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Executive summary

The UK and the EU have developed a deeply integrated relationship in manufacturing sectors and it is in the interests of both parties to find a solution that allows it to continue after the UK’s exit.

The EU is the UK’s largest market for goods overall and this partnership benefits both producers, consumers and patients in the UK and the EU through access to the widest range of inputs and products, and assurance of their safety.

The UK believes that the future partnership should be based three principles:

  1. deeply integrated supply chains should be preserved;
  2. trade at the UK-EU border should be as frictionless as possible and there should be no hard border between Northern Ireland and Ireland; and
  3. goods should only need to undergo one series of approvals, in one country to demonstrate that they meet the regulatory standards of both the UK and EU.

There are a number of precedents that demonstrate how the EU has reduced and simplified the requirements for trade in goods with its global partners whilst respecting the integrity of the Single Market. Whilst these precedents are useful, the UK and the EU start from a unique position of having the same rules and regulations and the negotiations should reflect that. It is in the interests of both the UK and the EU to look beyond the precedents and agree the broadest and deepest possible partnership. To deliver this it will be crucial to find a new framework for trade in goods which recognises both the unique starting point and our trusted, historic relationship, and allows for a close economic partnership whilst giving both parties assurance that each side will comply with its obligations

The agreement should also take account of the need for specific solutions to the unique circumstances of Northern lreland and lreland. As part of this, the UK and the EU have committed to protecting the Belfast Agreement and both stated explicitly that we will not accept any physical infrastructure at the border.

Introduction

Both the UK and the EU benefit from their close and longstanding trading relationship for goods. Trade in goods is deeply integrated across the UK and EU, affecting all aspects of citizens’ lives, from the medicines we use, to the cars we drive and computers we rely on every day. Consumers, business and patients benefit from this relationship through access to the best and most innovative goods, lower prices and assurance that their safety is protected.

Trade prays a highly visible role in supporting the domestic economy as a source of demand for domestic businesses.The EU is the UK’s largest market for goods overall, while demand from UK businesses and consumers is also of considerable importance for many businesses and jobs across Europe. [EU statistics indicate that EU goods exports to the UK amounted to €315 billion in 2016 – which in 2016 was more than exports to any third country, and more than exports to Brazil, Russia, India, and China combined.]

The UK contributes to demand for EU products as a major net importer of goods from other Member states. [As shown in the-chart below, 9 out of the UK’s top ten EU trading partners report a surplus in trade in goods with the UK. Overall, EU statistics indicate that the EU’s net goods exports to the UK were worth €135 billion in 2016.]

This trade brings strong mutual benefits to UK consumers and EU producers, and easy access to the UK market is especially important for some particular EU induitries.[ For example, in 2016 other EU member states exported [€62 billion] of automotive goods to the UK, comprising [11%] of total automotive exports. [It is estimated that these exports are linked to more than [10%] of jobs in the automotive sectors of several member states including Ireland, the Netherlands and Belgium, and more than [5%] of automotive jobs in Germany, Italy, Spain, Austria, Sweden, Hungary, Poland and the Czech Republic.]

UK-EU supply chain relationships are also particularly significant. Many leading European industries benefit considerably from easy access to UK intermediate goods. UK firms play an important role in the supply chains of, for example, French and Italian aerospace, German and Belgian automotives, and Dutch, Swedish and Danish chemicals and pharmaceuticals. [ln total, the EU exported [€178 billion] of intermediate and capital goods to the UK in 2016, and imported [€108 billionl from the UK. As a result of these highly integrated supply chains, both the UK and the EU have a strong commercial interest in preserving a new and lasting trading relationship after the UK’s exit from the EU.]

These trading relationships are supported by integrated regulatory systems and close cooperation between UK, Member States and EU institutions. The deep and long-standing relationships between our institutions have been built on shared values [for evidence-based and proportionate regulation], common product rules, recognition of the competence of each other’s’ regulators and the development and use of European and international standards.

In order to maintain these beneficial trading relationships, the UK proposes an ambitious new framework for goods which avoids the introduction of any tariffs and minimises non-tariff barriers. A crucial part of any such agreement will be to create a comprehensive ecosystem that ensures this agreement operates in both sides interests. In addition to our existing strong relationships, this will rely on the UK and the EU’s ongoing commitment to the highest standards in all industrial goods sectors as well as robust structures and mechanisms to oversee the fair functioning of the economic partnership agreement, to hold the parties to their commitments and to resolve disputes if the arise. This will mean that whilst trade in goods should be as frictionless ass possible, there should be no risk that products reach either market that do not meet the rules.

