7 minute read 11 Jun 2021
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What’s the status of the UK’s trade agreements with non-EU countries

Authors
George Riddell

Trade Strategy Director, Ernst & Young LLP

Helping companies and governments enhance their international trade. Passionate about ocean conservation and an avid scuba-diver.

Marc Bunch

EY UK Global Trade Leader

Global Trade Partner. Advises multinational companies on improving their trade effectiveness.

7 minute read 11 Jun 2021
Related topics Brexit Global trade

The UK has negotiated trade deals previously covered by its EU membership. We outline the status of these post-Brexit continuity deals.

In brief 

  • What happened to the trade agreements the UK was already part of?
  • How do new deals (such as Japan and Turkey) differ to those covered by past EU arrangements and what are the UK’s priorities in future negotiations?
  • What can businesses do to mitigate the impact of changes to trade agreements (particularly Rules of Origin requirements) and plan for future trade negotiations? 

Whilst an EU Member State, the UK was automatically included in any trade deal negotiated by the EU with other countries or regional trade blocs. With the end of the Brexit transition period and its departure from the EU, the UK lost access to the EU trade agreements it had previously benefitted from. However, it sought to preserve preferential trading terms with countries and blocs covered by its EU membership, through trade ‘continuity’ or ‘roll over’ agreements. 

These EU agreements were important to the UK and are estimated to have covered £117bn of UK exports annually. They included:

  • Full comprehensive Free Trade Agreements such as Canada or Japan.
  • Agreements covering much more specific arrangements (e.g., the UK-Australia Wine Agreement, which covers labelling requirements and recognition of winemaking techniques).
  • Mutual Recognition Agreements which cover conformity assessments conducted on products to ensure that they meet the necessary safety standards.

As of 1 January 2021, the UK had signed continuity agreements with the vast majority of those that have agreements with the EU - over 60 countries. Some of these agreements have yet to complete their full domestic implementation due to their late agreement and so-called ‘bridging mechanisms’ are in place to ensure continuity of trade while ratification is complete. For those countries not covered by continuity agreements, trade is now governed by World Trade Organization terms.

  • Ratification status of UK continuity agreements with non-EU countries

    On 31 December 2020, countries which had been treating the UK as though it were an EU Member State ceased to do so and the trade continuity agreements that had been ratified took effect. For countries where a continuity agreement had not been reached, the terms of trade reverted to those of the World Trade Organization.

    Country

    Status

    Albania

    Fully ratified

    Algeria

    Ongoing

    Andean (Colombia, Ecuador and Peru)1

    Fully ratified

    Bosnia and Herzegovina

    Ongoing

    Cameroon

    Provisional application

    Canada

    Fully ratified

    CARIFORUM (Antigua and Barbuda, Barbados, Belize, Bahamas, Dominica, Dominican Republic, Grenada, Guyana, Jamaica, St Christopher and Nevis, St Lucia, St Vincent and the Grenadines, Suriname, and Trinidad and Tobago) 

    Provisional application

    Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama)

    Fully ratified

    Chile

    Fully ratified

    Cote d’Ivoire

    Fully ratified

    East African Community (minus Kenya)

    Ongoing

    Eastern and Southern Africa (Madagascar, Mauritius, Seychelles, Zimbabwe)

    Fully ratified

    Egypt

    Fully ratified

    Faroe Islands

    Fully ratified

    Georgia

    Fully ratified

    Ghana

    Provisional application

    Iceland and Norway 

    Upgraded agreement

    Israel

    Fully ratified

    Japan

    Fully ratified

    Jordan

    Fully ratified

    Kenya (option for other East African Community members to join in the future)

    Bridging mechanism

    Kosovo

    Fully ratified

    Lebanon

    Fully ratified

    Liechtenstein 

    Upgraded agreement

    Mexico

    Fully ratified

    Moldova

    Provisional application

    Montenegro

    Ongoing

    Morocco

    Provisional application

    North Macedonia

    Provisional application

    Pacific states (Fiji, Papua New Guinea, Samoa and Solomon Islands)2

    Provisional application

    Palestinian Authority

    Fully ratified

    Serbia

    Provisional application

    Singapore

    Fully ratified

    South Korea

    Fully ratified

    Southern Africa Customs Union and Mozambique (Botswana, Eswatini, Lesotho, Namibia, South Africa and Mozambique)

    Fully ratified

    Switzerland 3

    Fully ratified

    Tunisia

    Fully ratified

    Turkey

    Provisional application

    Ukraine

    Fully ratified

    Vietnam

    Provisional application

    1 Colombia has not yet fully ratified, a bridging mechanism is in place.

    2 Samoa and the Solomon Islands have not acceded to the Pacific States-UK Interim Economic Partnership Agreement. Both have agreed to apply preferential treatment through a Memorandum of Understanding.

