UK Trade Agreements

The UK government announced a UK-EU Trade And Cooperation Agreement (the TCA) on 24 December 2020, which took effect from 31 December 2020. The TCA sets out the framework for UK-EU trade, and confirms how disagreements over trade will be resolved. The TCA also keeps a number of matters such as Financial Services and Data Adequacy open to further negotiation, with fifteen separate Declarations regarding negotiation of these matters being made by the parties.

In addition to negotiation of the TCA, the UK has negotiated trade agreements covering 60 countries which substantially reproduce the terms of the trading agreements that applied while the UK was in the European Union. These roll over agreements came into effect on 1 January 2021 (in some cases under provisional or bridging arrangements).

The UK is free to negotiate further trade deals with countries outside of the EU. To this end, the UK is in ongoing negotiations with six countries, and has signed agreements with Canada, Jordan, and Mexico which are expected to take effect in early 2021. The UK has also signed mutual recognition agreements with Australia, New Zealand, and the United States of America, meaning that there is reciprocal recognition of each party’s product conformity assessments. The status of UK trade agreements and negotiations can be accessed here.

As a result of the above agreements, trade with a significant number of countries will largely continue on similar terms to those in effect prior to the UK’s exit from the European Union, while trade with countries where a trade agreement has not been reached will continue on WTO terms. Trade with countries within the European Union will largely be tariff free under the TCA, however UK exporters and importers in a range of sectors will be impacted by the new Rules of Origin requirements, and the exceptions to the continuation of free trade. This may mean that tariffs arise in certain circumstances where products (or their components) originate outside the EU or UK.

What the TCA means for UK-EU trade

Trade of goods

Tariff liberalisation

The TCA preserves zero tariff, zero quota trade between the UK and the European Union (which is set out in part two of the TCA).

To aid the governance of tariff free trade, the TCA incorporates a number articles from the General Agreement on Tariffs and Trade (GATT) 1994. In relation to the trade of goods, these include incorporation of:

  • GATT Article III – providing that members will not apply internal taxes or charges to other members for the trade of goods;
  • GATT Article V - providing for the freedom of transit between the parties;
  • GATT Article VII – providing the parties must determine the customs value of the Goods they are importing before they purchase and import them;
  • GATT Article XI – providing narrow exceptions under which parties can impose import and export restrictions.

Though trade will continue tariff free, Rules of Origin requirements will apply to products traded with the EU meaning such products must meet set thresholds in order be eligible for preferential tariff treatment. The preferential treatment will only apply to products that are:

  • wholly obtained in the UK (such as mineral products);
  • produced exclusively from materials originating from the UK;
  • produced in the UK incorporating materials from outside of the UK or the European Union where they satisfy the product specific Rules of Origin in Annex ORIG-2 (for instance, the Rules of Origin for electric vehicles will be phased in).

Parts used by UK manufacturers that originate from the EU will have a ‘cumulation’ effect and will count towards the relevant Origin thresholds. This cumulation effect is reciprocated for EU manufacturers using UK products. In addition to this, there are exceptions to the Rules of Origin, described as tolerances, that allow ‘non-originating’ products to be treated as tariff free in certain situations. Although Rules of Origin are not a new concept they will now have a substantially more important role to play for UK exports.

Sanitary and phytosanitary

The UK and the EU will operate separate regulatory regimes in relation to human, plant and animal health, and will be able to impose import conditions on related products. This is subject to several caveats which prevent either party from taking measures that would “delay access to their markets without scientific and technical justification”.

Technical barriers

The TCA incorporates sections of the WTO Technical Barriers to Trade (TBT) Agreement, which is intended to encourage parties to avoid creating regulations that will create barriers to trade. Importantly, Article TBT.4 requires the parties to carry out impact assessments of planned technical regulations, and requires parties to look to existing international standards when seeking to implement technical regulations. Article TBT.5 sets out a framework encouraging synergy of standards between the parties. This should ensure that businesses do not have to comply with two separate sets of standards when trading between the UK and the EU.

Resolving trade of goods disputes

The TCA provides measures for resolving breaches of customs legislation in Article GOODS.19. Where there have been breaches of customs legislation, the party which has found the breach shall notify the Trade Partnership Committee (which oversees the work of the 10 trade specialised committees formed to assist with the governance of the TCA). The parties will have three months from notification to agree a solution. In the event that negotiations fail, the party can temporarily suspend preferential treatment of the product, allowing parties to restrict trade of products which are in breach of customs legalisation.

Trade of Services

The TCA seeks to ensure that the trade of services between the UK and the EU continues without restriction in a range of sectors. Key provisions seeking to implement this are:

  • Article SERVIN.2.2 – which precludes the parties from adopting certain measures that would limit market access;
  • Article SERVIN.2.3 – which provides the parties must treat external investors as favourably as their domestic investors;
  • Article SERVIN.2.4 – which provides that if either party provides more favourable terms for the trade of services to another state, those terms will then apply to the other party (the UK will therefore have to negotiate with other countries on the basis that terms cannot be more favourable than the terms agreed with the EU in order to avoid triggering this Article);
  • Article SERVIN.3.3 – which provides subsidiary companies will not be required to operate in member states.

There are also provisions (in particular Article SERVIN.3.2, Article SERVIN.3.4, and Article SERVIN.3.5) which seek to extend this liberalisation to "cross-border trade in services”, meaning services provided from the UK into a member state, or service from the UK to a consumer in a member state.

The liberalisation of the trade of services that the TCA facilitates is subject to a series of reservations. These reservations are extensive, sector specific, and vary between states. For instance, UK mediators may not provide mediation in Bulgaria without permanent or long term residency in Bulgaria; the supply of waste management services by UK companies in Germany is restricted to advisory services; and UK companies cannot sell construction services in Cyprus.

It is important to note that financial services are carved out of the TCA.

TCA Dispute Resolution

The TCA sets out dispute resolution mechanics to resolve disputes arising from interpretation of the TCA, in addition to creating institutions to help oversee specific elements the TCA (as referenced above). To resolve breaches of the TCA, there will first be a 30 day consultation period following notification of an alleged breach (unless it is a matter of urgency or the parties opt out of the consultation process). In the event that consultations are unsuccessful, disputes will be submitted to independent arbitrators, rather than the European Court of Justice. The most significant provision in respect of disputes, however, is the ability of the parties to “unilaterally take appropriate safeguard measures” after one month, or immediately in “exceptional circumstances”. Exercise of this recourse by either party would have significant implications for UK importers and exporters.

Outstanding Issues and Declarations

There are a series of matters that the TCA has kept open for further negotiation. Declarations have been made in relation to these matters, with differing commitments in relation to each declaration. For instance, Data Adequacy and Financial Services are both subject to temporary arrangements, with negotiations to resolve outstanding issues in these areas continuing. Further co-operation between the parties will take place on these issues (amongst others), with a “Memorandum of Understanding establishing the framework for co-operation” on Financial Services expected by March 2021. 

For sector and specialist information on the implications of the TCA, please visit our Brexit pages.

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