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Possible future free trade agreements and impact on housing associations

Housing Europe draft working paper

Brussels, 25 January 2018 | Published in Future of the EU & Housing

I.The core mechanism of the future agreements

From the UK White Paper about the exit strategy, it is understood that the UK will seek to strike a Comprehensive Free Trade Agreement (CFTA) with the EU as a formal arrangement for the relationship between the UK and the EU.

Usual elements of comprehensive Free Trade Agreements (FTAs) are the following:

  • removing or cutting customs duties (taxes) on goods that UK/European companies export
  • scrapping any limits (quotas) on the amounts EU firms can export
  • allowing UK/EU businesses to provide services and bid for public contracts
  • cutting red tape which makes it harder for UK/EU firms to export, without cutting corners on things like health and safety standards or environmental protection.

The basic principle of any agreement is reciprocity. Therefore whatever treatment the UK will seek to get for UK businesses, services, citizens in the EU, they will have to grant the same for EU entities in the UK. Furthermore, from the wording of the White Paper, areas like Tariff-free trade, Customs arrangements, financial services, Services (other), Telecommunications Broadcasting, transports, are where the objective of market access is defined most clearly and strongly. From an EU perspective, these ambitious objectives (“free, frictionless, seamless”) would require a very high degree of legal compliance with EU law.

II. Comparison between different models of comprehensive free trade agreements

A review of the current discussion and literature about free trade agreements help us to suggest 4 possible models for a future relationship between the UK and the EU. In the following we will briefly describe the main features then we will speculate how those models will impact some of the key challenges facing UK housing associations in the years after the exit of the EU: i). procurement rules, ii) access to funding, iii) availability of skilled labour force (in the construction sector and care sector)

EEA/Norway model

The purpose of the European Economic Area (EEA) is to extend the EU’s internal market to countries in the European Free Trade Area (EFTA). These countries either do not wish to join the EU or have not yet done so. EU legislation relating to the internal market becomes part of the legislation of the EEA countries once they have agreed to incorporate it.

The EEA goes beyond traditional free trade agreements (FTAs) by extending the full rights and obligations of the EU’s internal market to the EFTA countries (with the exception of Switzerland). The EEA incorporates the four freedoms of the internal market (free movement of goods, people, services and capital) and related policies (competition, transport, energy, and economic and monetary cooperation). The agreement includes horizontal policies strictly related to the four freedoms: social policies (including health and safety at work, labour law and the equal treatment of men and women); policies on consumer protection, the environment, statistics and company law; and a number of flanking policies, such as those relating to research and technological development, which are not based on the EU acquis or legally binding acts, but are implemented through cooperation activities.

Now let’s try to figure out what might be the impact of that model on the 3 areas related to housing activities mentioned above:

  • Procurement rules

Economic undertakings in the EEA area have to apply EU public procurement rules, i.e Housing Associations would have to publish tenders in the OJEU

  • Access to funding

There is an EIB Loan facility with the EEA countries ( ca. 3 bio over 5 years) vs. EUR 6.9 billion in 2016 from EIB in the UK only

As regards Structural Funds (ERDF and ESF), no access. However access to EU programmes (ERASMUS +, H2020) in exchange for ca. 3 bio € contribution over 2014-2020

  • Availability of skilled labour force

Extended Internal Market which unites all the EU Member States and three EEA EFTA States – Iceland, Liechtenstein and Norway, as a system that facilitates the recognition of professional qualification.

Switzerland model

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Switzerland and the EU agreed on a package of seven sectoral agreements signed in 1999 (known in Switzerland as "Bilaterals I"). These include free movement of persons, technical trade barriers, public procurement, agriculture and air and land transport. In addition, a scientific research agreement fully associated Switzerland into the EU's framework research programmes.

A further set of sectoral agreements was signed in 2004 (known as "Bilaterals II"), covering, inter alia, Switzerland's participation in Schengen and Dublin, and agreements on taxation of savings, processed agricultural products, statistics, combating fraud, participation in the EU Media Programme, the Environment Agency, and Swiss financial contributions to economic and social cohesion in the new EU Member States. In 2010 an agreement was signed on Swiss participation in EU education, professional training and youth programmes. In overall, around 100 bilateral agreements currently exist between the EU and Switzerland.

