2020.

1.4.1   Ending free movement of people

73.         In future it will be for the UK Government and Parliament to determine the domestic immigration rules that will apply. Free movement of people will end as the UK leaves the EU. The Immigration Bill will bring EU migration under UK law, enabling the UK to set out its future immigration system in domestic legislation.

74.         The UK will design a system that works for all parts of the UK. The Migration Advisory Committee (MAC) report, due in September 2018, will provide important evidence on patterns of EU migration and the role of migration in the wider economy to inform this. Further details of the UK’s future immigration system will be set out in due course.

75.         The UK will continue to be an open and tolerant nation, and will want to continue to attract the brightest and best, from the EU and elsewhere. The UK’s future immigration arrangements will set out how those from the EU and elsewhere can apply to come and work in the UK. This will be crucial to supporting its public services, as well as enhancing the UK’s attractiveness for research, development and innovation.

1.4.2   Future mobility arrangements

76.         Any future mobility arrangements will be consistent with the ending of free movement, respecting the UK’s control of its borders and the Government’s objective to control and reduce net migration. Trade agreements which cover trade in services include provisions on the mobility of people for the provision of services (known as ‘Mode 4’ commitments). Given the depth of the relationship and close ties between the peoples of the UK and the EU, the UK will make a sovereign choice in a defined   22 ‘Population of the UK by country of birth and nationality’, ONS, May 2018. Estimate covers January 2017 to December 2017 and excludes Irish nationals. In 2017, the UK was also the most popular residence in the EU for long-term migrants from Ireland, France, Cyprus, Latvia, Lithuania, Malta, Poland and Sweden (Population on 1 January by age group, sex and citizenship’, Eurostat, 2017 Note: Data is unavailable on EU citizens living in Malta, Cyprus and Spain) 23 ‘Living abroad: British residents living in the EU: April 2018’, ONS, April 2018. Estimate is at 1 January 2017 and excludes Ireland     number of areas to seek reciprocal mobility arrangements with the EU, building on current WTO GATS commitments. The UK has already proposed that this should be achieved in an appropriate framework for mobility, in line with arrangements that the UK might want to offer to other close trading partners in the future, where they support new and deep trade deals.

The UK’s future economic partnership should therefore provide reciprocal arrangements, consistent with the ending of free movement, that:

a.      support businesses to provide services and to move their talented people;

b.      allow citizens to travel freely, without a visa, for tourism and temporary business activity;

c.      facilitate mobility for students and young people, enabling them to continue to benefit from world leading universities and the cultural experiences the UK and the EU have to offer;

d.      are as streamlined as possible to ensure smooth passage for legitimate travel while strengthening the security of the UK’s borders; and

e.      provide for other defined mobility provisions, including arrangements to ensure that UK citizens living in the EU, in future, continue to benefit from their pension entitlements and associated healthcare.

77.        These proposals are without prejudice to the Common Travel Area (CTA) arrangements between the UK and Ireland, and the Crown Dependencies. The CTA means that Irish citizens will continue to enjoy a special status in the UK, provided for by domestic legislation, distinct from the status of other EU nationals.

78.        The principle of non-discrimination between existing Member States should apply to all of the provisions agreed as part of the framework for mobility.

Business and services

79.        UK firms and global investors rely on the ability to move and attract talent to support global operations, and to send people to provide services across Europe. Indeed, mobility is a key element of economic, cultural and scientific cooperation, ensuring professional service providers can reach clients, advanced manufacturers can deploy key personnel to the right place, and scientists can collaborate on world-leading projects.

80.        The UK would seek reciprocal arrangements that would allow UK nationals to visit the EU without a visa for short-term business reasons and equivalent arrangements for EU citizens coming to the UK. This would permit only paid work in limited and clearly defined circumstances, in line with the current business visa policy.

81.        As is the case with non-EU countries with whom the UK has a trading agreement, the UK also wants to agree reciprocal provisions on intra-corporate transfers that allow UK and EU-based companies to train staff, move them between offices and plants and to deploy expertise where it is needed, based on existing arrangements with non-EU countries. The UK will also discuss how to facilitate temporary mobility of scientists and researchers, self-employed professionals, employees providing services, as well as investors.

Tourism

82.         In the year ending September 2017, UK residents made approximately 50 million non-business related visits to the EU spending £24 billion,24 and EU residents made over 20 million non-business related visits to the UK spending £7.8 billion.25

83.         The UK therefore proposes reciprocal visa-free travel arrangements to enable UK and EU citizens to continue to travel freely for tourism in the future, maintaining the close links between the people of the UK and the EU.

84.         The Government wants UK and EU nationals to continue to be able to use the European Health Insurance Card (EHIC) to receive healthcare should they need it while on holiday.

Students and young people

85.         The UK and the EU should continue to give young people and students the chance to benefit from each other’s world leading universities, including cultural exchanges such as Erasmus+.

86.         The UK proposes a UK-EU youth mobility scheme to ensure that young people can continue to enjoy the social, cultural and educational benefits of living in each other’s countries. The UK already operates a number of youth mobility schemes with other global partners, for example with Australia and Canada, on which this could be modelled.   Streamlined border arrangements and administrative procedures

87.         The UK already has existing arrangements with low-risk, non-EU countries that enable smooth access at the border, such as the Registered Traveller Scheme in place with a number of countries like the US and Japan. The UK wants to agree reciprocal arrangements with the EU that ensure smooth passage for UK nationals when they travel to the EU, for example on business or on holiday. The UK will strengthen the security of its borders, which should include exploring whether to apply the electronic travel authorities proposed for third country nationals to each other’s nationals, and ensuring travel documents meet minimum security standards. But at the border, as now, tourists and business visitors should not routinely have to face questions about the purpose of their visit. The UK also wants to minimise administrative burdens for those seeking permission to travel, enter or reside in each other’s territories, including short, simple and user-friendly application processes.