This paper sets out the UK’s proposal for a close trading partnership on goods, which respects the integrity of the Single Market and would operate within the new comprehensive ecosystem established for the Future Economic Partnership.

Three principles to underpin the future partnership on goods

To ensure that businesses and consumers across the EU and the UK continue to benefit from the ability to trade as freely as possible, the UK believes that the future partnership should be based on the ‘following three principles:

  1. deeply integrated supply chains should be preserved;
  2. trade at the UK-EU border should be as frictionless as possible and there should be no hard border between Northern Ireland and Ireland; and
  3. goods should only need to undergo one series of approvals, in one country, to demonstrate that they meet the regulatory standards of both the UK and EU.

These three principles form the foundation of the UK’s proposal for the broadest and deepest possible partnership on goods – covering more sectors and co-operating more fully than any Free Trade Agreement anywhere in the world today.

Pillars of future partnership in goods

The UK’s overarching proposition on goods comprises of chapters on (a) tariffs and Rules of Origin (b) customs; and (c) regulations.

[Both the UK and the EU believe that continuing tariff-free trade across all goods in the future economic partnership will allow companies to continue to source existing supplies at these preferential tariff rates. That is why both parties have signalled their readiness to negotiate an agreement that avoids the imposition of tariffs or quantitative restrictions. We want to ensure that UK-EU Rules of Origin enable businesses in the UK, the EU and current EU FTA partner countries to continue to operate, as much as possible, through their established value and supply chains. Businesses should continue to make use of UK and EU content in their exports which will benefit both parties.]

The UK government sets out its detailed proposal for the future partnership on customs in the future customs arrangements paper (2017). The first is a highly streamlined customs arrangement, which, while introducing customs formalities to UK-EU trade, would seek to minimise these additional requirements as far as possible. The second is a new customs partnership, an unprecedented and innovative approach under which the UK would mirror the EU’s requirements for imports from the rest of the world, while also moving to an independent trade policy. This would remove the need for a customs border between the UK and the EU. This option hasn’t been tried before but would mean no customs barriers to trade with the EU, including Ireland.

The UK’s proposalfor industrial goods regulations is the principal subject matter for this chapter and is set out in the following sections.

The UK’s proposals for the future partnership

ln order to achieve the three core principles for the future partnership with the EU on goods regulations, the UK believes the partnership should be built on our established systems and shared approach. ln the future partnership, placing goods on the EU and UK markets should be enabled by comprehensive ecosystem that supports a well-functioning, rules-based relationship that includes:

  1. a comprehensive system of mutual recognition;
  2. exploring the terms of associate membership of agencies;
  3. a commitment to keep UK regulatory standards for goods as high as the EU’s; and
  4. a comprehensive and fair governance framework, including a regulatory cooperation mechanism and independent dispute resolution.

This model, if delivered in full, provides sufficient depth to remove any regulatory implications for the Northern Ireland – Ireland land border. An agreement on participation would mean that requirements for checks on third country products prior to entering the Single Market should not need to apply. That is because movement of goods between the UK and the EU presents no higher risk than it does at present.

A comprehensive system of mutual recognition

See here.

Relationship with EU agencies

For some highly regulated sectors, access to the EU market is, to a greater or lesser extent, regulated by centralised EU processes that are facilitated by EU agencies. The UK wants to explore the terms on which it could remain part of EU agencies, such as those that are critical to the medicines, chemicals and aerospace sectors: the European Aviation Safety Agency (EASA), the European chemicals Agency (ECHA) and the European-Medicines Agency (EMA). [This could include, but not be limited to, UK regulators participating in or cooperating with functions such as marketing authorisations for medicines; chemical registrations; and airworthiness certificiation for aerospace products.]

Continued participation in these agencies would mean [the UK applying rules that are identical in substance to those EU rules that are specifically relevant to the agency] and making an appropriate financial contribution. EU agencies play an important role in managing risks to human health and the environment, facilitating the oversight of goods and fostering scientific collaboration.

Their work is underpinned by a number of IT systems and the timely of data sharing between Member State regulators, such as to support pharmacovigilance. ln highly regulated, high risk sectors, securing the UK’s objective of only one series of product approvals requires ongoing participation in the relevant agencies in particular to access the data required to continue to regulate effectively in the UK. Associate membership would also have benefits for the EU because UK regulators provide a significant contribution to EU wide assessments for new-medicines and chemicals.

