Now that the UK and EU have secured a free trade agreement (FTA), it is paramount to understand what it means to us.
1. No Tariffs & Rules of Origin
The FTA allows companies to trade between the UK and EU without paying duties, if the “Rules of Origin” requirements are met.
Companies will need to carry out a supply chain audit to understand if their goods meet their specific rules of origin. The Agreement allows for full bilateral cumulation meaning both EU and/or UK content/processes can be included to claim origin.
However, this is causing confusion in businesses. In some instances, depending on the business model, some goods may not be subject to preferential duty rate. For example, if your business imports goods from China into the UK and then re-export them (without goods being subject to any substantial transformation) to any EU market, you will soon find out that they will be subject to tariffs.
Now, if the goods meet the RoO, then under the new agreement, companies will be able to self-certify the origin of their own goods. For example, an electric car made in the UK can be traded tariff-free even if a significant proportion of it was built using components imported from around the world.
2. New Customs Procedures
New customs and VAT rules will apply for trade between the UK and the EU – including the requirement for customs declarations.
However, the agreement includes a protocol for cooperation when it comes to combatting VAT, customs, and excise fraud.
The UK can instruct the EU to recover unpaid UK tax from EU companies on its behalf and vice versa.
Traders are encouraged to get up to speed with the latest guidance on the New UK Border Control and Northern Ireland Protocols.
3. Product & Regulatory Frameworks
Regarding human, animal and plant life and health, the agreement states that the UK and the EU may set and implement their own independent sanitary and phytosanitary (SPS) rules and controls. As a result, companies affected – agri-food producers and grocery retailers in particular – will be required to attain new certification and comply with border checks.
The agreement also limits some of the technical barriers to trade allowing businesses selling low-risk products to self-certify that their goods meet the relevant UK or EU standards, in areas where this practice already exists.
The agreement though seeks to put several measures in place to minimise technical regulatory divergence and encourage the use of international standards for that matter.
However, in some cases the agreement did fall short especially in the broad mutual recognition of conformity assessments, meaning that many goods may have to undergo two sets of conformity assessments instead of one - which will lead to increased paperwork, time, and costs.
4. Services are lacking detailed guidance
Both EU and UK have made commitments for:
Market access for services
National treatment to avoid discrimination between their nationals
Local presence - banning parties from demanding a local subsidiary to set up before services can be provides
However, whilst all sounds good, all these provisions also come with a long list of exceptions listed in the annexes.
For instance, the UK’s access to European financial markets was not finalised in the deal, with the UK still seeking ‘equivalence’ status from the EU. The EU has not yet decided whether the UK’s financial regulatory framework and implementation is as rigorous as its own. The UK and EU have stated that they will codify a framework for regulatory cooperation in a Memorandum of Understanding.
For legal services, the FTA gives UK solicitors and barristers the right to advise clients across the EU on UK and public international law using their own titles and qualifications.
Mutual Recognition of qualifications is one that requires further guidance and clarity. Whilst the agreement establishes a framework for recognition of qualifications, there could be some individual countries where applications may need to be submitted. This means that some UK nationals with certain professions may not be able to deliver their services in some EU countries.
5. The UK Can Set Its Own Standards
The UK can now set its own rules in areas such as environmental standards or labour law.
However, if the UK or EU strays too far from each other’s standards there is a “rebalancing mechanism” governed by international law, whereby one party can impose tariffs should it deem that its own businesses are put at an unfair disadvantage by the divergence.
6. Independence on State-aid
The UK government can set its own subsidies for domestic industries and businesses.
According to the government’s summary of the FTA: “each Party will have in place its own independent system of subsidy control and that neither Party is bound to follow the rules of the other.”
However, companies in the EU can challenge government state-aid in the UK’s courts and UK companies can do the same in the EU.
8. Mutual Recognition for AEO
The UK and EU will recognise each other’s AEO (Authorised Economic Operator) schemes, allowing for AEO-approved firms to move goods more easily between the UK and EU.
9. Continuity for Hauliers
Road haulage operators moving goods between the UK and EU will continue to do so without new permit requirements.
UK hauliers will be subject to similar standards they already comply with when operating internationally, including restrictions on driver hours, requirement for professional qualifications as well as vehicle weight and dimension limits.
However, British truckers will be limited to a single drop-off and a single pick-up when in Europe – a downgrade on the three pick-ups they could do within EU countries before.
10. Rules for Business Travel
Positive news, short-term business visits to the EU will be allowed for up to 90 days in any 180-day month period. The activities UK nationals can carry out include:
Meetings and consultations
Research and design
Trade fairs and exhibitions
Sales (taking orders, negotiating sales or entering into an agreement, but not supplying the goods or services themselves)
Purchasing goods or services
After-sales or after-lease service (e.g. repair and maintenance)
Commercial transactions (e.g. insurers, bankers)
Tourism personnel (e.g. tour operators, guides)
Also no work-permit visa will be required for establishment purposes.
Check the Full TCA Text here
Source: Institute of Exports, EU-UK TCA, New detailed Guidance on rules of origin, Institute of Governance