Existing frameworks for how trade is facilitated between countries in this sector
Aerospace is a global, highly integrated and highly regulated industry. The industry is governed by detailed technical regulations required to satisfy aviation safety and environmental regulations. For example, EASA airworthiness certification is a prerequisite to market entry for civil aerospace goods and services, throughout the EU and much of the rest of the world.
Within the EU, the ‘Basic Regulation’ allows non-EU Member States to be full members of EASA including the Management Board, Committee and Technical Working Groups. Iceland, Liechtenstein, Norway and Switzerland are members and participate fully in EASA.
In addition, aerospace regulation is becoming increasingly harmonised at a global level. For example, the EU has concluded Bilateral Aviation Safety Agreements (BASAs) with the USA, Canada and Brazil. BASAs establish cooperation between the two contracting partners to achieve mutual recognition of airworthiness certificates.
The global approach is underpinned by the work of the ICAO, which agrees standards and recommended practices. Whilst these are not binding, they can be adopted as regulation at national or regional level. These global approaches support business in operating in a number of countries. The ICAO contains 191 state members and the UK is a permanent representative on its Council. The UK is a signatory to the ICAO in its own right, independent from its EU membership.
These same bilateral partners committed to moving towards closer regulatory collaboration by creating the Certification Management Team (CMT). The CMToversees and manages the development and implementation of regulatory and policy solutions in order to support greater harmonisation. The CMT has developed initiatives and risk-based validation principles with the aim of enabling its signatories to accept partner certification activities with limited or no technical involvement.
Trade in aerospace goods can be facilitated through the use of international standards, such as those developed by the International Standards Organisation (ISO) and the International Electrotechnical Commission (IEC). These are voluntary agreements on best practice for a given process or product. These standards are voluntary, and the majority are developed purely for commercial purposes, such as to support the interoperability of supply chains.
There are many customs facilitation arrangements in international agreements. These include the EU’s agreements with a number of third countries, such as Canada, Korea and Switzerland. These agreements differ in the depth and scope of customs facilitation offered. Examples of customs facilitations include: simplifying customs procedures, advance electronic submission and processing of information before physical arrival of goods, and mutual recognition of inspections and documents certifying compliance with the other parties’ rules.
In the absence of a preferential trade agreement, goods imported into the EU from non-EU countries must pay a tariff. Tariffs are custom duties levied on imported goods. Under the World Trade Organization (WTO) Most Favoured Nation (MFN) a country’s tariff schedule must be consistent for all countries it trades with, except those where a preferential trade agreement exists.
Highly integrated, global supply chains are underpinned by the WTO Agreement on Trade in Civil Aircraft.This plurilateral (meaning that not all WTO members have signed up) entered into force on 1 January 1980. There are 32 signatories, of which the EU is one. The UK is party to the agreement in its own right, as are the other biggest aerospace trading nations, including: Canada, China, France, Germany, Spain, Sweden, and the US, but not Brazil.
The agreement eliminates tariffs and preferential rules of origin requirements on civil aerospace imports, provided that the goods meet the relevant WTO (nonpreferential) rules of origin. Product coverage includes all civil aircraft; all civil aircraft engines and their parts and components; all other parts, components, and subassemblies of civil aircraft; and all ground flight simulators and their parts and components. The agreement does not cover certain part-finished and intermediary products, or raw materials and consumable goods.
Companies trading in goods that are not covered by the WTO Agreement on Trade in Civil Aircraft to the EU may make use of inward processing relief provisions, remaining goods do trigger tariffs and preferential rules of origin requirements. EU MFN tariff rates vary depending on the good.
Rules of Origin
The EU includes rules of origin in all of its FTAs, which are restrictions on the originating content of products that exporters must comply with to gain tariff preferences. These rules typically reflect both the supply chains of both the EU and its FTA partner. Many of the EU’s rules of origin arrangements are based on the Regional Convention on Pan-Euro-Mediterranean Preferential Rules of Origin, which includes provisions that allow producers to treat content from some third countries as if it comes from their own country. Several arrangements aim to reduce the administrative requirements associated with origin certification, including the EU’s Registered Exporter (REX) system, which lets businesses register for self-certification of origin using an online system, avoiding paper certificates.