The Key Points of the Brexit Trade Agreement Analysed

As you will undoubtedly already be aware, the United Kingdom and the European Union have agreed a Trade & Cooperation Agreement to oversee any future trade relations.

This agreement came into effect on January 1^st 2021, and guarantees that we will see no tariffs or quotas on the movement of goods produced between the United Kingdom and the EU.

However, this doesn’t mean that businesses in the UK won’t have to contend with more trade barriers than they did when the UK was still a participating member of the EU.

While it is the case that we’ve taken some steps towards independence, many businesses will now need to get used to a range of additional barriers in order to trade with the EU.

If you’d like some bedtime reading, you can find a link to the full agreement of 1,246 pages here. Otherwise, this blog will explore some of the more key elements of the deal.

UK Exports

The agreement means that most goods traded between the EU and the UK will not be subject to further tariffs or quotas. That said, some British-based exporters will be faced with the prospect of dealing with a range of new regulations that will undoubtedly make the process of exporting to the EU more expensive and time-consuming, which we’ve summarised below:

Rules of origin – UK businesses will now need to certify their cargo’s origin to ensure it can qualify for tariff-free access to the wider EU community. This also means that there are limits as to the proportion of goods that can be manufactured with parts made overseas, otherwise it cannot qualify for tariff-free access.
Cumulation – EU parts will count towards this qualification.
Restrictions on Vehicles – Vehicles will now face tighter regulations. Petrol and diesel cars will now need to be made of at least 55% ‘local content’ to remain tariff-free.
Electric Vehicles – Electric and hybrid vehicles will be allowed to be made up of 60% of overseas components, but that will also fall to 55% in 2026. Batteries can contain 70% at the moment, but that will decrease to 50% within the same timeframe.
Product testing and certification – Because there is no longer a mutual recognition agreement between the two parties, it means that UK regulatory bodies won’t be able to clear certain products for sale in the EU, which could be a huge sticking point for many UK-based businesses.

Customs

Once the UK left the European single market on January 1st, it was always a guarantee that customs wrangles were going to emanate from both sides of the fence whether a deal was struck or not.

The deal largely follows international practice, which aims to minimise customs costs for both EU and UK businesses, in theory, this will now mean:

Less Red Tape – Both sides have agreed to limit red tape where possible and have set up ‘trusted trader‘
Customs Cooperation – The UK government has previously stated that bespoke measures have been put into place to help firms at Dover and Holyhead’s ports. There will also be facilitation agreements for wine, organic, pharmaceutical, and chemical products.

Business Equality

One of the most challenging parts of the negotiation process revolved around both sides receiving parity. In other words, both sides have now committed to safeguarding environmental, social, labour and tax standards to ensure neither side undercuts the other.

Rebalancing – The deal doesn’t state anything about so-called ‘ratchet clauses‘ that would compel the UK to tighten its legislation to ensure they are parallel to that of the EU. Instead, a balancing mechanism is outlined, which means that either side can freely adjust tariffs to ensure they aren’t out of touch with the other.
Retaliatory Measures – Any retaliatory measures regarding tariffs will be arbitrated by an independent panel and not the European Court of Justice.
Unlimited State Guarantee – Neither side will be able to offer an unlimited state guarantee to cover a company’s debts or liabilities. This means the UK won’t be able to rescue a collapsing firm without a clearly defined restructuring plan, and any aid to failing financial institutions can only be the minimum amount necessary to keep it afloat.

Energy

Although this was largely expected, the UK will now no longer have access to the EU’s internal energy market. New arrangements set for April 2022 will make trading smoother and more efficient through large power cables and interconnectors running between the UK and the continent instead.

Net Importer – The UK is a net importer of electricity and receives around 8% of its power from Europe. As an island, ensuring these interconnectors and energy trading routes are efficient is incredibly important.
Guarantees on Energy – Crucially, the deal does include security guarantees on the continued trading of energy.
EU Emissions – While the UK is no longer part of the EU emissions trading model, both sides have agreed to work hand-in-hand to continue to cooperate on lowering carbon emissions.
Paris Agreement – The deal states that the UK and EU’s agreement will be suspended if either were to breach their commitment to the 2015 Paris Agreement on Climate.

Health, Care & Professional Services

The agreed deal now means that there will no longer be a system of automatic mutual recognition of professional qualification and certification between the EU and UK.

This will impact:

Health care – Doctors, dentists, vets, nurses and pharmacists.
Construction – Engineers and architects.
Human services – Law and personal finance professionals.

As per the deal, “Doctors, nurses, dentists, pharmacists, vets, engineers or architects must have their qualifications recognised in each member state they wish to practice in.”

This is a blow for the UK, who had lobbied for “comprehensive coverage” to ensure there were no barriers to regulated services.

Nevertheless, the deal does create a structure for the recognition of qualifications in the future.

Business Related Travel

The UK and EU agreed that brief business guests would not need to obtain work permits or undergo economic needs tests in the following circumstances:

“Managers and specialists” will be permitted to stay for up to three years and trainees for up to twelve months.
Those visiting a country to set up businesses will be authorised to remain for as long as 90 days in any six-month period.

There’s a lot to get used to in 2021. Trade between the UK and EU is likely to continue to be refined and improved in the course of time.

In the meantime, if you have any further questions on what we’ve covered in this blog, or you’re interested in hearing more about any of our other services, get in touch today.