In a number of Swiss sectors, the market entry has long suffered from informal barriers, which can be attributed to a legacy of weak anti-cartel legislation, specific and protective technical regulations, certain investment restrictions, and exclusive rights under intellectual property legislation. Swiss parliament would limit the effect of a 2014 referendum to introduce immigration quotas into the Swiss constitution. One of the consequences of the referendum would have been to limit the free movement of EU workers to Switzerland, a member of the passport-free Schengen area.

In retaliation, the European Commission suspended Switzerland's participation in the EU research and student programmes, Horizon 2020 and Erasmus+. Since the referendum, Brussels and Bern have been discussing to find how legislation to implement the constitutional amendment could respect both the outcome of the popular vote and EU free movement rules.
In December 2016 the Swiss parliament adopted a bill that gives priority to Swiss-based job seekers - Swiss nationals and foreigners registered in Swiss job agencies - but which avoids quotas on EU citizens.

  • Procurement rules

The EU Switzerland agreement on government procurement more or less takes the EU directives as reference

  • Access to funding

Switzerland has access to some EIB funding (as part of the EFTA countries) as well as some of the EU programmes (ERASMUS + and H2020) in exchange for financial contribution

  • Availability of skilled labour force

Agreement on Free Movement of Persons between Switzerland and the EU member states has removed restrictions on EU citizens wishing to live or work in Switzerland. However an adapted form of free movement of persons has been adopted in December, allowing employers to give priorities priority to Swiss-based job seekers - Swiss nationals and foreigners registered in Swiss job agencies - but which avoids quotas on EU citizens. Within the framework of the Swiss-EU Bilateral Agreement on the Free Movement of Persons, Switzerland has adopted the EU’s system of mutual recognition of professional qualifications issued by EU member states.

CETA model

The Comprehensive Economic and Trade Agreement, or CETA, is a trade agreement between the EU and Canada. It will remove customs duties, make it easier for EU firms to bid for Canadian public contracts, open up the Canadian services market to EU companies open up markets for European food and drink exports protect traditional European food and drink products (known as Geographical Indications) from being copied, make it easier for European professionals to work in Canada allow for the mutual recognition of some qualifications (architects, accountants and engineer).

  • Procurement rules

Ability for companies to bid for public contracts

  • Access to funding

No access to EU funding

  • Availability of skilled labour force

No free movement of persons between the signatory countries.

III. Which is the best option from housing associations' point of view?

From the brief analysis above, it seems that:

  • Regarding procurement rules, all forms of enhanced agreement will lead to opening up of public contracts to EU companies, meaning that housing associations (provided they are considered procuring entities) will have to seek for bidders from the whole area covered by the agreement (i.e. the EU)
  • Further access to EU funding will be made possible under the EEA/Norway models or Switzerland model but the level of funding will be drastically reduced (in particular ERDF and ESF funding) and will depend on the UK agreeing to financial contribution to the EU programmes
  • The availability of skilled labour force from EU for instance for the construction sector and the social and care sectors will depend on (a) the ability to move to the UK (which is usually a component of both EEA/Norway model and to a lesser extent the Switzerland model) (b) the financing opportunities for training which is one of the ESF task. Point b won’t probably be achieved as access to ESF/ERDF is only for EU member states. However, programmes on lifelong learning (ERASMUS +) and exchange of good practices on social inclusion (EASI) could be relevant for housing associations.

In a nutshell, whatever the form of relationship between the EU and the UK will take, housing associations will lose ERDF and ESF funding but could still access some sort of funding for vocational training (ERASMUS +), exchange of good practices on social inclusion (EASI) and for instance awareness raising on environmental issues (LIFE +), providing that the UK is willing to pay a financial contribution to those programmes (like in the EEA/Norway and Switzerland model).

Regarding availability of skilled labour force from the EU, the Switzerland model (priority to the UK registered people but no quota for EU migrants) could be sought after by the UK and would leave the possibility for EU workforce to work in the UK, although in a more limited way than before Brexit. As regards the public procurement, if housing associations continue to be considered procuring entities, they will most probably have to open their contracts to enterprises from the EU.

Eventually, whatever the form of relationship between the EU and the UK will take, EU legislation will have a kind impact on the UK either in the form of automatic adaptation in the UK legislative framework for some sectors and policies ( in the EEA, Switzerland models), or in the form of regulatory cooperation (in the CETA model). This speaks for a continuous attention of the UK Federations to the EU legislative landscape.