88.         Streamlined arrangements are particularly important at the Gibraltar-Spain border, which is crossed every day by thousands of people from other Member States.

Other mobility provisions

89.         While ending free movement, the UK will also make a sovereign choice to discuss other specific mobility areas. The UK will seek reciprocal arrangements on the future rules around some defined elements of social security coordination. This will be important for UK nationals who want to live, work or retire in the EU in the future, as 24    ‘ONS Overseas travel and tourism, quarterly’, ONS, January 2018 25    ‘ONS Overseas travel and tourism, quarterly’, ONS, January 2018     part of our new arrangements. This could cover provisions for the uprating of state pensions, including export rules and accompanying aggregation principles for people who have contributed into multiple countries’ systems. It would also ensure workers only pay social security contributions in one state at a time. There should be reciprocal healthcare cover for state pensioners retiring to the EU or the UK, continued participation in the EHIC scheme and cooperation on planned medical treatment. This would be supported by any necessary administrative cooperation and data-sharing requirements.

90.        The UK will also seek to secure onward movement opportunities for UK nationals in the EU who are covered by the citizens’ rights agreement. Some of these UK nationals have chosen to make their lives in the EU, and this should be respected in the opportunities available to them if they decide to change their Member State of residence.

91.        The framework for mobility could also cover the recognition of professional qualifications held by UK and EU nationals as covered in section 1.3 of this chapter.

1.5 Digital

92.        Digital is a fast evolving, innovative, sector that is driving economic transformation across the world. Digital sectors contributed £116.5 billion to the UK economy in 2016, representing 6.7 per cent of GVA.26 Facilitating growth and removing barriers will drive competitiveness and help the UK tap into the potential from the top ten largest economies of the world, estimated by one study to be worth £890 billion.27 It will be particularly important to have domestic regulatory flexibility, to ensure the UK can respond nimbly to new developments, and be at the forefront of emerging technologies.

93.        Digital services trade between the UK and the EU will continue to be important, as both try to capitalise on the growth of digital technologies globally. While the UK will not be a part of the EU’s Digital Single Market, the UK wants to develop an ambitious policy on digital trade with the EU, as well as globally.

The UK therefore proposes a digital relationship that covers:

a.      digital trade and e-commerce;

b.      telecommunications and digital infrastructure;

c.      digital technology; and

d.      broadcasting.

94.        The UK’s proposals should provide a framework for enduring solutions, which are sufficiently agile and flexible, reflecting the fast evolving and innovative characteristics of the sector. The UK also proposes arrangements to ensure the continued free flows of personal data between the UK and the EU. The UK believes 26 ‘DCMS Sector economic estimates 2016: GVA’, DCMS, November 2017 27 A study undertaken by Accenture: ‘Digital Density Index: Guiding Digital Transformation’, Accenture, 2015. Original figure $1.4 trillion, converted to £ using Bank of England daily spot exchange rate for 30 June 2015     the EU’s adequacy framework provides the right starting point for these arrangements but wants to go beyond this to allow ongoing cooperation between data protection authorities. This is set out in detail in chapter 3.

1.5.1   Digital trade and e-commerce

95.         The global digital economy is built on the ability to collect, share and process data. This underpins not just digital trade but all trade flows. Any disruption in cross-border data flows would therefore be economically costly while unnecessary barriers, such as the unjustified localisation of data, could also have a serious impact on future prosperity.

96.         The UK’s proposals would include:

a.      ensuring cross-border data flows, providing for the removal and prevention of barriers to the flow of data across borders;

b.      protecting the free, open and secure internet, working with EU partners to lead the global effort to ensure that the internet is safe and open; and

c.      recognising equivalent forms of electronic ID and authentication, ensuring that these are secure, trustworthy and easy to use across borders.

1.5.2   Telecommunications and digital infrastructure

97.         Telecommunications services provide key digital infrastructure that society depends on to communicate and operate globally. In the UK, telecoms contributed £30 billion of GVA in 201628, with exports of services to the EU in the sector worth £2.7 billion in 2015 and imports worth £3.4 billion.29

98.         The UK and the EU have a joint history of regulatory innovation in telecommunications in areas such as competition reform and net neutrality. This shared regulatory vision has promoted consumer benefits, competition and investment. The UK therefore proposes:

a.      joint commitments to an open and liberalised electronic communications sector allowing for fair, equal and competitive access for UK and EU businesses to public telecoms services and networks; and

b.      continuing to share cyber threat information to ensure the UK’s and the EU’s infrastructure is robust, resilient and able to adapt to evolving threats online or to digital infrastructure.

1.5.3   Digital technology

99.         The UK believes that trade should promote the development of new technologies, such as artificial intelligence (AI), and notes that they are vulnerable to non-tariff barriers. New and emerging technologies are also creating new and shared challenges. The UK therefore proposes exploring new models for regulatory   28 ‘DCMS Sector economic estimates 2016: GVA’, DCMS, November 2017 29 ‘DCMS Sector economic estimates 2016: Trade’, DCMS, June 2018     cooperation between the UK and the EU to tackle these shared challenges and advance shared objectives in the future.

