Goods
135.Witnesses agreed that tariff-free access for goods to the EU’s market could be included in a FTA. Mr González García said agreeing tariffs on industrial goods would be straightforward (“I do not see why there should be barriers or obstacles in the automotive industry”), though agreement on tariffs for agriculture and market access for fishing would be more of a “challenge.”187 He added it would be “very easy” to agree on “rules of origin, customs procedures, customs facilitation and co-operation”.188
136.Mr Ruparel said that regardless of what might be included in a FTA, complying with rules of origin and incurring tariffs on goods with parts produced outside of the UK would be an “additional administrative burden for businesses and goods exporters.”189
Services
137.Witnesses also recognised that a FTA provided the possibility of some liberal terms for trade in services with the Single Market, though Mr González García suggested that some services might be easier to include than others, such as telecommunications and e-commerce.190
138.Mr Ruparel went further, saying that services “will clearly be the most difficult sector, particularly financial services, as there is no precedent for third-country access to the Single Market in financial services and other services.”191 Both Dr Gehring and Mr Ruparel said that previous FTAs signed by the EU which included services were some distance short of the access the UK currently enjoys as an EU Member State. Dr Gehring said: “Let us be honest: the current acquis of EU rules is normally much broader [than a FTA].” While the CETA agreement included “some mild form of mutual recognition of qualifications”, there were “quite a few areas of the existing EU acquis that I have not seen in any FTA in a bilateral relationship”.192 Mr Ruparel noted that while CETA provided “some rights of establishment, and the ability to set up subsidiaries and entities in the EU”, it was “far short … of providing a passport and being able to provide a service from your home base in the UK”. There were also “hundreds of pages of restrictions”, and so he concluded that a similar agreement between the UK and the EU “would be a big change for the UK, particularly on the services side”.193
Complying with EU law
139.Mr González García, Dr Gehring and Mr Ruparel agreed that if the UK wanted comprehensive market access under a FTA with the EU, it would have to accept EU regulations and standards. Mr González García said that in negotiations, “the EU is going to ask, ‘You want access to financial services. Which of my directives are you going to implement and replicate in your law?’” He suggested that “the easiest thing would be for the UK to adopt the EU law”, to ensure that “level of access to EU services would be greater”. On the other hand, he cautioned that “the more you want to be in the Single Market, the more locked into EU law you would be”, and that this would result in “less flexibility in negotiation with third countries” on future FTAs.194 Dr Gehring agreed, noting also that this might be “politically … very difficult, because sometimes you do not have political input into how the standards are made.”195
140.In some cases, though, meeting EU standards and regulations would not necessarily require the UK to adopt EU law, if it could demonstrate that its domestic law had an equivalent effect. Dr Gehring referred to the example of the Emissions Trading System, where the UK “would rather have a carbon tax, but the overall price of carbon between the two systems was similar, [so] there could be an equivalence negotiation”.196 Mr Ruparel cautioned, though, that whether “you meet the equivalence standards … is a political not a technical decision”.197
Dispute resolution
141.Dispute resolution under FTAs is described in Box 7.
Any FTA would require the establishment of some form of mechanism to resolve disputes. Countries can also use the WTO dispute settlement which allows for an appeal of the decision and for compensation if the case is won.
When set up within the framework of a FTA, the most common procedure for resolving trade disputes is state-to-state dispute settlement. In this case, a state complains about violations of the agreement by the other state to a joint panel. However, dispute settlement clauses in FTAs are as diverse as the FTAs themselves.
In FTAs containing an investment chapter, it is also possible to include a dispute settlement mechanism between investors and states (investor-state dispute settlement—ISDS). This grants an investor the right to resort to international arbitration against a country’s government where the host state violates the rights granted to an investor under public international law.
198 In the case of the proposed Transatlantic Trade and Investment Partnership (TTIP) and under CETA, this has proved extremely controversial. The provisional application of CETA agreed in October 2016 does not include these investor-state dispute resolution provisions.
If there is a dispute about trade relations between the Switzerland and the EU, the CJEU will initially publish its decision, and this decision will then go to a joint committee of Swiss and EU officials, which decides on how this issue should be viewed in the context of their bilateral relationship.
142.According to Mr González García, the advantage of including dispute settlement clauses within FTAs was that they provided an extra (if indirect) benefit to business and investors by offering “an additional forum where the state will call the other state to say that they have an issue”.199 FTAs provided complainants with the ability to “challenge and appeal the decision by an impartial, neutral administrative tribunal, in quasijudicial or judicial proceedings”.200
143.On the other hand, Dr Gehring argued that states seem to “prefer the WTO process”.201 That process can result in the complainant being allowed to impose countermeasures—such as breaking its own WTO obligations towards the member that lost in WTO dispute settlement (for example by imposing tariffs beyond the bound tariff rate)—which may convince the trading partner to bring its actions into line with WTO practice.202 Dr Gehring emphasised that FTA dispute resolution clauses worked on a state-to-state level and so did not provide businesses with the opportunity to challenge the actions of their trading partners unless they had “access to the Government” and could “easily sway the entire United Kingdom to take on, say, the United States”.203
144.Several witnesses urged the Government to consider developing more robust dispute settlement arrangements to police a future FTA between the UK and the EU. Referring to the EFTA Court, Dr Gehring said: “A joint court between EU judges and UK judges to administer the new comprehensive relationship could be possible”.204 Mr Ruparel agreed.205 We note that such a proposal is unlikely to pass legal scrutiny by the CJEU. In 1991, it ruled against a proposal to establish an EEA court composed of eight judges—including five from the CJEU—on the basis that such a system was incompatible with Community law. As a consequence, the EFTA Court was set up pursuant to a different model.206 Dr Gehring too warned that such “creativity may run into slight difficulties”.207 He referred to the Swiss model of dispute resolution (which does not have a court): “The practice over the last 10 years has shown that … it is basically impossible for the Swiss side to get any change negotiated in the joint committee, because the Commission officials feel legally bound by the definitive judgment of the Court of Justice.”208
