UK and EU Sign and Implement New Trade and Cooperation Agreement

Thursday, January 21, 2021 - 5:45pm

The EU-UK Trade and Cooperation Agreement (“TCA”) was announced on December 24, giving businesses just 7 days to digest its 1200+ pages and be prepared to comply before the new UK-EU trade regime kicked in on January 1. The combination of COVID lockdowns, pre-Christmas stockpiling, and the typical January lull in cross-border trade minimized the immediate chaos at the UK’s border. But predictably, the challenges are growing by the day, and the realities of life outside the Single Market are starting to become apparent. 

A Few Observations 

  • Perhaps the best part about the TCA is that it exists. It allows for a relatively amicable divorce between the UK and EU and provides a platform on which to build future engagement.  

  • Among other things, securing a deal that preserves the Good Friday Agreement eliminates a potential stumbling block in UK-U.S. trade talks. 

  • The new “Partnership Council,” charged with implementing the new deal and resolving disputes, opens the door to what is likely to be never-ending negotiations about compliance and how to respond to non-compliance. 

  • On level playing field, both sides retain their ability to diverge on certain regulatory policies, though diversions that undercut competition would invite proportionate retaliation, subject to arbitration. An early test will be new workers’ rights directives, due to be implemented later this summer. 

  • Political unity within the UK may be hard to maintain 

  • With Northern Ireland de facto in the EU Customs Union and Single Market for goods, separated from Great Britain by an Irish Sea border, NI could move closer to the Irish Republic 

  • Scotland never wanted to leave the EU. Assuming the SNP prevails significantly in this Spring’s parliamentary elections, expect a strong push for a second independence referendum 

  • Administrative burdens of the deal likely to shave an estimated 0.5% off UK GDP annually for the next decade  

UK-EU Trade and Cooperation Agreement Highlights 

Hot button issues addressed –  

  • Governance – Single framework; no enforcement role for the European Court of Justice; establishes a bilateral Partnership Council (with 19 specialized committees covering all aspects of the agreement) to oversee implementation; Review after 5 years; Different dispute resolution mechanisms for different parts of deal 

  • Level playing field – UK must establish body to oversee subsidy control regime; carve-out for certain subsidies 

  • Fisheries – Graduated reduction in EU quotas through 2026; annual renegotiation thereafter 

  • Goods –  

    • Tariff/quota-free trade (subject to Rules of Origin (ROO) requirements) 

    • Goods that simply move through one market on the way to the other without being substantially transformed likely will be subject to tariffs. 

    • UK now subject to 3rd country customs and SPS requirements 

    • Self-certification of ROO adherence is permitted (this is a rare instance of the TCA being more flexible than a typical EU trade agreement) 

    • 6-year phase-in of ROO for electric cars (to allow for the European / UK battery market to develop) 

    • ROO requirements are stricter than the UK wanted. Deal includes bilateral cumulation, but does not permit diagonal cumulation  

    • SPS/TBT: emphasizes WTO commitments, including a reliance on international standards 

    • UK cannot use domestic bodies to assess conformity with EU standards 

    • Unlimited access for air/road transport, though UK airlines will lose some rights granted to EU carriers (e.g. cabotage) 

    • Mutual recognition of Authorized Economic Operator (AEO) models  

    • UK is unilaterally applying temporary relief measures until July 1, 2021 for goods imported into the UK from the EU (but not vice versa) 

    • Traders will have 6 months to submit full customs declarations and pay any tariffs due 

  • Services –  

    • Market access preserved on a negative list basis 

    • Financial services: Passporting eliminated; market access and regulation on country-by-country basis 

    • No mutual recognition of professional qualifications (MRPQs) 

    • Temporary entry for business visitors and short-term secondment contracts for high-skilled workers are allowed, but there are no longer any broad freedom of movement commitments 

    • Audiovisual and public services are specifically carved out  

  • Procurement –  

    • GPA terms 

    • Public procurement contracts are open to EU bidders established in the UK, and vice versa, with special arrangements for smaller contracts 

    • Regulatory barriers are expected to emerge and grow over time as the EU and/or UK change their rules in the future. If changes are deemed to “affect trade,” they are subject to retaliation in the form of new tariffs or quotas. 

    • Renewable energy/sustainability: Commitment to cooperate; promises not to renege on existing commitments 

  • Data and Digital Trade – 

    • Prohibits data localization, though either party can restrict data flows for purposes of privacy or data protection (as in other EU agreements) 

    • Encourages open government data policies 

    • Promotes regulatory cooperation on digital trade issues 

    • Establishes a formal dialogue on cybersecurity cooperation 

Political Declarations and Side Agreements 

Several important provisions are not included in the TCA itself and are reflected instead in a series of “political declarations” and side letters accompanying the accord. These are non-binding and not subject to dispute resolution. 

  • Includes an MOU commitment to set up a regulatory cooperation framework (including for future equivalence determinations) by March 2021 

  • Provides a 4-month “bridge” (extendable to 6 months) for continued EU-UK data flows to allow time for the EU to finalize a data adequacy decision 

  • Even if granted, both data adequacy and financial services equivalence decisions can be revoked unilaterally by the EU for any or no reason, with limited notice 

  • Commitments to ongoing tax cooperation 

  • State aid: Monetary policies not subject to TCA rules; some state aid permitted for disadvantaged areas, transport, R&D 

  • Law enforcement and judicial cooperation 

  • Terms of UK participation in EU programs (Horizon Europe for R&D, Euratom for nuclear safety and security) 

  • The UK is leaving the Erasmus student exchange program; Ireland has committed to pay for Northern Irish students’ ability to participate 

Status & Next Steps  

  • The TCA has been provisionally applied since January 1 

  • UK Parliament approved the deal on December 30 after a single day of debate  

  • European Parliament approval expected in February or March 

Where further work is required: 

  • EU data adequacy assessment 

  • Financial services regulatory equivalence 

  • Foreign and security policy cooperation 

  • Review every 5 years; withdrawal permitted with 12 months’ notice