100.    For example, the European Commission recently committed to set up a European AI Alliance to develop draft ethics guidelines by the end of 2018. After the UK withdraws from the EU, the UK’s Centre for Data Ethics and Innovation intends to participate in this Alliance, alongside its European partners.

1.5.4  Broadcasting

101.    The audiovisual sector is both economically and culturally important to the UK and the EU. The UK’s creative hub contributes significantly to the development of products that are much in demand by European consumers.

102.    The UK is leaving the Single Market. As a result, the “country of origin” principle, in which a company based in one Member State can be licenced by a national regulator and broadcast into any other Member State, will no longer apply. The UK is seeking the best possible arrangements for this sector. The UK’s commitments to the provision of Irish language broadcasting in Northern Ireland by RTE and TG4, as set out in the Belfast (“Good Friday”) Agreement and a subsequent Memorandum of Understanding with the Irish Government, will be guaranteed through UK statutory and domestic provisions.

103.    European Works is a system designed to promote domestic European production and preserve cultural identity. The European Works content quota applies to works which originate in Member States and non-EU European countries which are party to the European Convention on Transfrontier Television of the Council of Europe (CTT). This requires broadcasters to reserve a certain amount of air time for European works. In the case of on-demand services, providers must promote the production of and access to European works.

104.    As confirmed in the EU’s “Notice to Stakeholders” in the field of audiovisual media services, works originating in the UK will continue to be classed as European works. The UK’s position as a party to the CTT will not be affected by the UK’s withdrawal from the EU, and therefore the UK will continue to be able to treat audiovisual works originating in the EU as European works.

1.6 Open and fair competition

105.    Commitments on open and fair competition are fundamental to all trading relationships. Reciprocal commitments that go beyond those usually made in FTAs will be particularly important to support the breadth and depth of the future UK-EU economic partnership, and hold rights and responsibilities in balance.

106.    The UK has been a leading advocate of the development of the EU state aid and competition regime, and has much to gain from maintaining disciplines on subsidies and anti-competitive practices.

107.    Some horizontal rules are not primarily designed to ensure open and fair markets. Nonetheless, it is usual to include commitments on these areas in FTAs. The UK has     made strong domestic commitments to maintaining high standards on the environment, climate change, social and employment, and consumer protection, and will continue to meet its international obligations in these areas.

108.    The UK’s proposals include:

a.      committing to a common rulebook on state aid, to be enforced and supervised in the UK by the Competition and Markets Authority (CMA);

b.      maintaining current antitrust prohibitions and the merger control system with rigorous UK enforcement of competition law alongside strong cooperation with EU authorities;

c.      committing to high regulatory environmental standards through a non-regression requirement;

d.      maintaining high standards on climate change, noting the UK’s world leading ambitions;

e.      committing to high levels of social and employment protections through a non-regression requirement for domestic labour standards; and

f.        committing to high levels of consumer protection.

1.6.1   State aid

109.    The UK has long been a proponent of a rigorous state aid system – this is good for taxpayers and consumers, and ensures an efficient allocation of resources. The UK has an excellent record on compliance, and has been among the lowest granters of state aid as a proportion of Gross Domestic Product (GDP) in the EU. In 2016 the UK gave 0.3 per cent of GDP as state aid, half the EU average of 0.7 per cent.30

110.    The Government has made clear that it is committed to continuing the control of anti-competitive subsidies by creating a UK-wide subsidy control framework. The CMA, which is a world leading competition authority, will take on the role of enforcement and supervision for the whole of the UK. The Government will continue working with the Scottish Government, Welsh Government and Northern Ireland Executive, when in place, to ensure the new framework for state aid works for the whole of the UK.

111.    To support the depth and breadth of the future UK-EU economic partnership, the UK would propose to incorporate its domestic choice to maintain a robust state aid regime into its future economic relationship with the EU. In light of this, the UK would make an upfront commitment to maintain a common rulebook with the EU on state aid, enforced by the CMA. This is without prejudice to the UK’s intention to develop new tailored arrangements in relation to payments to farmers and other land managers for environmental benefits, and the UK’s future public procurement policy.

112.    The UK’s proposal for its future economic partnership with the EU would not fetter its sovereign discretion on tax, including to set direct or indirect tax rates, and to set its own minimum tax rates.   30 ‘Aid by main objectives – % of GDP’, Eurostat, accessed May 2018

1.6.2  Competition

113.    The UK has led the way globally in the field of competition law and enforcement and has one of the strongest competition regimes in the world.

114.    The CMA is a highly regarded competition authority with significant powers and resources at its disposal to ensure open and fair competition, and a proven record of effective competition enforcement. It has a statutory duty to seek to promote competition, both within and outside the UK, for the benefit of consumers. After the UK leaves the EU, the CMA will want to continue to work together with DG Competition, building on their existing highly effective relationship, to provide certainty for business.

115.    There are currently no strict requirements that apply to national competition regimes or requirements to have the same procedural rules. Instead, the UK has kept in step with the EU’s competition regime, and has gone further than EU minimum standards. The UK legal system already has the key components the EU expects: it has a robust framework for merger control, and prohibits abuse of a dominant position and anti-competitive agreements. The UK’s markets regime contains significant powers to investigate potential market failure and prevent, remedy or mitigate any adverse effects on competition.

