01 September 2017

UK Trade Policy Observatory: The EU Regulatory Magnet: What Are the Consequences for the UK?

The AA is a new model of external relations for the EU and it addresses matters beyond trade (cooperation in foreign and security policy, justice, freedom and security (including migration) taxation, public finance management, science and technology, education and information society). It is an innovative form of external action in offering a new type of economic integration without membership of the EU: an integration-oriented agreement. The new AA may reveal some lessons for the UK as it seeks new models of trade relationships. Indeed, the AA has already entered the consciousness of the wider public as a potential model for UK-EU trade agreements post-Brexit, but, in fact, it is a most unlikely model given that the UK does not want such a deep commitment beyond trade provisions with the EU.

The importance of the EU-Ukraine AA assumes even greater significance if it is placed in the context of the agreements made between Canada and the EU (CETA), awaiting ratification by the national parliaments of the EU Member States, and the Canada Ukraine Free Trade Agreement (CUFTA) signed on 11 July 2016 and ratified by both countries. Arguably the wider context of these agreements consolidates and confirms the role of the EU as a regulatory magnet for sophisticated trade agreements.

A New Model for Coherence in EU Trade Agreements

There are a number of aspects of the AA which are relevant when thinking about the future post-Brexit trade arrangements the UK might negotiate with the EU – and indeed with Ukraine if it wishes to continue the EU trade agreement. Although the Ukraine model is not a model the UK would seek it does reveal the ability of the EU to engage with new institutional arrangements to create a trade agreement.

The EU-Ukraine AA is one of the first of the new models for coherence in EU external action after the Treaty of Lisbon 2009, as well as being one of the most controversial agreements to be signed by the EU. It was adopted by a Council Decision on 17 March 2014, using the combined Common Foreign and Security Policy legal base (Arts. 31(1) and 37 TEU) and the Association provisions (Art. 217 TFEU)). Both legal bases require unanimity voting in the Council. The combination of CFSP/TFEU legal bases reflects the comprehensive nature of the AA and the continuing bipolarity of the external competence of the EU found in Article 40 TEU.   The AA is, therefore, a mixed agreement requiring ratification at the Member State level. Opposition in The Netherlands delayed the ratification process.

The most important aspect of the AA, and an indication of the flexibility of the EU in new trading arrangements, is the aim of integrating Ukraine into the EU internal market using a new institutional framework and mechanisms by which the relevant EU laws are approximated by Ukraine, alongside the new and sophisticated mechanisms to secure the uniform interpretation and effective implementation of relevant EU legislation in Ukraine.

The EU-Ukraine AA is based on a strict conditionality approach. Conditionality has been used before in the European Neighbourhood Policy (ENP) and the Eastern Partnership (EaP). But this principle has been applied using soft-law instruments such as Action Plans and the Association Agenda. The breakthrough with EU- Ukraine AA is that it is now embedded in a legally binding bilateral agreement.  This may have significant consequences for stakeholders who may wish to push the agenda for reform in Ukraine using the legal process.

Alongside this new form of enhanced conditionality, there are other new dimensions to EU external relations policy. These are seen in a new and reinforced institutional framework and more sophisticated legal mechanisms for the approximation of laws and dispute settlement than has previously been seen in EU Association Agreements.

[...]Writing this blog as the UK attempts to unravel its relationship with the EU, it is tempting to argue that by adopting such a comprehensive “trade + “ agreement Ukraine has attempted to lock-in future governments by making it difficult and expensive for successor governments to leave the political and economic arrangement with the EU. In addition to the potential risk of civil protest there will be too many stakeholders locked into the EU internal market if a future government attempts to unravel the AA. However, the reactions to the UK Brexit negotiations clearly indicate that basing new political relationships on free trade agreements creates transparency in future political bargaining but also makes consensus more difficult to achieve. It is ironic that today the EU has expanded its political and economic reach at the same time as UK negotiations to create a new model of trade partnerships are faltering.

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