The Future Relationship between UK/EU: The Agreement

15 January 2021

Author: Richard Gray
Practice Area: Corporate - M&A
Sector: Brexit

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On Christmas Eve a post-Brexit deal was agreed between the UK and the EU. In brief, that deal legislates for how the UK and the EU conduct trade together from now. Our summary should assist you in understanding the events of the last few weeks and where things stand currently between the UK and the EU. This article is the first is a series aimed at helping our clients understand the impact of the new trade deal on key aspects of their businesses.

The deal is housed in the EU-UK Trade and Cooperation Agreement (the “Agreement”) which is built on three main principles:

  • A free trade agreement covering the economic and social partnership, including transport, energy and mobility;
  • A framework for cooperation between law enforcement and judicial authorities across civil and criminal matters; and
  • An overarching governance arrangement which will allow for cross-retaliation across different economic areas.

In the case of Northern Ireland, in addition to the Agreement the Northern Ireland Protocol to the Withdrawal Treaty (the “Protocol”) agreed between the UK and the EU also has a material impact on the trade to and from Northern Ireland. This is briefly touched on below and will be the subject of a separate note.

January 1st 2021 – what actually happened?

The Brexit transition period formally came to an end at 11pm on 31 December 2020. Four years after the referendum vote, the UK is officially out of the EU. For the average citizen this has impacts for healthcare, free movement and travel and education amongst other things. For UK businesses they now have to meet requirements including new customs documentation and procedures, immigration changes and reduced services market access. It is important to note however that whilst the UK has now exited the EU, there are a number of matters yet to be resolved which will affect how that relationship develops, for more on that see below.

What does the Agreement mean in practice?

At 1259 pages, the Agreement covers a lot of ground, much of it fairly complex. The contents will be distilled and assimilated by businesses, governments and authorities over time. In line with that we will be producing a series of guides on specific aspects of the arrangements as events unfold, but here are the headlines to get you started:

  • Tariffs and Quotas: The UK and the EU have agreed that there will be no tariffs or quotas on the movement of goods between the UK and the EU. However, that depends on meeting rules on the amount of local content required which is set out in detailed annexes. Some categories of goods are exempt from these so-called rules of origin requirements. Manufacturers will be able to ‘cumulate’ – that is, to count both UK and EU parts towards the content threshold of a good.
  • Level playing field: Commitments have been made on both sides to maintain a level playing field for open and free competition and sustainable development. More specifically, these provisions mean that the current high standards applicable in the areas of labour and social security standards, environment, and climate cannot be lowered in a manner affecting trade or investment between the UK and EU, but this does not go so far as to require the UK to follow EU law in these areas. For example, the UK will define its own climate change targets and policies. The Agreement states that where there is significant divergence in the policies of the parties in areas such as labour and environmental standards or subsidy control, the party which considers that this divergence has a material impact on UK-EU trade or investment, can seek to "rebalance" the Agreement, again, by revising unilaterally its own commitment to grant, for example, tariff and quota free access to its market. The impact of the Agreement on maintaining a “level playing field” will be explored in more detail in a later note.

  • Services: With the UK’s departure free movement of services (and free movement of labour) has gone but the UK and the EU have agreed to make commitments on market access for services, national treatment (prohibiting discrimination between their nationals) and local presence (banning parties from requiring a local subsidiary to be set up before services can be provided). They have also agreed a most-favoured nation clause, which ensures that if either the UK or the EU gives more favourable terms to another country in future, those terms will automatically extend to the UK/EU. All of these provisions are subject to a long list of exceptions listed in annexes. These vary from one member state to another. Barriers will limit the scope of many services providers to trade between the EU and the UK. A separate note on the services provisions will follow.

  • Technical barriers to trade: The Agreement addresses regulatory barriers to trade in goods between the UK and EU, while allowing both parties the freedom to regulate goods in the way most appropriate for their own market. Both the UK and the EU are obliged to carry out impact assessments of any changes to technical regulations. If one party deviates from international standards, at the request of the other party, it must explain why it has chosen to do so. Each party should also encourage standardising bodies to participate in the development of international standards. In particular, the UK and EU agreed a definition of international standards which identify the relevant international standard-setting bodies. In doing so it is hoped that the extent of the compatibility of each party’s domestic product standards and technical regulations should be maximised.

