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Trading futures

15 January 18

An outline of the Trade Bill, part of the Brexit legislative framework, which also contains some of the controversial features of the main EU (Withdrawal) Bill

by David McGowan, Jennifer Marshall

The Trade Bill was introduced to the House of Commons on 7 November 2017 and received its second reading on 9 January 2018. The bill confers powers to implement international trade agreements, in particular the Agreement on Government Procurement (“GPA”), and creates a Trade Remedies Authority. It is intended to be an important building block of the UK's future trade policy and the draft, as introduced, is predicated on the assumption that the UK will leave the EU in March 2019.

It is almost trite to note that the legislation has been introduced against a backdrop of ongoing negotiation between the UK and the EU, and also of reported differing views within the Cabinet. Accordingly, the broader Brexit context may clearly impact on when the powers under the bill will be used and when the institutions which will be created will be required to act.

Agreement on Government procurement

Clause 1 confers powers to implement the GPA. This measure will become necessary because, at present, the UK is a member of the GPA through its EU membership and not in its own right. Membership of the GPA is considered important because it provides for the mutual opening of government procurement markets amongst those WTO members who accede to it – at present 19 parties comprising 47 WTO members (the EU is a single contracting party whose 28 member states are all GPA members).

To achieve this market-opening objective, the GPA aims to ensure that bidders from GPA signatory countries are able to bid for contracts under conditions of non-discrimination, transparency and procedural fairness. On reading the GPA it is immediately apparent that the text is considerably less dense than that of the current EU Procurement Directives; the detail is left to parties to implement in their respective national laws. However, at present this is done in the UK (and indeed in other EU member states) through the mechanism of these directives; for example article 25 of Directive 2014/24/EU finds its counterpart in reg 26 of the Public Contracts (Scotland) Regulations 2015 – each according “no less favourable” treatment to GPA bidders than that afforded to EU economic operators.

Against this background, clause 1 allows the UK to make the necessary legislative changes in domestic law if and when it becomes an independent party to the GPA. It does so by providing that an “appropriate authority” should have the power, by making regulations, to implement the GPA or deal with the consequences of another party acceding to or withdrawing from the GPA. The definition of an appropriate authority covers all of a Minister of the Crown, the Scottish Ministers, the Welsh Ministers, a Northern Ireland department or a Minister of the Crown acting jointly with any of the devolved authorities. In practice this might mean amendment of the existing procurement regulations to adapt them to the detail of the GPA, or extend to making entirely new, possibly less detailed, regulations. The negative resolution procedure would be followed when making any such changes.

Conserving international trade agreements

A key argument of advocates of Brexit has related to the future ability of the UK to conclude international trade agreements on its own. At present, such agreements are concluded by the EU on behalf of all 28 member states – for example, the much cited Comprehensive Economic and Trade Agreement agreed between the EU and Canada in 2016.

However, before future trade agreements can be pursued, an immediate priority will be to seek to preserve the benefits of the trade agreements to which the UK is currently party through its EU membership, but shall cease to be on leaving the EU. The Government's aspiration is to seek to conclude a series of bilateral agreements to substantively replace the content of those trade agreements.

Clearly, these will be negotiated agreements and it cannot be assumed that, if agreement is reached with a particular trading partner X, the content of that agreement with the UK will be identical to X's current agreement with the EU, albeit the Government's hope is to keep the content substantively the same or similar. Clause 2 of the bill is concerned, essentially, with giving appropriate authorities power to adapt domestic law to take account of the issues that may arise. The delegated powers memorandum accompanying the bill notes that:

“There will be textual changes to current agreements that ensure future operability. There could be consolidation of agreements. The power is broad enough to allow implementation of substantial amendments, including new obligations.”

Although the Government has stated that the powers under clause 2 serve a relatively narrow purpose, they will be exercised in largely uncharted territory and their extent is undoubtedly very wide. For example, the term “international trade agreement” is defined to mean either a “free trade agreement” (itself undefined) or “an international agreement that relates mainly to trade, other than a free trade agreement”. Following negotiation of an agreement with a third party, the powers therefore allow for that recast agreement to be implemented into domestic law, but also for regulations to be made covering non-trade related matters stemming from the agreement. The appropriate authority also has discretion to make regulations which it considers appropriate, rather than only regulations which are necessary for the purposes of implementing the agreement.