116.    It will be important to ensure that competition decisions are compatible. The UK will seek to work with the EU to build on established cooperative arrangements, such as those found in existing FTAs, to manage parallel merger and antitrust investigations. This should include provisions on sharing confidential information and working together on live cases, and ensuring that the UK and the EU continue to take a robust approach in enforcing competition rules.

1.6.3  Environment

117.    The UK and its constituent parts have long-standing commitments to protecting the environment. The Government has been clear that the UK will maintain high environmental standards once it has left the EU, and has published a 25 Year Environment Plan for England to set out the scale of its future ambitions.31 Scotland, Wales and Northern Ireland have made clear that they have equally high ambitions. The UK has also fulfilled the commitment to consult on a new, independent, statutory body to hold the government to account on environmental protections.32 The UK is party to numerous Multilateral Environmental Agreements, and the UK is committed to upholding its international obligations under these agreements after it leaves the EU.

118.    In the context of a deep economic partnership, the UK proposes reflecting its domestic choice to maintain high regulatory standards for the environment. To that effect, the UK and the EU should commit to the non-regression of environmental standards. There should also be a reciprocal commitment to ongoing environmental     31    ‘25 Year Environment Plan’, Defra, January 2018 32 ‘Environmental Principles and Governance after EU Exit’, Defra, May 2018     cooperation, including in international fora, to solve shared global environmental challenges.

1.6.4   Climate change

119.    The UK is a global leader in the fight against climate change33 and was the first country to set out a long-term legally binding target for reducing greenhouse gas (GHG) emissions in domestic law, in the Climate Change Act 2008.34 Between 1990 and 2016, the UK saw the greatest reduction in total GHG emissions across G7 countries.35

120.    The UK recognises the UK’s and the EU’s shared interest in global action on climate change and the mutual benefits of a broad agreement on climate change cooperation. The UK’s world leading climate ambitions are set out in domestic law and are more stretching than those that arise from its current obligations under EU law. The UK will maintain these high standards after withdrawal.

1.6.5   Social and employment

121.    The UK firmly believes in the importance of strong labour protections while also embracing the opportunities arising from the changing world of work. Existing workers’ rights enjoyed under EU law will continue to be available in UK law on the day of withdrawal.

122.    The UK already exceeds EU minimum standards in a number of areas, such as parental leave and flexible working arrangements, and is a leader in many others. For example, on health and safety, the UK has one of the strongest records in Europe, and in 2015, the UK’s standardised rate of fatal injury was among the lowest in the EU28.36 The UK is also ensuring employment practices keep pace with rapid technological change in its response to the Taylor Review of Modern Working Practices. On equalities, the UK ranks third in the International Lesbian, Gay, Bisexual, Trans and Intersex Association (ILGA) Rainbow Europe index and also ranks above the EU28 average on the European Institute for Gender Equality 2017 Index.37 The UK has also demonstrated its commitment to tackling modern slavery, for example through the introduction of the Modern Slavery Act 2015, and will continue to lead the global fight against it.

123.    Given this strong record, and in the context of the UK’s vision for the future relationship with the EU, the UK proposes that the UK and the EU commit to the non-regression of labour standards. The UK and the EU should also commit to uphold their obligations deriving from their International Labour Organisation commitments.       33 ‘Policy paper, International Climate Fund’, GOV.UK, January 2017 34 ‘Policy paper, 2010 to 2015 government policy: greenhouse gas emissions’, GOV.UK, May 2015 35 ‘GHG data – UNFCCC’, UN Framework Convention on Climate Change, accessed July 2018 36 ‘Accidents at work statistics (table hsw_mi01)’, Eurostat, November 2016 37 ‘Rainbow Europe’, ILGA-Europe, 2017 data – the UK is second to Malta in the EU28

1.6.6  Consumer protection

124.    The UK believes strongly in the importance of consumer protection, and is committed to maintaining high standards.

125.    The UK has a strong track record, underpinned by statutory safeguards and enforcement mechanisms, in protecting consumers when they buy goods and services from businesses based in the UK and the EU. The UK has gone beyond EU minimum requirements in a number of areas, for example UK law offers a 30-day short-term right to reject faulty goods and provides a six-year legal guarantee period (five years in Scotland), well above the two-year EU minimum.

126.    To ensure that open trade between the UK and EU economies is not at the expense of consumers, and in the context of the future economic partnership, the UK proposes to commit to maintain reciprocal high levels of consumer protection.  There should be cooperation on enforcement, including provisions to allow mutual exchange of information and evidence, and a framework to work collectively on areas of wider consumer detriment.

1.7  Socio-economic cooperation

127.    There are many other areas where the UK and EU economies are closely linked, including transport, energy, civil judicial cooperation, intellectual property, and audit and accountancy. The particularly close integration between EU Member States in these areas reflects their membership of the Single Market, and the UK recognises that it will not be possible to replicate this entirely once it has left the EU. However there are precedents outside of the Single Market for close cooperation. The UK will look to draw on these precedents in the future relationship, ensuring arrangements of mutual benefit to the UK and the EU that respect UK sovereignty and the autonomy of the EU’s institutions.