  • Sanitary and phytosanitary standards: The UK and the EU will maintain separate regimes regulating human, plant and animal health. The agreement places a duty on both sides to ensure that any sanitary and phytosanitary border controls are “proportionate to the risks identified”. These will be regularly reviewed by a new Trade Specialised Committee on Sanitary and Phytosanitary Measures to see if further facilitations are available without compromising biosecurity. This will have an obvious impact on agri-food business but the extent of this will depend on how the provisions of the Agreement are implemented.

  • Intellectual Property: The Agreement contains provisions to protect intellectual property rights and geographical indicators. A separate note on the intellectual property provisions will follow.

  • Energy: The UK and the EU will each have their own independent energy and climate policies, but will continue to co-operate when it is in their mutual interest to do so. The regulation of each sides’ energy market will be based on some shared principles, including fair competition and non-discrimination. (In addition it should be noted that the Protocol provides for the continuance of the Single Electricity Market on the island of Ireland and includes the maintenance of the necessary conditions for continued North-South cooperation in respect of energy).

  • Transport: The Agreement allows goods lorries to continue operating back and forth between the EU and UK without requiring new permits or certificates. However, some new and complex restrictions will apply, for example, UK and EU hauliers only be able to make up to two additional pickup and drop-offs within the other party’s territory once they have crossed the border. The Agreement also contains a chapter governing the EU/UK aviation relationship.

  • Data: There is no commitment by the EU within the Agreement to grant an adequacy decision for the UK to enable the lawful transfer (without other measures needing to be taken) of personal data between the EU and the UK. It does contain a commitment on each side to uphold high standards for data protection, which will be judged by adequacy decisions taken unilaterally by each side. In particular the Agreement stipulates that the UK shall not be treated as a third country for an interim period of four to six months from 1 January 2021. This is to allow time for the European Commission (EC) to finalise its adequacy assessment of the UK. The purpose of the adequacy assessment is for the EC to decide whether the UK provides “essentially equivalent” protection for personal data as the EU and, therefore, whether transfers of data may be permitted without the need for organisations to take further measures. The impact of the Agreement for data protection law is explored in more detail here.

  • EU programmes: The UK will continue to pay into and participate in some EU funding programmes in areas of mutual interest. Of particular note, the UK will continue to participate in Horizon Europe and both parties have confirmed continuance of their involvement in the Northern Ireland PEACE+ programme.

  • Law and justice: The UK and the EU have committed to continuing co-operation between law enforcement and judicial authorities.

How does Northern Ireland differ?

The Northern Ireland Protocol, agreed as part of the Withdrawal Treaty, came into force on 31 December 2021. The main aims of the Protocol are:

  • To avoid a hard border on the island of Ireland;
  • To protect the EU single market;
  • To protect matters of cooperation on the island of Ireland; and
  • To maintain Northern Ireland’s place in the UK internal market.

That being the case, the Protocol provides Northern Ireland’s alignment with the EU will be maintained in relation to goods (but not services) across a number of strands including the Union’s Customs Code (UCC), EU rules on VAT in respect of goods and product standards and sanitary and phytosanitary rules (SPS) and state aid. In addition, Northern Ireland will remain part of the UK’s customs territory and will apply EU duties on the movement of any goods that are deemed to be “at risk” of onward movement into the EU.

In terms of the effect of the key provisions of the Protocol which also came into force on 1st January 2021 on trade with or from Northern Ireland, these are as follows:

  • Goods moving from Britain to Northern Ireland are now subject to new declarations, and may be subject to duties if considered ‘at risk’ of moving to the EU (including Ireland);
  • Save in some limited instances, moving goods from Northern Ireland to Britain will continue to take place as it did before;
  • There are no border changes, tariffs or addition checks required in terms of trade in goods from Northern Ireland to the Republic of Ireland; and
  • International trade from Northern Ireland will continue to operate mainly as it did before.

A detailed review of the effect of the Protocol on future trade will follow in a separate note.

Is that the end of Brexit?

Unfortunately that is not the case. In fact as it evident from the foregoing, it is more likely that the Agreement marks the first milestone in the new era of UK and EU relations. The stage is set, but this is only Act 1, Scene 1.

The Agreement provides the backdrop to and framework for further negotiations on a wide range of topics. There were some matters which there was simply no time to bottom out before signing the Agreement. Those topics particularly include agreements in relation to financial services and data adequacy but also generally extend to issues where cooperation between the areas would be desired in future. Like any new relationship the parties will encounter emerging issues and the need for discussions and negotiations along the way.

If you have any queries the Corporate team at Carson McDowell would be happy to help.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

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