The UK`s new trade agreement with Japan, the UK-Japan Comprehensive Economic Partnership Agreement (CEPA), goes beyond aspects of the EU-Japan Economic Partnership Agreement (EPA), which previously governed trade between the UK and Japan. The UK and Japan have agreed on significant improvements in several areas, including digital trade and financial services. The EU-UK Trade and Cooperation Agreement between the EU and the UK includes preferential arrangements in areas such as trade in goods and services, digital trade, intellectual property, public procurement, aviation and road transport, energy, fisheries, coordination of social security systems, law enforcement and judicial cooperation in criminal matters, thematic cooperation and participation in Union Programmes. It is based on rules that ensure a level playing field and respect for fundamental rights. When trade agreements focused on tariff reduction, it made sense to negotiate bilateral tariff reduction plans as part of the logic of mutual liberalization. One country would lower its tariffs in response to another country`s tariff cut. The second effect of the trend towards deep agreements is that the cost of negotiations with regard to staff has increased. The UK will have to bear these costs alone, and its negotiators will be on a very steep learning curve. This guide shows which trade agreements exist with third countries during and after the transition period. Even if a trade agreement is reached, not all new controls will be abolished, as the EU requires certain products (such as food) from third countries to be controlled. Companies must therefore be prepared. The end of the Brexit transition period triggered the activation of continuity or trade agreements under the terms of the World Trade Organization.
As the UK negotiates new deals, businesses should monitor developments to understand the impact on their international trade. Trade agreements set the rules that cover trade between 2 or more countries. They aim to facilitate trade between these countries. They do this by reducing import and export restrictions between them. The trade agreement between the United Kingdom and Switzerland contains elements of the EU-Switzerland MRA. A free trade agreement aims to promote trade – usually with goods, but sometimes with services – by making it cheaper. This is often achieved by lowering or eliminating so-called tariffs – taxes or government levies for cross-border trade. The UK is seeking trade agreements with its main trading partners. Recent research by the UK`s National Institute of Economic and Social Research has identified market access under current single market rules (i.B s an EEA-type agreement) and a “normal” free trade agreement focused on tariffs.9 It concludes that the UK has seen a decline in trade in goods with the EU of up to 45% and trade in services with the EU by up to 60%.
The reason for these very sharp reductions is that the rules of the internal market cover and prohibit non-tariff barriers to trade such as internal taxes, various health and safety regulations, incompatible technical standards and the non-recognition of professional certificates. Internal market rules also apply to services. Tariff-based trade agreements are necessarily limited to trade in goods and omit services. Ironically, the UK has a strong comparative advantage in service sectors such as finance. However, in a customs union comprising both countries, the total cost of this product is only 100.5 (= 30 + 48 + 22.5). The company could have made a profit of 10.5. But in our case, the rules of origin that govern trade within free trade areas force the company to relocate its production within the free trade area, find other inputs or settle in a country whose exports to the free trade area are not subject to customs duties. For example, rules of origin do not influence location decisions based on actual costs, but on how tariffs are collected. Bilateral agreements only lead to trade liberalization if the other country agrees to open its economy. The other country will only be willing to do so if it has preferential access to the UK market. Therefore, bilateral agreements work because they discriminate against external parties.
This is not in line with a free trade policy. As explained in the previous section, bilateral trade agreements are becoming less and less attractive. This means that potential trading partners will ultimately be less willing to open up their economies, as the UK market will increasingly lose its attractiveness after the first trade deals, unless the UK unilaterally removes its remaining barriers and restrictions on foreign goods and services. The UK`s zeal to do so is not immediately obvious. Each trade agreement aims to eliminate tariffs and other barriers to trade that come into force. It will also aim to cover both goods and services. If the UK does not replicate the effects of an existing EU agreement, trade with other World Trade Organisation (WTO) members will take place on WTO terms when EU trade agreements no longer apply to the UK. These EU agreements have been important to the UK and have covered around £117 billion in UK exports per year. On 31 December 2020, countries that had treated the UK as if it were an EU Member State ceased to do so and ratified business continuity agreements entered into force. For countries where no continuity agreement has been concluded, the terms of trade have returned to those of the World Trade Organization.
Updated as the EU has notified countries with which it has concluded trade agreements that EU trade agreements may continue to apply to the UK during the transition period. With respect to trade in goods, CEPA provides for a tariff reduction schedule between the United Kingdom and Japan similar to that under the EU-Japan EPA, but a small number of tariffs will be eliminated at an earlier stage. As far as rules of origin are concerned, diagonal cumulation has been agreed for EU inputs, making it possible to be considered “local” for the UK or Japan. Paperwork requirements for granting preferential tariff rates have also been reduced compared to the EU-Japan EPA. DG TAXUD: Taxation and Customs: Questions and Answers on the impact of the UK`s withdrawal from the EU, its Single Market and the Customs Union If the UK is to act in accordance with WTO rules, tariffs would be imposed on most of the goods that UK companies send to the EU. This would make British products more expensive and more difficult to sell in Europe. The UK could also do the same with EU products if it so wishes. Thirdly, the Rotterdam-Antwerp effect mentioned above will have a negative impact.
If, as the Brexiteers argue, the UK is less dependent on the EU because a significant part of its trade with the EU is attributable to transhipments transiting through major ports, this also means that in the future an equal amount of trade will be subject to customs formalities. The lower the dependence on the EU, the greater the transhipments – and therefore the volume of trade that is subject to these formalities. The UK has made a name for itself for its liberal stance and pro-market contributions to Brussels deliberations on issues ranging from product safety to banking regulation and industrial subsidies. However, this does not necessarily mean that the UK will show the same enthusiasm for a liberal trade policy outside the EU. .
