Brexit deal: key trade & customs regulatory aspects

Brexit deal: key trade & customs regulatory aspects

Four years after the Brexit referendum, the EU and the UK have finally reached an agreement. The UK-EU Trade and Cooperation Agreement (“UK-EU TCA”) comes as a relief for many businesses. While the agreement still needs approval of the European Parliament and the Member States, the agreement is already applicable as of the 1st of January 2021. The more than 1.400 pages full draft legal text of the UK-EU TCA has been published by the European Commission and analyzed by our Brexit specialists. This blog will guide you through some of its key aspects.

As a first remark it is important to note that while the EU and the UK have reached an agreement, this does not mean that there will be no barriers to trade. On the contrary, while the agreement on some topics facilitates the trade between the EU and the UK, the UK is considered a third country as of the 1st of January 2021. As such, the UK is no longer part of the Customs Union and the European single market. The free movement of goods, which was one of the most fundamental freedoms for companies engaged in trade of goods with the UK, no longer applies to the transport of goods between the UK and the EU. Customs formalities have now been implemented, as well as checks and audits by border authorities. Traders have to submit entry and exit declarations and imported goods may be checked for conformity with EU or UK regulatory requirements.

Companies engaged in UK – EU cross border business will face difficulties in their future trade relations. While the UK government has announced to delay making most checks for six months (until July 2021) to allow businesses to get used to the new system, the EU shows no mercy. It is important to get ready if you are not (yet) already.

Please find below an overview of some key trade & customs regulatory aspects for companies engaged in trade with the UK.

  • Tariff-free, quota-free trade in goods for products traded between the UK and the EU, if they meet the “rules of origin” regime in the agreement (please see the following point). This is a novelty in the history of EU free trade agreements and especially important for the agriculture and fishing sector, as some meat and dairy products would have faced taxes up to 40% under the WTO Terms. Goods not meeting the relevant rules of origin, are nevertheless subject to import duties.
  • Specific Rules of origin are concluded for the UK-EU TCA to determine when and how goods can be considered as originating from the UK or from the EU. Briefly put, the rules of origin recognize both UK and EU content as “originating” (with a provision on ‘full’ bilateral cumulation). There will be a six year phase-in period for rules of origin for electric cars. Under the UK-EU TCA exporters are able to self-certify the origin of the goods through a statement (f.e. on the invoice) for consignments with a value of € 6,000 or less. If the value is higher, the EU exporter must have a Registered Exporter (REX) number and include it in the statement. Importers can claim preference based on importer’s knowledge. It should however be noted that examining whether your products meet the specific rules of origin, is a highly technical and time consuming process. In addition, anyone making a zero-tariff declaration must be prepared to submit at any time documentation proving that the information given on the declaration is correct. Failing to provide proof, may result in retrospective duties and penalties for a 3-year period.
  • Reduction of technical trade barriers for specific product categories. Specific annexes were agreed to reduce non-tariff barriers for medicinal products, chemicals, organic products, the automotive sector and trade in wine.
  • Mutual recognition of Authorised Economic Operator (AEO) Programmes to facilitate trade. Under the agreement, both the UK and the EU shall maintain a partnership programme for Authorised Economic Operators and recognize their respective programmes. Criteria for these programmes are set in a specific annex to the UK-EU TCA. As a result, AEOs assessed and recognized under either the UK or EU framework will face fewer controls relating to safety and security in their trade of goods between the UK and the EU.
  • Continuity of haulage without permits for haulage operators established in the EU or the UK. In addition, no European Conference of Ministers of Transport (ECMT) will be needed for UK hauliers.
  • No quantative restrictions for air transport of passengers and cargo on capacity or frequency. As for aviation safety, both sides have agreed to recognize the validity of each other’s safety certificates and licenses.
  • Arbitration of the agreement will be undertaken by a new Partnership Council. Following from a strict desire of the UK, no role is left for the European Court of Justice.
  • No mutual recognition agreement for conformity assessments, which means UK regulatory bodies will no longer be able to certify products intended for the EU market, and vice versa.
  • Health certificates and sanitary and phyto-sanitary controls are required for UK agri-food consignments at Member States’ border inspection posts.
  • Export controls are not addressed except for the sole statement that the UK and the EU make a joint commitment to counter proliferation. In addition, the UK-EU TCA does not cover sanctions.

Other important topics such as export controls, sanctions, product regulation, applicable law, jurisdiction and enforcement are not (substantially) addressed by the UK-EU TCA, but are inevitable subject to changes.

