As of 1 January 2021, the UK leaves the EU Single Market and Customs Union. As a result, it will no longer benefit from the principle of free movement of goods. Even with the new agreement in place, businesses will face new trade barriers, leading to increased costs and requiring adjustments to integrated EU-UK supply chains.
To preserve their mutually beneficial trading relationship, the two sides have agreed to create an ambitious free trade area with no tariffs or quotas on products, regulatory and customs cooperation mechanisms, as well as provisions ensuring a level playing field for open and fair competition, as part of a larger economic partnership.
The provisions in the agreement do not govern trade in goods between the EU and Northern Ireland, where the Protocol on Ireland and Northern Ireland included in the Withdrawal Agreement will apply.
Trade in goods
The UK and EU have agreed a “zero tariff, zero quota” agreement. That is a first for both the EU and UK and avoids the introduction of customs duties, export duties, taxes or other charges on goods moving between the EU and UK which are produced in the EU or UK, as long as those goods comply with the appropriate “Rules of Origin” (ROO). There will be no quantitative restrictions either, so no quota limits in terms of the volume of imports or exports between the UK and EU.
For most products to qualify for a zero tariff (if not already zero-rated), it must meet the rules of origin that determine how much of its content must be derived from EU or UK processing or materials.
The agreed rules are simpler and more accommodating than similar provisions in most FTAs. They provide for ‘full bilateral cumulation’, which captures not only the origin of materials used but also the value of their processing in the EU or UK. Certificates of origin can be self-certified by the exporter, reducing the paperwork; and transitional arrangements will allow traders flexibility in collecting documentary evidence during the first year.
However, the rules inevitably create a new administrative burden and businesses that are not prepared could face increasing costs through delays or penalties from 1 January. Our team of experts advise on the steps you need to take to avoid unnecessary costs and delays.
The TCA establishes zero tariffs or quotas on trade between the UK and the EU, where goods meet the relevant rules of origin. Where the rules of origin criteria is not met, there will be additional costs either as preferential or other tariff rates. Our team of experts can advise on what businesses need to do in these circumstances.
The UK has left the EU Customs Union. Therefore, the customs controls required under EU law – and under UK law, which largely mirrors it - will apply to all goods traded between the EU and GB. These require, in particular, the completion of security and safety declarations, and of import and export declarations. These in turn require that traders have EORI numbers, the Commodity Codes of their products and their customs valuation.
Every business trading with the EU and will need to audit the requirements the TCA places upon it. Our team of experts can advise on any changes in administration the TCA requires of specific businesses.
Every business involved in the movement of goods produced between the UK and the EU will need to audit the requirements the TCA places upon them. Our team of experts can advise on any contractual changes the TCA requires of specific businesses.
The TCA should ensure that air and road transport and haulage will not be dramatically disrupted, but there will be more restrictions than have applied until now. The Agreement does contain some provisions to ease customs and assist with trade facilitation. The EU and the UK have agreed to recognise each other's 'trusted trader' – or Authorised Economic Operators (AEOs) – schemes, allowing AEOs in the UK and EU to continue to benefit from expedited and simplified customs procedures. The deal also provides for facilitations for other products such as motor vehicles, equipment and parts; wine; medical products; organic products and chemicals.
The UK announced has also adopted a phased approach to customs enforcement with goods arriving from the EU, with measures coming into force in stages throughout 2021. The EU will continue to enforce customs obligations in full from 1 January 2021.
The Agreement includes a Technical Barriers to Trade (TBT) Chapter that addresses regulatory barriers to trade between the UK and EU, while allowing both Parties the freedom to regulate goods in the way most appropriate for their own market. The Chapter builds on the WTO TBT agreement and includes provisions on technical regulation, conformity assessment, standardisation, accreditation, market surveillance and marking and labelling.
In line with common free trade agreement practice, the TBT Chapter also includes sector-specific Annexes, which seek to promote cooperation and tackle barriers to trade, including trade in motor vehicles and parts.
This Annex aims to facilitate availability of medicines, promote public health and protect high levels of consumer and environmental protection in respect of medicinal products. It provides for mutual recognition of Good Manufacturing Practice (GMP) inspections and certificates, meaning that manufacturing facilities do not need to undergo separate UK and EU inspections, as well as ongoing co-operation.
The relevant Annex provides for an equivalence agreement between the UK and EU. This means products that are certified as organic in one market are recognised as organic in the other.
There is an Annex that facilitates trade in chemicals to ensure high levels of environmental and health protection and provides for cooperation between authorities. It includes joint commitments to comprehensive implementation of international classification and labelling rules as well as commitments to ongoing cooperation and information exchange.
The Agreement includes a Sanitary and Phytosanitary (SPS) Chapter, which ensures that the UK and the EU can maintain fully independent SPS rules to protect human, animal and plant life and health, preserving each Party’s right to independently regulate, while not creating unjustified barriers to trade.
This Chapter also establishes a framework for cooperation on the fight against antimicrobial resistance, protecting animal welfare and sustainable food systems.
Trade in services
The provisions in relation to services represent a significant reduction of market access between the EU and the UK. There are some valuable commitments worth noting, such as the "national treatment/non-discrimination" provisions whereby investors and enterprises from the incoming party must be accorded treatment no less favourable than is accorded to investors and enterprises of the home party.