UK regulatory standards will remain as high as the EU’s

The UK recognises that leaving the Customs Union and the Single Market requires a new framework where both parties operate within a new comprehensive ecosystem. That is why the UK’s proposal is underpinned by three strong commitments to support the agreement. The UK proposes a robust regulatory architecture to underpin the agreement and to ensure that the high levels of regulatory trust that exist now, can continue in this new structure. This will need to include mechanisms for assessing regulatory outcome equivalence and convergence with [European and international] voluntary standards, [including upholding the ‘single standard model’]. The UK proposes that regulatory cooperation should also offer an effective means of enforcing level-playing field rules.

The UK’s regulatory commitments reflect the extent to which the UK and Eu economies are entwined. The businesses who export to the EU and operate European supply chains tell us that it is strongly in their interests to comply with a single set of regulations to sell into UK and EU markets. This supports competition, reducing costs and increasing choice for consumers.

Although the UK is leaving the Single Market, we remain committed to high standards on consumer and patient Safety, and to ensuring a level-playing field for business. We believe that we share this commitment with the EU, and it should be recognised in our future regulatory relationship as our regulatory standards will remain as high as the EU’s. As a result, UK law may not necessarily be identical to EU law, but it should achieve the same outcomes. In some cases Parliament might choose to pass an identical law where it is in the interest of businesses to have a single set of regulatory standards that mean they can sell into the UK and EU markets. We should also allow for both parties to develop their regulatory frameworks in response to emerging trends and risks. However this would be in the knowledge that there may be consequences for market access in cases where UK law did not meet the same outcome as EU law.

This commitment means that in practice, UK and EU regulatory standards will remain substantially similar in the future. Over time and across different sectors, there maybe a spectrum of similarity between EU and UK regulations. The UK recognises that having confidence that each other’s systems uphold regulatory standards is a fundamental aspect of ensuring a comprehensive system of mutual recognition can work in the futurepartnership and will be a key role for the governance framework.

Alongside this, the UK remains committed to driving the development of common approaches at a global level by participating in international rules-based fora, which help drive growth, innovation and standards around the world. For example, we will continue our participation in fora such as Pharmaceutical Inspection co-operation scheme (plcis) and the UN Economic Convention for Europe which drives worldwide standards in the automotive industry. We also remain committed to the role of voluntary standards in supporting legislation, and an open, productive business environment. The British Standards Institution (BSI) is negotiating continued membership of the European standards organisations ani will maintain the c.20,000 industrial and technical European standards as national standards. [The Government supports them in this aspiration, and intend to uphold the ‘single standard model’ regime].

Governance: a regulatory cooperation mechanism

The future economic partnership between the UK and the EU will feature structures and mechanisms to oversee the fair functioning of the agreement, to hold the parties to their commitments and resolve disputes that arise. These will reflect the principles for the overarching governance of the partnership as a whole, which are discussed further in chapter 8.

Within this framework, we envisage a sectoral subcommittee for goods composed of experts and officials would manage the relationship between UK and EU regulation over time. That relationship could take many forms: our default is that UK law would not necessarily be identical to EU law, but that it should achieve the same outcomes. The subcommittee would meet to consider whether changes in regulation would achieve agreed outcomes, providing both the UK and the EU reassurance that the relevant technical regulation remained equivalent. lf a future Parliament decided to achieve different outcomes from the EU, then it would do so knowing there could be consequences for market access. The subcommittee would then be able to assess whether there were any implications under the agreement.

Conclusion

The UK and EU share fundamental values and beliefs in the importance of free trade, rigorous and fair competition, strong consumer rights and a commitment to high regulatory standards. In approaching our future relationship on goods, the UK is therefore guided by the principles of supporting UK and EU businesses wishing to work together through integrated supply chains and export to each other’s markets; ensuring trade at the UK-EU border is as frictionless as possible; and that, as now, goods should only need to undergo one series of approvals, in one country, to demonstrate that they meet the regulatory standards of both the UK and EU.

It is in the interests of both the UK and the EU to go beyond existing precedents and seek a bespoke and ambitious future partnership that is beneficial to both sides. The UK believes that this can be achieved by agreeing a broad and comprehensive system of mutual recognition and agency participation in highly regulated sectors.

The UK has made a strong commitment to ensuring that its regulatory standards remain as high as the EU’s. A robust regulatory cooperation mechanism will ensure that both sides commitments are upheld and they can continue to trust one another’s systems.

The continued trade in goods is of mutual importance to both the UK and EU. The UK is committed to continuing the deep and special relationship and will seek to agree an ambitious and comprehensive partnership to provide businesses and citizens with as much certainty as possible, as soon as possible, for the benefit of UK and EU prosperity.

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