128.    The UK’s proposals include:

a.      an Air Transport Agreement which seeks to maintain reciprocal liberalised aviation access between and within the territory of the UK and the EU, alongside UK participation in EASA;

b.      exploring options for road transport, including reciprocal access for UK and EU road hauliers and passenger transport operators;

c.      close cooperation on maritime, including with the European Maritime Safety Agency (EMSA);

d.      bilateral rail agreements with relevant Member States to support the continued operation of services through the Channel Tunnel and on the Belfast-Dublin Enterprise line;

e.      exploring options for our future energy relationship – maintaining the Single Electricity Market (SEM) across the island of Ireland in any eventuality;

f.        a new civil nuclear relationship based on a comprehensive Nuclear Cooperation Agreement (NCA) between Euratom and the UK;

g.      seeking to join the Lugano Convention, and exploring a new bilateral agreement with the EU on civil judicial cooperation, covering a coherent package of rules on jurisdiction, choice of jurisdiction, applicable law and recognition and enforcement of judgments in civil, commercial, insolvency and family matters;

h.      exploring options on intellectual property, including participation in the Unified Patent Court and unitary patent system; and

i.         seeking EU equivalence and adequacy decisions under the EU’s audit and accounting third country regimes by the end of the implementation period.

1.7.1   Aviation

129.    The UK has the largest aviation industry in Europe,38 and the UK’s geographical position in the network is key, with around 80 per cent of all North Atlantic traffic passing through UK or Irish controlled airspace.39 Air travel is vital in connecting people and businesses and facilitating tourism and trade. In 2017, 164 million passengers travelled between the UK and other EU Member States by air.40 It is in the UK’s and the EU’s interests to protect the connectivity, choice and value for money that UK and EU consumers enjoy today. Moreover, the future arrangements should allow for innovation within the industry, giving flexibility to current and future airlines to offer greater choice and connectivity to passengers.

130.    The UK will explore options for maintaining reciprocal liberalised access through an Air Transport Agreement. This would permit UK and EU carriers to operate air services to, from and within the territory of both the UK and the EU on an equal basis. This could be supported through an approach to ownership and control that avoids introducing additional barriers to businesses. There is precedent for this within the EU-Canada Air Services Agreement, which provides for the possibility of fully liberalised access subject to a sufficiently open bilateral approach to ownership and control.

131.    As set out in section 1.2 of this chapter, the UK will seek participation in EASA. In addition to ensuring that manufacturers should only need to undergo one series of tests in either market, this would also support collective work on aviation safety, reducing regulatory barriers for businesses and ensuring continued high standards for safety across Europe.

132.    The UK will seek close cooperation on air traffic management to maintain interoperability, and benefit consumers and the environment, through reduced journey times, lower costs and lower emissions. In addition, the UK will continue close collaboration on aviation security, so that the UK and the EU can continue to address evolving shared threats in the most effective way.         38 ‘Beyond the Horizon: The Future of UK Aviation’ (page 8), Department for Transport, July 2017 39 ‘NAT News 2016’, NATS, 2016, accessed August 2017 40 ‘International and Other International Terminal Traffic 2017’, CAA, 2018

1.7.2  Road transport

133.    The road transport sector provides a highly efficient network of connections between the UK and the EU, supporting supply chains. While the vast majority of freight lifted in the UK is domestic,41 approximately 80 per cent of UK cross-border haulage is handled by non-UK hauliers,42 demonstrating the importance of continued connectivity to both the UK and the EU.

134.    The UK wants to explore options for reciprocal access for road hauliers and passenger transport operators, and arrangements for private motoring. The UK is taking legislation through Parliament to ensure that a permitting system can operate if required. The UK has already agreed with the EU that the necessary conditions must be maintained for North-South cooperation on transport between Northern Ireland and Ireland. In line with the statutory provisions the UK has brought forward in Parliament, and the progress made with the EU on preserving cross-border cooperation, the UK will ensure that there is no requirement in any scenario for new permits for transport services between Northern Ireland and Ireland.

1.7.3  Maritime

135.    The maritime sector is liberalised at a global level. On that basis, UK ship operators will be able to serve EU ports largely as now, following the UK’s withdrawal from the EU. In the interests of tackling shared safety, security and environmental issues, the UK proposes to continue cooperating closely with both the EU and the EMSA, including sharing information on safety and to counter pollution. The UK is at the heart of the global maritime industry and has recognised expertise in areas such as safety and accident investigation, which are vital to ensuring the safety of ships, passengers and crew. The UK will continue to be a strong advocate for the safety and environmental performance of shipping, and an active member of the International Maritime Organization (IMO).

1.7.4  Rail

136.    The UK and relevant Member States have a common interest in ensuring that cross-border rail services, the Channel Tunnel and the Belfast-Dublin Enterprise line, continue without disruption. Over 10 million passengers travelled on the Eurostar in 2017, and the Eurotunnel’s passenger and freight shuttle carried 2.6 million passenger vehicles, 1.6 million HGVs and 51,000 coaches in 2017.43 The EU and the UK have agreed that the UK will pursue bilateral agreements with France, Belgium and the Netherlands to ensure the continued smooth functioning and operation of services through the Channel Tunnel, and with Ireland to do the same for the Belfast-Dublin Enterprise line. Beyond those cross-border services, the UK will have the flexibility to shape its own domestic railway legislation to meet the needs of its     41 ‘National, international loaded and unloaded, cross-trade and cabotage transport, 2014-2015 (million tkm)’, Eurostat, 2017, accessed August 2017 42 ‘International Road Freight Activity Statistics’, Tables RSF0201, RFS0208, RFS0209, Department for Transport, 2017. Data for 2015 43 ‘Traffic Figures’, Eurotunnel, accessed February 2018     passengers and freight shippers, and reflect the unique characteristics of the rail network within the UK.