The TCA also states that neither the UK nor the EU can require a services provider from the other side to be established in their jurisdiction as a condition of provision of a cross-border service. The Agreement also includes familiar provisions on "most favoured nation treatment" which requires both sides to extend any advantages offered to investors from elsewhere in the world to investors from the UK/EU if not already set out in the TCA. Finally, the TCA also provides for visa-free entry rights from the UK to EU (and vice versa) for certain work purposes is to be allowed for up to 90 days in a 180-day period, although there are restrictions on the scope of this.
The Agreement provides protections that will ensure that our regulatory and supervisory authorities will be able to act to ensure financial stability, market integrity and protect investors and consumers. The Parties have yet to agree on financial equivalence and will continue discussions how to move forward on specific equivalence determinations. The Parties will codify the framework for regulatory cooperation in a Memorandum of Understanding.
Our financial regulation experts are able to provide advice on what this means for the financial services sector.
The TCA does not provide for mutual recognition of professional qualifications from 1 January, although it does allow for the possibility of such recognition to be agreed in the future on a profession-by-profession basis. Professionals will therefore need to meet the requirements of each EU Member for each profession. The UK and EU have, however, made new commitments on home title legal services. This means that UK lawyers will have the right to advise their clients across the EU on UK and public international law using their home professional titles, except where EU Member States have placed specific limits on this activity, and vice versa.
The Agreement includes well-established commitments on short-term business visitors; business visitors for establishment purposes; intra-corporate transferees; contractual service suppliers; and independent professionals. The Parties have agreed not to impose market access restrictions (such as economic needs tests) or discriminatory barriers on business-persons falling into these categories.
The Parties have also agreed commitments on length of stay that broadly reflect the outcome reached in the EU-Japan Economic Partnership Agreement. This includes the ability for UK short-term business visitors to travel to the EU for 90 days in any 180-day month period. The Parties have also agreed not to impose work permits on business visitors for establishment purposes.
There are variances among EU States and businesses are advised to check on what this may mean for their business travel needs.
The Agreement's provisions promote trade in digital services and facilitate new forms of trade in goods and services. The Agreement also ensures that the UK and the EU will cooperate on digital trade issues in future, including emerging technologies.
The Agreement contains a series of measures designed to facilitate digital trade. It provides, for example, that there will be no data localisation provisions (a first for the EU). The Agreement also contains provisions on electronic signatures, consumer protection and machine-readable public sector data and guarantees against the mandatory transfer of source code.
On the key issue of data transfers, the TCA does not include an "adequacy provision" which would allow the unencumbered transfer of personal data between the UK and the EEA. However, it does include an "Interim provision" consisting of a "specified period" of four-months, extendable to six months, during which transfers of data from the EU to the UK can continue as long as the UK maintains its current rules. This provides a further window for the Commission to determine whether the UK has an adequate regime in place to allow the unencumbered transfer of personal data to the UK.
Adequacy decisions for the UK under the GDPR and the Law Enforcement Directive (LED) are not yet conferred. Instead, the Agreement creates a "bridging mechanism" to enable the free flow of data until such time as adequacy decisions under the GDPR and the LED can be put in place.
The bridging mechanism lasts for up to six months after 1 January 2021. The references to adequacy decisions for the UK do not absolutely guarantee that they will be conferred, but it would be surprising if they were not. The Agreement paves the way for adequacy.
The Agreement commits both the EU and UK to maintain their high standards of competition law, including enforcing these laws, maintaining their independent competition authorities, and applying competition law on a procedurally fair, transparent and non-discriminatory basis. The Competition Chapter enables further cooperation between the UK and EU competition authorities.
The provisions in this part of the Agreement go beyond the WTO Government Procurement Agreement (GPA), to which the UK is in the process of acceding. In particular, the UK and EU agreed to extend market access to the private utilities that act as a monopoly as well as a range of additional services in the hospitality, gas and heat distribution, telecoms, real estate, education and other business sectors.
The Agreement ensures that the UK can maintain a separate and independent procurement regime and will enable the UK Government to enact reform of its system. The Agreement provides for a transparent and non-discriminatory framework of rules for trade in public procurement. These rules are based on the GPA with some precedented additions for covered procurement, including the use of electronic means in procurement, electronic publication of notices, environmental, social and labour considerations, and domestic review procedures.
The Agreement ends the EU State Aid regime in Great Britain and enables the UK to introduce its own subsidy system. Level playing field provisions were a hotly contested element of the negotiation, highlighting the potentially competing interests of the UK to have the freedom to legislate as it sees fit and the EU's concern to ensure the UK does not undercut EU regulatory standards to gain a potential "unfair" advantage.
The resulting compromise means that neither side is required to dynamically align with the rules of the other in relation to state aid, environmental protection/climate change, social and labour rights, and tax transparency. Both sides have committed to high standards (and in some cases non-regression of standards) across these areas. The UK and EU have also agreed to a set of "detailed principles" as regards state aid/subsidies.
The 'level playing field' provisions are not subject to the general dispute settlement arrangement. They contain their own mechanisms for redress through arbitration. In relation to the provisions on labour and social, environmental or climate protection, and with respect to subsidy control, there is either party may take 'rebalancing countermeasures' if they consider the other side has adopted economic measures which create "unfair competition".
The TCA affirms the commitment of both sides to their existing international obligations, including those enshrined in the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) and the World Intellectual Property Organization (WIPO) treaties. The parties further agreed to enshrine some of the key provisions of existing EU legislation in respect of copyright and related rights, trade marks, designs and trade secrets. Provisions on customs enforcement of IP infringements (such as the trade in counterfeit goods) are also broadly modelled on the EU Customs Regulation. Exhaustion of IP rights is left for the UK and EU to determine individually.