The powers can be used for a period of five years following the UK's exit from the EU, although this “sunset” provision can be renewed for further periods of five years with the approval of both Houses of Parliament.

Creation of Trade Remedies Authority

Part 2 of the Bill is short. Clause 5 provides for the establishment of a body corporate to be known as the Trade Remedies Authority (“TRA”), and clause 6 provides that it must provide the Secretary of State for International Trade with advice, support and assistance in relation to international trade disputes, his functions and the functions of the TRA.

Trade remedies are the steps that a country may take in response to unfair competition or temporary safeguards in relation to suspected unfair competition. The highest profile examples over recent years have been the dispute between the EU and China over Chinese steel imports in respect of which the EU has taken action, including the imposition of anti-dumping duties, and the longrunning dispute concerning Airbus and Boeing which recently resulted in the imposition of tariffs affecting the Bombardier plant in Northern Ireland. At present, the UK falls under the EU's protective umbrella, but once it has left the EU this will no longer be the case. The need for such a body, following EU exit, is perhaps one of the less controversial provisions of the bill.

Schedule 4 provides a little detail on what the Trade Remedies Authority will look like: a chair and non-executive members appointed by the Secretary of State and executive members appointed by the chair, with no more than nine members in total. As the accompanying Commons briefing paper notes, all the bill really does is establish the TRA – very little is said about how it will operate or what approach the Government will take to trade remedies. Greater understanding can be gleaned if the bill is read in tandem with the Taxation (Cross-border Trade) Bill, which provides for matters such as the creation of a standalone customs regime that can be used, inter alia, to impose additional customs duty under appropriate circumstances as a trade remedy.

The bill also grants HMRC power to request the provision of information to allow it to establish the identity and extent of UK exporters. The Treasury will be given powers to make regulations about the type of information that can be requested and the form of request. The House of Commons briefing paper notes the Government's position that the provision of such information will be voluntary, but others including the Law Society of Scotland have expressed concern that this will not be the case.

Devolution impacts

Considerable interest in Scotland will be focused on the devolution related impacts, particularly in light of the Scottish Government announcing on 20 December 2017 that it could not recommend that the Scottish Parliament give legislative consent to the bill as currently drafted. Its core objection is similar to its objection to the EU (Withdrawal) Bill: that the power of the Scottish Government acting to make regulations under the bill is constrained by the terms of sched 1 in a way which it regards as unacceptable.

Just as a cross-reading of the bill alongside the Taxation (Cross-border Trade) Bill is needed to glean a better understanding of the proposed trade remedies rules, it is also necessary to read the bill alongside the EU (Withdrawal) Bill to understand the implications of the restrictions placed on the devolved authorities by sched 1. Indeed, readers would be well advised to also have to hand the lengthy explanatory notes published with each bill, the detail of the Scottish Government's legislative consent memoranda and to delve into some of the published commentary on each side of the argument (some of which is referred to in the feature at Journal, August 2017, 12).

The position as to the respective roles and responsibilities of the Scottish Government and UK Government in relation to matters such as public procurement has been long-established and relatively harmonious – see for example the non-binding November 1999 Concordat on Co-ordination of EU, International and Policy Issues on Public Procurement. The purpose of sched 1 is also clear – it is called “Restrictions on Devolved Authorities”, and provides, in the first instance, that devolved authorities cannot use their powers to modify either retained direct EU legislation or retained EU law as defined in the EU (Withdrawal) Bill.

At its core, the Scottish Government considers that, as and when legislative competence in certain areas returns to the UK (having formerly been an EU responsibility), the powers in the bill (and also in the EU (Withdrawal) Bill) go too far in reserving powers to Westminster and intrude on areas of devolved competence. On the other hand, the UK Government maintains that this is not the intention and that these are short-term temporary measures necessary to achieve a degree of legislative coherence in the exceptional circumstances that Brexit represents.

How these issues will play out over the coming months is anybody's guess, but the measures in the bill undoubtedly have significant potential to affect the procurement law landscape in Scotland as well as a number of other areas relevant to international trade.

David McGowan is a director, and Jennifer Marshall a senior associate, in the Competition practice with Dentons UKMEA LLP, Glasgow

 


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