1.7.5   Electricity and gas

137.    The UK remains committed to delivering cost-effective, clean and secure energy supplies. The UK has worked closely with European partners to liberalise and open energy markets, with wide-ranging UK energy sector expertise being highly regarded across the EU.

138.    The Government is committed to facilitating the continuation of the Single Electricity Market (SEM) between Northern Ireland and Ireland. This is an example of North-South cooperation that has benefited consumers and the economies of Northern Ireland and Ireland. Negotiators have already made good progress on a legal provision to underpin the SEM in the Withdrawal Agreement and the UK will work with the EU to ensure that the SEM is maintained in any future scenario.

139.    The UK is seeking broad energy cooperation with the EU, including arrangements for trade in electricity and gas, cooperation with EU agencies and bodies, and data sharing to facilitate market operations. It is common practice for countries to trade internationally in electricity and gas, and there has been a trend towards greater interconnectivity that has brought mutual benefits to trading partners, including lower prices for consumers and improved security of supply. Trade in electricity takes place through interconnectors, the physical links which allow electricity to be moved between markets. There are currently three interconnectors between Great Britain and EU Member States, one to France, one to the Netherlands, and one to Ireland. There are others in development, for example with Belgium, Norway and Denmark.44

140.    The UK wants to explore with the EU the options for the future energy relationship. One option would be for the UK to leave the Internal Energy Market (IEM). In this case, the UK would explore what would be needed to ensure trade over interconnectors would continue without automatic capacity allocation via the IEM system. An alternative option would be for the UK to participate in the IEM to preserve the existing efficient trading practices over interconnectors. In this case, the UK would need a common rulebook with the EU on the technical rules for electricity trading, such as the market coupling mechanism – as well as a consistent approach to carbon pricing necessary for the market to function, which, for example, could be delivered by remaining in the EU’s Emissions Trading System. However, the UK does not believe that participation in the IEM should require a common rulebook on wider environmental and climate change rules.

141.    There are also advantages to close cooperation on technical and regulatory energy arrangements. The UK wants to explore with the EU the options for continued Transmission System Operator participation in the Inter-Transmission System Operator Compensation Mechanism, and continued membership of the European Networks of Transmission System Operators for Electricity (ENTSO-E) and Gas (ENTSO-G).   44 ‘Electricity Interconnectors’, OFGEM, accessed May 2018

142.    The UK is also putting in place arrangements so that, when trading after exit, businesses will have certainty that they will not face substantially different requirements compared to their current obligations under the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT).

1.7.6  Civil nuclear

143.    The UK will seek a close association with Euratom: a new relationship that is more comprehensive and broad than any existing agreement between Euratom and a third country and would help ensure the UK’s standing as a leading and responsible civil nuclear state is maintained. This would be mutually beneficial for the UK and the Euratom Community, who will continue to share a common interest in ensuring energy resilience and security within Europe. Close cooperation on civil nuclear matters would also benefit citizens and businesses in the UK and across the EU, whether related to secure energy supplies, or the safeguarding of nuclear materials, equipment and technology.

144.    The UK proposes that this new relationship should be based on a comprehensive NCA between Euratom and the UK.

This should:

a.      establish a cooperation mechanism between the UK safeguards regulator (the Office for Nuclear Regulation) and Euratom, enabling activity such as technical information exchanges, joint studies and consultation on regulatory or legislative changes;

b.      provide for UK association with the Euratom Research and Training Programme, as part of an ambitious science and innovation accord;

c.      ensure continuity of contractual arrangements for the supply of nuclear material, either by allowing for existing nuclear supply contracts with the UK to remain valid after the UK’s exit, or by providing for their seamless re-approval prior to the UK’s exit;

d.      minimise barriers and simplify export control arrangements in the trade and transfer of sensitive nuclear materials, equipment and technology between the UK and the Euratom Community;

e.      provide for technical cooperation on nuclear safety including continued notification and information sharing arrangements on radiological events and monitoring, with the UK participating in EU systems such as the European Community Urgent Radiological Information Exchange (ECURIE) and the European Radiological Data Exchange Platform (EURDEP); and

f.        continue UK cooperation and information-sharing with the European Observatory on the Supply of Medical Radioisotopes.

1.7.7   Civil judicial cooperation

145.    Civil judicial cooperation is mutually beneficial to both the UK and the EU. Businesses benefit from legal certainty in the event of disputes and are more confident trading across borders. Consumers and employees benefit from protections for weaker parties. Cross-border families benefit from clear rules to resolve disputes in sensitive matters quickly and efficiently. The future relationship between the UK and the EU should protect these advantages.

146.    The EU has already shown that a deeper level of civil judicial cooperation with third countries is both legally viable and operationally achievable, including through the Lugano Convention, which provides for cooperation between EU and European Free Trade Association (EFTA) countries. Under this Convention, EU Member States and third countries apply the same rules on civil and commercial judicial cooperation, and commit to pay due regard to how each other’s courts interpret those rules. This architecture provides a clear precedent for close cooperation between the EU and a third country.