    3 This was a goods-only agreement. Negotiations are ongoing for the services and investment portions of this agreement. 

In addition to these continuity agreements, the UK Government is also seeking new trade agreements with Australia, New Zealand and the US. It has also committed to updating and improving arrangements with several countries, opening public consultations on upgrading FTAs with Canada and Mexico, and a new trade agreement with India.

The UK’s new trading relationship with Norway, Iceland and Liechtenstein

On 4 June, the UK concluded negotiations with Norway, Iceland and Liechtenstein to upgrade the continuity agreement which had been solely focused on trade in goods. The comprehensive new  EEA EFTA States - UK Free Trade Agreement covers trade in goods, services and investment, digital trade, capital movements, government procurement, intellectual property, competition, subsidies, small and medium sized enterprises, good regulatory practices and regulatory cooperation, recognition of professional qualifications, trade and sustainable development. It also encompasses legal and horizontal issues including dispute settlement. While a significant improvement on the continuity agreement which was previously in place from 1 January 2021, differences in market access remain when compared with the free movement available prior to Brexit.

The UK’s new trading relationship with Turkey

As Turkey is in a Customs Union with the EU, the UK’s ability to sign a continuity agreement with Turkey was dependent on the UK-EU Trade and Cooperation Agreement, the UK’s trade deal with the EU. The new UK-Turkey Free Trade Agreement incorporates a number of different agreements under a single agreement which includes industrial goods, coal and steel, agricultural products (tariff-rate quota based) and processed agricultural products.

Appreciating that the EU Customs Union and a Free Trade Agreement are two different concepts for assessing origin requirements is key for traders. With the Customs Union, goods could benefit from free circulation between member countries. However, with the Free Trade Agreement products are only traded free of import duty if they originate in one of the countries. In short, the UK and Turkey will only continue to benefit from tariff preferences if goods traded originate in either country.

Currently, origin requirements (the Rules of Origin Protocol) in the UK-Turkey agreement include a number of temporary provisions that will be shortly updated in line with the UK and the EU Trade Cooperation Agreement. At present, this means importers and exporters can still benefit from the preferential tariff rates for the UK/Turkey origin materials. Furthermore, applying cumulation rules and using EU materials and processing for exports to Turkey (and vice versa) will be possible once the Rules of Origin Protocol is updated accordingly.

The UK’s new trading relationship with Japan

The UK’s new trade agreement with Japan, the UK-Japan Comprehensive Economic Partnership Agreement (CEPA), goes beyond aspects of EU-Japan Economic Partnership Agreement (EPA) which previously governed UK-Japan trade. The UK and Japan were able to agree significant improvements on several areas including digital trade and financial services.

On the trade in goods, the UK-Japan CEPA provides for a similar timeframe of tariff reduction as under the EU-Japan EPA, however a small number of tariffs will be eliminated at an earlier date. On rules of origin, diagonal cumulation has been agreed for EU inputs, allowing them to count as ‘local’ to either the UK or Japan. The paperwork requirements for qualifying for preferential tariff rates has also been lowered in comparison with the EU-Japan EPA.

The UK-Japan CEPA goes considerably further than the EU-Japan agreement in the area of digital trade. These improvements include provisions ensuring cross-border data flows, the prohibition of data localisation requirements and a commitment to adopt and maintain a legal framework that provides for the protection of personal information.

To employ the preferential trading terms granted under the new agreement, businesses will need to be aware of any relevant substantive changes to the Japan-UK CEPA, as compared with the EU-Japan EPA. Businesses should also understand where additional market access has been granted under the UK-Japan CEPA compared to the EU-Japan EPA to maximise their utilisation of the new trading terms.

Our alert assesses the improvements made in more detail.

Services and digital trade will feature more heavily in future negotiations

One of the key priorities for the UK Government when negotiating continuity agreements was to maintain preferential treatment for the trade in goods between the UK and non-EU countries. Building on the UK’s experience with the UK-Japan CEPA, the UK Government has committed to negotiating increased coverage for services, digital trade and investment with several trading partners. Talks to improve the agreements with Canada, Mexico and Turkey will start in 2021. In the case of Canada, both sides have committed to finalising these negotiations by the end of 2023.

Immediate actions for business:

Businesses should:

  • Identify where the loss of preferential trading arrangements has had a material impact on operations and explore opportunities to remedy this situation. 
  • Closely monitor future trade negotiations and determine whether they could have an impact on their international trading operations.
  • Engage with industry bodies and the UK Government to ensure the issues and priorities are understood going into future trade negotiations.

For further information, please contact this article’s authors or your usual EY contact.

Summary

The end of the Brexit transition period triggered the activation of continuity agreements or trading under World Trade Organization terms. As the UK negotiates new deals, business should monitor developments to understand the implications for their international trading operations.

About this article

Authors
George Riddell

Trade Strategy Director, Ernst & Young LLP

Helping companies and governments enhance their international trade. Passionate about ocean conservation and an avid scuba-diver.

Marc Bunch

EY UK Global Trade Leader

Global Trade Partner. Advises multinational companies on improving their trade effectiveness.

Related topics Brexit Global trade