Brexit – a look at the new EU deal, by Mark Taylor, Chair of Kreston’s International Tax group
March 10, 2021
The new deal, by Mark Taylor
Shortly before Christmas, the UK and the EU agreed a new trade deal which is now in place, bringing a new degree of certainty and optimism to businesses on both sides of the English Channel.
The deal runs to 1,246 pages of text, with summaries, side agreements and additional political declarations on a range of sensitive issues. While some have compared this to the agreement the EU has with Canada, it is fair to say that the deal is unlike another other trade deal the EU has signed to date.
The largest bilateral trade pact in history, this is the first modern trade deal to disintegrate a trading partnership, erecting and defining barriers between markets, rather than opening them.
While the deal avoids the no-deal scenario which would have seen trade reverting to World Trade Organisation (WTO) rules, in many ways the deal will make trade with the EU more complicated than it was previously. It is also likely that the agreement will evolve during its implementation as issues are identified and resolved and as precedents are set, with many elements having been included as ‘political declarations’ rather than in the treaty itself, meaning they do not have the same legal strength.
Crucially, the agreement allows for goods to be traded without tariffs or quotas, provided they meet so-called ‘rules of origin’ that define how much content in a product is derived from each area.
The deal enables the UK and the EU to set their own rules on ‘geographical indications’ which are rules to protect the quality and reputation of foodstuffs produced in particular regions, and the deal established a review mechanism which means the two sides can choose to coordinate their rules at a later date.
UK granted “Third Country listing” status
The EU has also agreed to grant the UK so-called ‘third-country listing’, meaning the UK is confirmed as having the necessary animal health and biosecurity standards required to export livestock and animal products to the EU. Moving and transporting goods by road and air will be unlimited, and there are detailed commitments on air freight handling and passenger rights.
Throughout the negotiations, one of the main sticking points was the issue of how to balance the UK’s desire to set and enforce its own regulations and support British businesses as it sees fit, with the EU’s reticence to allow the UK to give its businesses an unfair advantage while having free access to European markets.
As a compromise, the two sides have agreed to a series of dispute resolution mechanisms with provisions to ensure fair competition. Regarding state aid, the UK is to create an independent body to oversee its own subsidy control regime and both sides will be able to regulate goods within their own markets.
If any side reneges on their commitments in areas including climate change, labour rights, tax and state aid however, disputes will be heard by an independent tribunal. This aims to dissuade either side from deviating from their commitments, without limiting their freedom to do so if they wish, although this would risk the imposition of tariffs in future.
Fishing and trade
Regarding fishing rights, the EU agreed to reduce the quantity of fish EU vessels can catch in British waters by 25%, with annual negotiations to set the volumes each party can catch in one another’s waters. This was a politically charged issue but both sides have agreed to a compromise on their initial positions.
While the deal does ensure tariff free trade in products, it does not comprehensively cover services, including financial services, which account for more than 40% of the UK’s exports to the EU and 80% of the UK’s economic activity. Instead, the political declarations include an agreement to try and reach a memorandum of understanding by March 2021. This memorandum will mean the two sides would agree to recognise each other’s rules, allowing the finance industry to trade across the UK and EU border as soon as possible. For now, businesses in the services sector have lost their automatic right to access EU markets and will face some new restrictions.
Replacing the existing rights for workers’ qualifications to be recognised as being equivalent to those awarded in each member state, the deal establishes a process under which Mutual Recognition of Professional Qualifications (MRPQs) can be agreed for each industry. While this falls short of having agreements in place immediately, it sets out a process for regulators and industry bodies to work together to establish these agreements in future.
Trade friction in return for flexibility
In some areas, the UK has accepted a greater degree of friction in trade with the EU in order to have the flexibility to strike deals with other countries. One example of this can be seen in the agreements on agriculture, where agreements on rules designed to protect the quality and reputation of foodstuffs produced in certain regions are kept vague and there is no agreement for the two sides to recognise each other’s rules to protect humans, animals and plants from diseases and pests. This means British farmers wanting to export to the EU may need certifications which weren’t required while the UK was a member of the EU. There are also new restrictions on certain animal food products, with, for example, uncooked meats needing to be frozen at -18C if they are to enter the EU.
In some fields, such as medicine, the UK and EU agreed to consult one another on proposals to change technical regulations or inspection procedures and will endeavour to cooperate with a view to strengthening, developing and promoting the adoption and implementation of internationally agreed guidelines. In other areas, such as aviation, certificates issued by UK and EU agencies will be recognised by both parties from the outset.
Freedom of movement
Freedom of movement was a contentious issue throughout the referendum period and the subsequent negotiations. Seeking to balance the need for professionals to work in other countries and the public desire to end or curtail freedom of movement, a compromise has been struck.
Under the deal, people can visit EU countries for up to 90 days in a 180 day period without a visa, but a visa or work permit may be required if a person is transferring to an international branch of a company, carrying out contracts to provide a service to a client in a country in which their employer has no presence, or providing services in another country as a self-employed person. However, there are some exemptions for people in specific occupations who can work in the EU visa-free for up to 90 days, although this list is by no means exhaustive with sports professionals, artists and musicians among others not being included.
There will be some new checks at borders, such as safety checks and customs declarations and additional paperwork is required for goods being transported into the EU. The EU will be checking these have been completed from day one. Paperwork is also required for goods entering the UK, but the government has said it will delay most checks for six months to allow people to get used to the new system. It is therefore very important to ensure that all relevant paperwork is completed properly before goods are dispatched in order to avoid delays or backlogs. It is difficult to predict the scale of any disruption this will cause at borders but this is likely to be exacerbated by any additional issues created by COVID-19.
The new trade deal is complicated and there are many important elements which will change how companies must operate in the years ahead. If your business operates in or trades with the EU, we recommend speaking to one of our dedicated advisers who can provide detailed professional advice and guidance to help you continue to operate as successfully and seamlessly as possible.
this article was published by Duncan & Toplis in January 2021