147.    To ensure cooperation can continue in these areas at least, the UK will therefore seek to participate in the Lugano Convention after exit. However, while the UK values the Lugano Convention, some of its provisions have been overtaken, and it is limited in scope. In addition, the European Council’s Guidelines have suggested the possibility of going beyond existing precedent.

148.    The UK is therefore keen to explore a new bilateral agreement with the EU, which would cover a coherent package of rules on jurisdiction, choice of jurisdiction, applicable law, and recognition and enforcement of judgments in civil, commercial, insolvency and family matters. This would seek to build on the principles established in the Lugano Convention and subsequent developments at EU level in civil judicial cooperation between the UK and Member States. This would also reflect the long history of cooperation in this field based on mutual trust in each other’s legal systems. The Government will also continue to work closely with the devolved administrations to ensure that the future arrangements for cooperation with the EU take into account the separate and distinct legal systems in Scotland and Northern Ireland.

1.7.8  Intellectual property 149.

Intellectual property (IP) rights play an essential part in encouraging the universal benefits of innovation and creativity, as well as protecting the reputation of products and services and helping prevent consumers from being misled about the quality or provenance of goods. The high quality service offered by the UK’s rights-granting bodies and courts system help to make the UK one of the best places in the world to protect and enforce IP rights.45     45 The UK’s intellectual property system is highly rated in international indices. For example, the UK is ranked third in the world in the Global Intellectual Property Index (‘Global IP Index’, Taylor Wessing, June 2016) and fifth in the world in the Global Innovation Index 2017 (‘Global Innovation Index 2017’, The Global Innovation Index, 2017)

150.    There is a long history of European cooperation on patents, which can be costly to enforce in multiple jurisdictions. Most recently, this includes the agreement on a Unified Patent Court to provide businesses with a streamlined process for enforcing patents through a single court, rather than through multiple courts.

151.    The UK has ratified the Unified Patent Court Agreement and intends to explore staying in the Court and unitary patent system after the UK leaves the EU. The Unified Patent Court has a unique structure as an international court that is a dispute forum for the EU’s unitary patent and for European patents, both of which will be administered by the European Patent Office. The UK will therefore work with other contracting states to make sure the Unified Patent Court Agreement can continue on a firm legal basis.

152.    Arrangements on future cooperation on IP would provide important protections for right holders, giving them a confident and secure basis from which to operate in and between the UK and the EU.

1.7.9  Audit and accounting

153.    UK and EU companies benefit from shared accounting standards and accounting and audit regulatory frameworks. These provide access to capital markets, foster investor confidence, and facilitate the cross-border provision of accounting and audit services.

154.    There are numerous precedents between the EU and third countries for audit equivalence and adequacy, and accounting equivalence. The UK will seek EU equivalence and adequacy decisions under the EU’s third country regimes by the end of the implementation period.

1.8 Independent trade policy

155.    The UK’s proposal for its future economic partnership with the EU would provide a strong foundation for the UK to establish a broad and ambitious independent trade policy with the rest of the world.

156.    Trade is essential for growth and prosperity. It stimulates greater business efficiency and higher productivity, sharing knowledge and innovation across the globe. Trade boosts jobs, raises living standards and provides a foundation for stronger and more prosperous communities. It ensures more people can access a wider choice of goods at lower cost, making household incomes go further. Businesses also benefit from cheaper and better inputs, and trade is vital to the UK’s prosperity – total UK trade (covering imports and exports of goods and services) was worth £1.26 trillion in 2017.46           46 ‘ONS Balance of Payments: Quarter 1 (January to March)’, ONS, June 2018

1.8.1 Delivering an independent trade policy

157.    As the UK leaves the EU, the Government is committed to ensuring that UK and EU businesses and consumers can continue to trade freely with one another, as part of a new deep and special partnership. The UK would also boost trade relationships with old friends and new allies. The EU itself estimates that 90 per cent of global economic growth over the next two decades will be generated outside the EU.47  The UK is already seeking continuity in its existing trade and investment relationships, including those covered by EU FTAs or other EU preferential arrangements. The UK’s exit from the EU will provide considerable additional opportunities for UK business through potentially ambitious new trade arrangements and meaningful trade deals that play to the strengths of the UK economy.

158.    The UK’s proposals for its new economic partnership with the EU would allow the UK to negotiate new international trade agreements in line with its priorities and interests covering goods, services, investment, data, government procurement, and intellectual property, consistent with the commitments in the economic partnership. Under the terms of the Withdrawal Agreement with the EU, the UK would be free to negotiate, sign, and ratify FTAs during the implementation period, and to bring them into force from January 2021. When concluded, these would be the first FTAs signed by the UK in its own right since the European Free Trade Association in 1960.

159.    The UK would be able to pursue an ambitious bilateral trade agenda, taking full advantage of the flexibility its proposal for the future economic partnership provides. This would include agreements with the US, Australia and New Zealand. The UK will potentially seek accession to Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and this would be on terms consistent with the future relationship with the EU, and domestic priorities.

160.    On services, the UK would seek to achieve provisions at the cutting edge of global best practice, reflecting both the great potential to deepen services trade worldwide, and the significance of services trade to the UK which is growing at a faster rate than the trade in goods.48 The UK would push for greater liberalisation of global services, financial services, investment and procurement markets, and seek ambitious digital trade packages.

