Where is the UK on trade negotiations?

As has often been the case in negotiations with the EU, it will be a question of who blinks first. Based on previous experiences, the EU may wait until the last days, hours or minutes before the deadline before significant progress is made which allows agreement to be reached, so watching and listening for signs of progress in the coming days and weeks will be essential for all concerned.

The UK Government has recently published the United Kingdom Internal Market Bill (UKIM) which is not yet law in the United Kingdom but has nonetheless sent EU/UK relations spiralling towards an all-time low.  The publication of UKIM and UK Government’s admission that UKIM breaks international law ‘in a specific and limited way’ raises further questions and concerns about whether there will be a free-trade agreement (FTA) between the UK and the European Union and raises yet more questions about how those who trade with the UK and Europe should be preparing for January 1, 2021.

A war of words

Both sides accuse the other of acting in ‘bad faith’ in the negotiations for an FTA. The backlash to the publication of UKIM has been significant as the current drafting allows the UK Government to override parts of The European Union (Withdrawal Agreement) Act 2020 (the ‘Withdrawal Agreement’) which is an international law treaty between the UK and the EU.  In seeking to defend the positon, the UK Government claim that the powers included in UKIM are necessary because the Withdrawal Agreement puts at risk the transportation of food between Great Britain and Northern Ireland and therefore these powers are prudent in the event that a EU/UK FTA is not agreed.

The Withdrawal Agreement requires companies that want to export goods from Northern Ireland to Great Britain to submit export declarations. It also gives the EU oversight on any state subsidy (‘state aid’) provided by the UK Government to companies in Northern Ireland:  this oversight is seemingly a big concern for the UK Government and has been the subject of much discussion in the FTA talks and press speculation.

One alternative view on the need for UKIM is a suggestion that the UK Government rushed into signing the Withdrawal Agreement and without fully comprehending its implications. Given that these were widely pointed out by commentators, one would think that this is unlikely.  With UKIM now being seen by the UK Government as necessary in this context, questions have been raised as to whether this would cast a shadow over the willingness of the UK to abide by its obligations under International Law.  The ramifications of this could far exceed those of Brexit.

What is next?

UKIM will likely pass through the UK parliament and come into law given the UK Government’s significant majority.  Meanwhile, the EU has given the UK Government until the end of this month to retract the legislation or they will launch legal proceedings.  The implications of any such legal proceedings are unclear given looming December 31, 2020 deadline but it is obvious that attempting to conclude an FTA between two parties who are litigating against each other will be uncomfortable. This said, FTA negotiations are still actively ongoing and both sides are reporting that progress is being made.  At some point in the near future, the key political players will need to decide whether there will be an FTA and therefore whether they are able to move on any of their supposed ‘red-lines’.

International reactions to UKIM have been mixed, to say the least.  Whether or not there will be an FTA between the UK and the US will depend on who wins the US Presidential election. Vice President Biden and other senior Democrats have all stated that an FTA between the US and the UK will be contingent on respect for the Good Friday Agreement and no return of a hard border on the island of Ireland.

US Secretary of State, Mike Pompeo, who provides the Trump administration’s position, was more positive:  ‘we trust the United Kingdom’.  US special envoy, Mick Mulvaney’s pending visit to the UK and Ireland will almost certainly include discussions on UKIM.  He has also warned against creating a hard border ‘by accident’.

Watch this space for further updates on UKIM and its impact of the EU/UK FTA and how this will impact US businesses seeking to trade with the UK and Europe after January 1, 2021.

Other (trade) news

• Australia’s High Commissioner to the UK has stated his country has no reservations about whether the UK will honour its international trade deals.His comments came as the two countries have begun the second round of negotiations for a comprehensive FTA.
• Ciaran Martin, UK’s departing Chief of Cyber-security warns that Chinese companies are looking to acquire companies in other countries to gain advantage of the huge data sources owned and then train AI applications to get a technical advantage over western competitors. We are seeing these national security concerns play out currently with the sale of the American part of TikTok’s business and the concern about the sale by SoftBank of ARM to Nvidia.
• The UK Financial Conduct Authority has taken the first step to allowing cannabis companies to trade on the FTSE.Should this proceed, this would open the door for growth of US companies looking to expand into the UK and Europe.
• Dr Liam Fox (an ex-minster of state) is still in the running to be the next director general of the WTO.The next round of consultations began on September 24 and will run until October 6.WTO members can indicate two preferences and the General Council Chair, David Walker, will then narrow the field from five candidates to two.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.