The currently negotiated EU-UK future partnership agreement (FPA) has not yet a determined scope or structure. The UK proposed a comprehensive free trade agreement (FTA) to govern the economic relationship between the two blocs. The EU proposed a more comprehensive agreement, with an FTA-style part to govern the economic relationship and several other chapters to address issues such as fisheries, security and law enforcement cooperation, etc.
In both scenarios, the FTA component of the new relationship remains common. In this feature, we discuss what the FTA consist of and how services are included and implications this has for the negotiations.
What is an FTA?
An FTA can be either a multinational or bilateral agreement and it is governed by the principles of international law. FTAs have been agreed in particular to facilitate trade in goods, where it is used to determine the tariffs and duties that countries impose on imports and exports with the goal of reducing or eliminating trade barriers.
It is also used to outline the rules that apply to trade in services and on what conditions services providers (and natural and legal persons) can move for the purposes of service provision.
The scope of the FTA depends largely on the relations between the parties. Most recent FTAs concluded by the EU such as CETA, EU-Japan Economic Partnership Agreement (EPA) and EU-Vietnam EPA include provisions on cross-border trade in goods and services, investment, public procurement, digital trade, sustainable development, competition policy, trade remedies, labour, regulatory cooperation, sanitary and phyto-sanitary standards, technical barriers to trade and many more.
It is important to note that FTAs often integrate in one agreement what in under the WTO framework is covered by several agreements or not at all (either because the relevant agreement does not exist or because of the limited number of signatories). What is also significant, is that many of the rules developed within the FTAs are quite recent, as opposed to GATS where negotiations have stalled since the early 2000s. This permits parties to address pertinent issues more easily.
What the FTA is not?
Importantly, however, there are numerous areas that the FTAs do not regulate. This is because there are usually separate instruments that do that. This applies to such areas as family law where there exist several instruments under private international law or security cooperation.
In Europe recognition and enforcement of judgments is facilitated by the Lugano Convention between the EU and EFTA. Also, there are some multilateral and possibly in due time global solutions drafted in the Hague Conference on Private International Law, most notably the 2005 Hague Choice of Court Agreements Convention and the 2019 Hague Judgments Convention. Furthermore, there are treaties and several ways to conduct security and defence cooperation, as well as on law enforcement cooperation, with the EU and the member states.
Where are services in an FTA?
All major EU FTAs concluded recently cover trade in services. However, it is important to understand the way in which an FTA was drafted in order to them have a full picture what services are included. There are two main methodologies to draft an FTA:
positive listing based largely on GATS methodology (e.g. EU-Korea FTA) - only areas / sectors that are indicated by the Parties to be included (i.e. committed) are covered by the agreement. Parties can still indicate reservations which are called non-conforming measures;
negative listing based on NAFTA (e.g. CETA, EU-Japan, USMCA) - all is included unless indicated otherwise – Parties include reservations.
In most FTAs, the provisions that apply to all services are typically covered by the following chapters:
Cross-border trade in services (or Modes 1-2);
Investment or Establishment (or Mode 3);
Temporary presence of natural persons for business purposes (or Mode 4);
Annexes of commitments and reservations;
Annexes on specific sectors such as Annex on Professional Services in Comprehensive and Progressive Trans Pacific Partnership, CPTPP);
other parts of an agreement if applicable for example side letters.
Therefore, to get a full picture of what market opening applies to a given services sectors, it is necessary to have an overview of all parts of an FTA.
Aside from the provisions strictly relevant for market access, there are also other provisions that are important for services. Increasingly, these include digital trade where more and more agreements include more elaborate provisions concerning digital provision of services.
Other chapters include provisions on domestic regulation or good regulatory practices and regulatory cooperation. Especially the former can be very helpful as they set the standards for domestic legislation that applies to provision of services. These cover non-discrimination and impartiality which can be particularly helpful in navigating foreign regulatory landscapes.
How are FTAs negotiated?
In the EU, the exclusive competence for negotiating FTAs lies with the European Commission. The work is led by Directorate-General for Trade (DG TRADE). Each prospective FTA is preceded by a comprehensive and long preparation (at times also involving the other negotiating partner). This part consists of consultations, assessments and a so-called scoping exercise. This phase also includes the preparation of draft negotiating directives which are then sent to other EU institutions and national parliaments.
Negotiations can start once the Council of the EU adopts a relevant decision that authorises the Commission to negotiate. The negotiations are held in rounds and their locations is up to the parties. Once both sides agree on the text of the agreement, they can exchange offers. During the negotiations, the Commission provides regular updates to the Council and Parliament.
Once the texts are finalised they then undergo a lawyer-linguist assessment and editing (so-called ‘legal scrubbing’) and then a translation into all EU official languages. Their approval depends on the scope of the agreement: some FTAs are approved by the EU-level only and some require the ratification in all EU member states.