161.    On goods, the proposals set out in section 1.2 of this chapter, including the Facilitated Customs Arrangement (FCA), would enable the UK to set its own tariffs and vary them as it chooses, independently of the tariffs the EU applies. Under the UK’s proposal, it is estimated up to 96 per cent of UK goods trade would be most likely to pay the correct or no tariff upfront, with the remainder most likely to use the repayment mechanism.49 This would minimise administrative burdens and maximise the value offered by UK preferential tariff reductions, enabling the UK to make a strong and compelling tariff offer in negotiations. For the small proportion of trade 47 ‘GDP estimates 2014-2020 and EU contribution to world GDP growth (year-on-year changes)’, EU Commission, March 2016 48 ‘UK Economic Accounts: all data (January to March 2018)’, ONS, June 2018 49 Based on 2017 data on trade flows, proportion of goods classified as intermediate/unfinished and MFN tariff schedules. UN Comtrade statistics, World Integrated Trade Solution tariff data, Broad Economic Category data, EU Customs and Taxation Union website     where the importer would need to pay the higher tariff and reclaim the difference, processes would be as smooth and efficient as possible.

162.    Where there is a material risk of circumvention of higher UK tariffs, the UK would make it illegal to pay the wrong tariff, and use risk and intelligence based checks across the country, rather than at the border, to check that the right tariffs are being paid. This would protect against fraud, ensure that the UK has an effective trade remedies regime and strengthen the UK’s position in trade negotiations.

163.    In the context of trade negotiations, a common rulebook for goods would limit the UK’s ability to make changes to regulation in those areas covered by the rulebook. If the Government wanted to make a change, including in light of trade negotiations with other partners, it could discuss this with the EU through the mechanisms set out in chapter 4. However, the UK would retain the freedom to make changes in other areas of regulation if considered desirable domestically. It would also have the freedom to reach new agreements with third country trading partners on the underpinning compliance activity, for instance through the mutual recognition of conformity assessments. The latter would mean that testing bodies in partner countries could test products for the UK market, and vice versa. This could be achieved through the introduction of a UK mark.

164.    The UK would play a full and prominent role in the multilateral and plurilateral trade agenda, as a member of the Government Procurement Agreement in its own right, working with others to make progress on the Trade in Services Agreement, and seeking new agreements in areas of significance to the global economy such as digital.

165.    More widely, the UK would have its own seat and vote in the WTO, where it would support the rules-based global trading system. It would become an independent member, with the right to set its own trade schedules and strike its own bilateral, plurilateral and multilateral deals. The UK would advocate for the reduction of barriers to trade, particularly those stopping poorer countries accessing richer markets. The UK would also use its voice in the WTO to resist unfair protectionism, tackle unfair trading practices and hold others to account for the global rules.

166.    The UK would aim to make trade work for everyone. The UK would work with all stakeholders to ensure the benefits of trade are widely felt and understood. The UK’s approach to trade would align with its modern Industrial Strategy. That will be key to delivering an innovative, competitive and growing UK economy that benefits individuals and communities and makes sure the value of trade is more widely shared.

167.    Free trade does not mean trade without rules. To operate an independent trade policy, the UK will need to put in place an independent trade remedies framework to protect domestic industry against unfair and injurious trade practices. The UK will be able to investigate cases and enforce measures that offer proportionate protections for producers. In preparation for this, the UK is identifying existing EU measures that are essential to UK business and will need to be carried forward.

168.    In addition, the WTO’s existing trade dispute settlement mechanism aims to resolve trade conflicts between countries and, by underscoring the rule of law, makes the international trading system more predictable and secure. The UK will be ready to act independently to protect UK interests should its trading partners fail to meet their international obligations and to defend any disputes brought against the UK.

169.    The UK would support developing countries to reduce poverty through trade. As the UK leaves the EU, it would maintain current access for the Least Developed Countries (LDCs) to the UK market and aim to maintain the preferential access of the remaining (non-LDC) developing countries, including those countries with which it has Economic Partnership Agreements. The UK would promote the economic empowerment of all women through a gender-responsive trade policy. One study has estimated that if women played the same role as men in labour markets, as much as £18 trillion could be added to global GDP by 2025.50

170.    Global trade rules and agreements are only as good as the use that people can make of them. The Government will ensure that the UK’s export and inward investment environments are world-class, supporting the domestic aspects of the modern Industrial Strategy. The frictionless access to the EU market provided by the FCA and common rulebook would also support the UK’s ongoing attractiveness as a destination for Foreign Direct Investment for overseas firms seeking to service both UK and EU markets. This is likely to be particularly relevant to manufacturing sectors with integrated supply chains.

171.    Taken together, the UK’s independent trade policy will ensure the UK is ready for the opportunities and challenges presented by the global mega-trends: industrialisation and urbanisation in emerging economies; the rise of disruptive technologies in all sectors; a radical demographic transformation across the world; and greater, deeper, and quicker global interconnectedness. The UK will be agile enough to provide thought leadership on the shape and design of new global rules for new and disruptive technologies.51                               50 A study undertaken by McKinsey: ‘The Power of Parity’ McKinsey Global Institute, September 2015. Original figure $28 trillion, converted to £ using Bank of England daily spot exchange rate for 30 June 2015 51 Renewable energy, advanced oil and gas exploration and recovery, advanced materials, 3D printing, energy storage, next generation genomics, autonomous and near-autonomous vehicles, advanced robotics, internet of things, cloud technology, automation of knowledge work, mobile internet                                                                                                                   CCS0718050590-001 978-1-5286-0701-8