Out-Law Analysis 6 min. read
30 Dec 2020, 11:09 am
The EU-UK Trade and Cooperation Agreement offers some major free-trade benefits, but also represents an end to most aspects of the free market access that the UK previously enjoyed as an EU member state.
The no-deal planning undertaken over the last two years will certainly not be wasted, as businesses in all sectors will need to adapt to new ways of trading between the UK and EU, and the additional costs involved.
The UK government plans to pass emergency legislation today to implement and ratify the agreement. The EU will apply the agreement provisionally from 1 January, pending ratification, so that the European Parliament can consider the agreement in early 2021 before the EU ratifies it fully. This means the EU will have the opportunity to review whether the UK's legislation fully implements the agreement, before it decides to proceed with ratification.
The free trade grand prize in the agreement is the continued absence of tariffs or quotas on goods imported and exported between the UK and EU. However, this applies only for goods meeting the agreement's rules of origin. For example, at least 55% of the materials making up a car must originate from the UK or EU for it to be imported tariff-free. Businesses dependent on international supply chains will need to assess the impact for them of the rules of origin.
As the UK has left the EU's Customs Union there will be customs paperwork and checks for goods crossing the UK-EU border, even if no tariff is payable. These are required from 1 January on both sides of the border, although the UK has provided a transitional period until 1 July 2021 with extended deadlines for paperwork to be filed on imports to the UK. Businesses importing or exporting goods across the border will need to register, or instruct a customs agent on their behalf.
Although the agreement permits food imports and exports to continue, they will be subject to checks and controls at the border, because the EU and UK have not agreed to recognise one another's standards and safeguards.
The increased friction at the border will cause delays and increase costs for supply chains. Businesses will need to adapt, particularly where they are reliant on speed of delivery. The delays are likely to be a long term feature of trade, with peaks in January-February 2021 as the new arrangements bed in, and in July 2021 when the UK's transitional arrangements end.
The agreement contains limited provisions for the UK and EU authorities to cooperate on the regulation of goods and product standards. However, for the most part businesses will now need to comply with two different regulatory systems in the UK and EU, including conformity assessments, if trading in both.
A notable exception is in relation to medicinal products. An annex to the deal establishes mutual recognition of inspections and good manufacturing practice, removing much of the duplicate regulation.
The agreement does not expressly address trade in Northern Ireland, as this is governed by the Northern Ireland Protocol to the UK-EU Withdrawal Agreement. However, because the Protocol essentially provides for Northern Ireland to form part of the EU's single market, the impact of most of the provisions on trade in goods will relate to trade between Great Britain and Northern Ireland, rather than Northern Ireland and the EU.
The agreement contains limited provisions on trade in services. Whilst it establishes some general principles of market access, these are subject to a long list of wide-ranging reservations annexed to the agreement. UK providers operating in the EU need to verify if their service is subject to one of the exceptions and, if it is, whether there are national restrictions they are subject to in particular EU member states.
UK and EU citizens who established EU free movement rights before 31 December 2020 retain them under the UK-EU Withdrawal Agreement (198-page / 2MB PDF) concluded in November 2019, if they have registered their settled status under the schemes set up by the UK or EU by 30 June 2021.
If the UK government does exercise its new-found regulatory freedom to diverge from EU law in ways that affect the agreement, this is likely to have consequences for the terms of UK-EU trade
For others, visas may be required for travel between the UK and EU. However, the Trade and Cooperation Agreement provides for visa-free short-term business trips of up to 90 days in any 180 period, if they fall within a limited list of permitted activities. To determine if a visa is required, businesses will need to check the list, which includes tourism, meetings, research, training, sales, commercial transactions, and after-sales services.
For UK and EU citizens travelling and residing in the EU and UK respectively, the agreement provides for the continuation of reciprocal social security and healthcare arrangements between the UK and EU.
The agreement provides a further four month transitional period from 1 January permitting the continued transfer of personal data from the EU to the UK. For data transfers from the UK to the EU, the UK government had already confirmed these are authorised to continue until at least 2024.
The EU Commission has said that it intends to issue a data protection adequacy decision for the UK in the coming weeks. This should then allow the continued transfer of personal data into the UK once the transitional period expires.
The EU and UK have agreed a number of principles intended to provide a 'level playing field' in the way that UK and EU businesses are regulated. The most important features are:
The UK and EU each have continued access to one another's air and road transport networks, but with more limitations than before. The agreement also grants access to fisheries, subject to a five year transition period and annual negotiations thereafter; and access for UK bodies to the EU's Horizon research programme.
The agreement does not provide for the continued access of UK financial services providers to EU markets. This remains subject to discussions that will continue in 2021 on potential EU decisions on the equivalence of UK financial services regulation.
The agreement provides for EU and UK authorities to cooperate in a number of other areas:
Enforcing the agreement
As with any free trade agreement, issues will emerge over time and there are dispute settlement provisions and sanctions available, if the UK or EU feels that the other party is in breach.
As the agreement is a treaty in international law, it cannot be directly enforced or relied on by businesses in the UK and EU courts, except to the extent that UK or EU laws implement it. The agreement requires subsidy regulation to be enforceable in the UK's courts, and for administrative decisions to be reviewable in national courts.
For the most part these issues of disagreement between the UK and EU are to be referred to an independent arbitration tribunal for a binding ruling. While the agreement sets nominal timeframes for these, in reality such disputes will usually take several years to play out to a resolution through political and legal avenues.
This means that it is important as regards leverage in any trade disputes that do arise, that either party also retains the right under the agreement to impose some trade measures on the other, without waiting for an arbitration ruling in some circumstances. This is the case if one party considers that the other has given subsidies that breach the agreement to businesses. Similarly, a party can impose 'rebalancing' measures on the other party if it does not match its improvements to employment rights or environmental protection.
Where such measures are imposed they may be subject to countermeasures and, ultimately, a ruling from an independent arbitration tribunal.
So if the UK government does exercise its new-found regulatory freedom to diverge from EU law in ways that affect the agreement, this is likely to have consequences for the terms of UK-EU trade.
24 Dec 2020