Export controls
The EU Dual Use Regulation no longer applies in the UK, with the exception of Northern Ireland, As such, businesses will require export licenses to export dual-use items between the EU and the UK, and vice versa. Export licenses issued by the UK are no longer valid for exports of dual-use items from the EU to third countries.

Sanctions
The UK now operates an independent sanctions regime to the EU, resulting in the ability to introduce sanctions amendments much quicker and easier than the EU. Divergence between the UK and the EU sanctions regime exists already and is expected to increase even more over time. For companies operating in both jurisdictions, it is important to screen against both the UK and the EU sanctions.

Product regulation
As from a product regulatory point of view, no substantial changes are expected in the near future. Products lawfully placed on the EU or UK market, may continue to circulate within the UK. In addition, most of the changes are administrative in nature and offer a grace period. For example, while the UK has introduced their own equivalent for the Conformité Européenne (CE) marking, the so-called UK Conformity Assessment (UKCA) marking, CE-marked products will continue to be allowed on the UK market until the 31st of December 2021.

Applicable law
The pre-Brexit rules on which country’s laws apply to a dispute are laid down in the Rome I Regulation for contractual obligations and the Rome II Regulation for non-contractual obligations. These continued to apply in respect of the UK during the implementation period, so until 31 December 2020. Now that the implementation period has come to an end with no further deal on these issues in place, the position on applicable law will not be significantly affected. This is because the relevant provisions of the Rome I and II Regulations, which will continue in force in EU Member States, do not depend on mutual reciprocity and are of ‘universal’ application. Furthermore, these provisions of Rome I and II have been incorporated into UK national law as retained EU law. As a result, EU member state and UK courts will generally continue to uphold applicable law clauses in the same way as previously.

Jurisdiction
Within the EU, the rules on which country’s courts have jurisdiction over a dispute are laid down principally in the Brussels I Recast Regulation. This sets out a scheme for determining jurisdiction issues and avoiding multiple proceedings in different EU countries. In general, where parties have agreed that the courts of a particular EU Member State should have jurisdiction, that court will have jurisdiction. Under the Withdrawal Agreement, the Brussels I Recast Regulation rules on jurisdiction will continue to apply in respect of the UK to proceedings which began before the end of the implementation period. Beyond this transitional arrangement, the starting point is that this international arrangement will no longer apply to the UK. Unlike the Rome I and Rome II Regulations on applicable law, the Brussels I Recast Regulation operates on the basis of mutual reciprocity between states. Consequently, there is  now an increased risk of disputes about which country’s courts have jurisdiction to hear a case.

The UK has been pursuing a range of options to address this issue. These include applying to join the Lugano Convention, which applies broadly the same terms as the Brussels I Recast Regulation and is applicable to the position between EU Member States and countries like Iceland, Norway and Switzerland. However, this requires consent of all contracting parties, including the EU. The position of EU Member States on the UK’s application to join the Lugano Convention remains uncertain at this time. Importantly, the UK has acceded in its own right to the Hague Convention. This took effect on 1 January 2021. The Hague Convention, to which all EU Member States are party, requires the court designated in an exclusive jurisdiction agreement to hear the case and generally prevents courts of other contracting states from hearing parallel proceedings. As a result, parties may now prefer to have exclusive jurisdiction clauses in their contracts.

Enforcement of judgments
The UK’s accession to the Hague Convention will provide some measure of protection. This convention generally requires any judgment granted by the court specified in an exclusive jurisdiction clause to be recognized and enforced in other contracting states. In addition, parties looking to enforce a judgment cross-border may sometimes be able to rely on (old) bilateral treaties between the UK and specific EU Member States. For example, there is a treaty in place on enforcement of judgments between the UK and the Netherlands that dates back to 1967.

Enforcement of arbitral awards under the New York Convention – and arbitration generally – is unaffected by Brexit. Arbitration may therefore be a relatively low-risk option which parties may wish to consider, either when negotiating dispute resolution provisions in new contracts or if a dispute arises.

Last but not least

With the above we tried to give you an overview of the most important points from the UK-EU TCA. One thing must be clear: this is not a final agreement and will not be the end. The TCA is by far not a permanent regime since either side may terminate the agreement on 12 months’ notice, which would bring us back to a “no deal Brexit”. In addition, there are topics on which agreement has not been concluded, such as data sharing and on financial services. Further negotiations are necessary. There is a deal, but the future EU-UK relationship will be one of constant renegotiation. For companies engaged in trade with the UK, it is important to keep monitoring the developments.

Kneppelhout’s Brexit specialists are monitoring the developments and legal implications of the new UK-EU TCA. If you require assistance on any of the topics or would like to further discuss, please feel free to contact us.