The United Kingdom ("UK") is gearing up to "roll-over" the EU network of Free Trade Agreements ("FTA") once Brexit takes effect. In the past few weeks, the UK announced that it had successfully rolled-over the FTAs that the EU had concluded with: (1) Switzerland [*1]; (2) Chile; (3) the Faroe Islands; and (4) some of the members of the Eastern and Southern Africa Economic Partnership Agreement (i.e., Madagascar, Mauritius, Seychelles and Zimbabwe).
The rules of origin included in the UK FTAs with Chile, Faroe Islands and Switzerland set out an interestingly pragmatic strategy that will allow UK manufacturers to both continue relying on EU27 inputs in their production and to maintain preferential access for their goods to those countries.
Rules of origin are important as they determine the "economic nationality" of goods. To enjoy the preferential market access to the FTA member country, goods need to be wholly obtained or undergo substantial transformation in one of the countries that are part of the FTA.
Under the new rules of origin negotiated under UK-Chile FTA, UK and Chilean manufacturers are expressly allowed to cumulate inputs from the EU27 to meet the origin threshold. This would ensure that goods produced by UK manufacturers integrated in EU supply chains continue to qualify for preferential access to the Chilean market.
For example, when calculating the value added in the UK to a product, EU27 materials would be regarded to be UK materials. Similarly, working or processing carried out in the EU27 would be considered to be carried out in the UK. This would make it easier for goods produced by UK manufacturers to enjoy the benefits of the UK-Chile FTA if they rely on a substantial amount of EU27 materials and/or processing in their production process. However, materials from the EU27 would need to undergo processing in the UK in order to be considered as UK materials.
In practice this means that if a car is assembled in the UK with an engine imported from the EU27, the value of the EU engine would count towards determining the UK origin of the car under the UK-Chile FTA rules. However, if the engine is imported from the EU27 into the UK to then be re-exported to Chile without being incorporated into a car in the UK, it would not acquire UK origin because it would not undergo any transformation in the UK.These four FTAs are ready to enter into force on 29 March 2019 if the UK leaves the EU without a deal. While this is welcomed news it is worth noting that so far only these four continuity FTAs have been inked and that they would not account for the greatest quantity of UK trade. The deal with Switzerland is very much welcome, if somewhat surprising, in terms of how positive it is for mutual recognition of industrial products for instance, or cooperation in customs and judicial matters and how straight forward the deal was. Though of course the UK and Switzerland historically have had a good trading relationship.
However, operators continue to find themselves in a waiting and seeing mode with large trading partners such as Japan, Canada and South Korea who have their own wide-ranging trade deals with the EU. With less than fifty days until 29 March it remains to be seen whether the UK would be able to sign other FTAs. This continues to be closely watched.
[*1] The UK-Switzerland FTA is not publicly available. The Swiss Government announced that the UK and Switzerland are committed to do their utmost to preserve origin cumulation with the EU27.
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