A summary of the EU-UK trade & cooperation agreement
On 24 December 2020 the UK and EU agreed the Trade and Co-operation Agreement (TCA) which came provisionally into force on 1 January 2021. This follows the UK leaving the European Union and the conclusion of the transition period at 11.00 pm UK time on 31 December 2020.
The TCA is a treaty binding in international law and although there is no requirement under the TCA to be incorporated directly into UK law the UK has passed the European Union (Future Relationship) Act 2020 to implement the TCA, the UK-EU security of classified information agreement and the UK-Euratom nuclear co-operation agreement for these agreements to have effect under UK law.
At the time of writing the EU must still complete its ratification process. The EU Council has approved the TCA provisionally on 29 December 2020 with approval by the EU parliament currently outstanding.
The TCA is a substantial document (1246 pages of text including annexes) and covers a wide area. The key points are the following:
There are no tariffs or quotas in goods traded between the UK and EU provided rules of origin are met (with the exception of Northern Ireland where a special regime is in force treating it as a part of the EU single market). The TCA goes into detail on the conditions for compliance with the applicable rules of origin which are critical rules for any importer/exporter. Traders can self-certify the origin of goods and enjoy “full cumulation” (i.e. processing activities count towards origin and not just materials used). Generally goods must be wholly obtained (e.g. grown, extracted) in the EU or UK, undergo significant manufacturing in the UK or EU or have a certain proportion of their materials by value originate within the UK or EU.
The UK and EU will now have customs requirements in place which will need to be complied with increasing non-tariff barriers to trade but measures have been taken to ease customs and trade facilitation. There is a mutual recognition of trusted trader programmes (Authorised Economic Operators) to enable easier customs transitions and a smoother flow of goods.
The UK continues with the operation of a VAT system and is classified as a third country in relation to the EU (with the exception of Northern Ireland which continues to be treated as being within the EU single market for VAT purposes). Businesses should therefore review their tax position and the requirements for cross border sales.
The TCA contains various provisions aimed at reducing barriers to trade but the fact remains that the EU and Great Britain (England, Scotland and Wales) now have different regulations and procedures applicable for products. These will need to be complied with in order to be able to access markets.
The TCA does however include an annex on specific industries and products including pharmaceuticals and medical devices, motor vehicles and equipment and parts, organic products, trade in wine and chemicals.
The TCA covers a broad range of sectors with the intention to secure continued market access. These include professional and business services, financial services and transport services. The impact on businesses will vary depending upon the sector they operate.
The TCA covers obligations on market access to ensure service suppliers and investors do not face limitations (economic means tests or restrictions and foreign equity caps). It provides for non-discriminatory treatment between UK and EU service suppliers and investors as well as provisions to ensure cross-border trade is not restricted by local establishment requirements, that investments are not subject to conditions such as domestic content requirements or export restrictions. There are also provisions to ensure that there are no nationality restrictions on senior personnel such as senior management boards and boards of directors.
The TCA prohibits requirements to store or process data in a certain location which will assist in facilitating cross-border trade. The agreement aims to remove any unjustified barriers to digital trade whilst confirming strong data protection commitments.
Temporary entry and stay of natural persons
Both the UK and EU have agreed not to impose market access restrictions such as economic needs tests or discriminatory barriers on business persons that are short term business visitors, business visitors for establishment purposes, intra-corporate transferees, contractual service suppliers and independent professionals.
The length of stay has been covered in the TCA for such purposes and includes the ability for short term business visitors to travel to the UK or EU from 90 days in any 180-day period.
The TCA commits the UK and EU to provide high standards of protection for and enforcement of IP rights. This includes registered IP rights such as patents, trade-marks and designs and unregistered rights such as copyright, trade secrets and unregistered designs. This basically means the TCA agrees that the current available levels of IP protection in the UK and EU are maintained. However, the rights available under EU membership such as the country of origin rules that provided EU wide cover are no longer available.
The UK and EU have agreed that they will not regress from labour and social standards in force as at 31 December 2020. The EU rules concerning Works Councils no longer applies to the UK as from 1 January 2021. The detached worker rules applicable to workers moving for less than 2 years will now only apply to EU member states that wish to implement them.
Although the General Data Protection Regulation (GDPR) no longer applies in the UK it has been incorporated into the Data Protection Act 2018. The TCA provides that international data transfers may continue between the European Economic area (EEA) and the UK from 1 January 2021 for a period of 4 months with a 2 month automatic extension if there is no objection from the UK or EU. How matters will be dealt with after the current timescales still needs to be agreed.
Click here to read more about the impact on cross-border data flows.
The TCA includes provisions on cross border trade in financial services and investment for continued market access. However, the barriers associated with leaving the EU and Brexit are not removed through this agreement (e.g. passporting rights which have fallen away). The UK and EU are relying on assessments of equivalence for market access and these can be removed at any time. The TCA does agree that both the UK and EU will discuss further how to move forward on specific equivalence determinations and intend to codify the framework for regulatory cooperation in a Memorandum of Understanding.
"Businesses can now plan for the future on the basis of this agreement which will provide greater confidence for both UK and EU businesses."
Some of the other points arising from the TCA:
The TCA will be overseen by a UK-EU Partnership which can also implement and engage various other specialised committees. An independent arbitration tribunal will be involved for the settlement of any disputes. Both the UK and EU can retaliate against any non-compliance with arbitration rulings such as a suspension of obligations or the imposition of tariffs.
Level playing field provisions
In cases where the UK or EU believe divergences are distorting trade between them they can take counter measures including the imposition of tariffs, subject to arbitration.
An effective system of subsidy control must be in place with independent oversight to avoid unfair competition. The UK or EU can impose remedial measures if any dispute is not resolved by consultation.
Over a period of 5 and half years 25% of the EU’s fisheries quota in UK waters will be transferred to the UK. There will then be annual discussions held on fisheries to agree quotas. Either the UK or EU can impose tariffs on fisheries where one side reduces or withdraws access to its waters without agreement. A party can also suspend access to waters or other trade provisions where the other party is in breach of the fisheries provisions.
The UK and EU have agreed a new security partnership with data sharing and policing and judicial co-operation. However, the UK will have reduced access to EU databases (such as SIS II). A new surrender agreement takes the place of the European Arrest Warrant. Cooperation can be suspended by either side swiftly in the case of the UK or a Member State no longer adhering to the European Convention of Human Rights.
The UK will continue to participate in some EU programmes: Horizon Europe (Research), Euratom Research and Training, ITER fusion and Copernicus (satellite system) and access to the EU satellite surveillance and tracking services (SST).
Review and Termination
The TCA will be reviewed every five years. It can be terminated by either side with 12 months’ notice, and more swiftly on human rights and rule of law grounds.
With the conclusion of this agreement the uncertainty that had arisen in respect of the trading relationship between the UK and EU after the end of the transition period has been removed.
There will no doubt be an adjustment period required for businesses to be able to understand all the import and export requirements in order to facilitate trade smoothly and additional negotiations are required between the parties to cover outstanding issues such as in the area of financial services.
It's recommended that every individual business considers its own particular circumstances based on factors such as its location, sector, its key customers and suppliers and the make-up of its workforce in order to manage the commercial and economic implications of the new trading relationship between the UK and the EU.
Get in touch
For more information on this update, please contact Consultant Solicitor & Rechtsanwalt, Greg Davidian.