What does the UK-EU trade deal mean for businesses?
With a last-minute deal announced on Christmas Eve, businesses will now be returning to work and attempting to comprehend the implications of their operations due to the new EU-UK relationship.
Many firms will likely welcome the UK-EU Trade and Co-operation Agreement (UK-EU TCA), following months of concern that we were headed towards a no-deal scenario. However, it is essential to note that the trade relationship between the two sides remains changed, with the agreement still bringing new processes and rules for businesses in the UK and the EU.
If you are just getting to grips with the details of the UK-EU TCA, we have put together our guide to the deal and what it means for businesses across the UK.
- What it doesn’t change
- Reduced tariffs and trade barriers
- Access to EU programmes and contracts
- Compliance for manufactured goods
- Trade of services
What it doesn’t change
Before we detail what the UK-EU TCA means for business, it must be highlighted that much remains unchanged despite the agreement. For the last year, companies have been preparing for Brexit by preparing for new documentation, adjusting strategies and understanding criteria they need to fulfil. The majority of this still stands, meaning businesses will need to continue to understand the effect on their operations and ensure they are complying to the rules.
In terms of trade, customs declarations will still need to be submitted on all exports, which may mean hiring a specific resource to undertake this task on behalf of your company. You will also need an EORI number to trade. Additional paperwork will be required on controlled goods, such as licences. All goods entering the EU became subject to full checks from 1st January, while EU imports entering the UK will be subject to these from 1st July.
The changes to trade significantly impact agricultural goods. While there had been hopes that an EU-UK agreement would lessen the requirements for importers of goods such as livestock or products of human, animal or plant origin, this was not covered off under the TCA. Moving forward, this means companies must comply with relevant procedures such as veterinary checks and pre-notifications.
Potential implications such as extended delivery timeframes and adjusted costs may still stand as businesses adapt to the post-EU reality. It is essential to understand which of the changed rules apply to you and make sure you have appropriate measures in place in your workplace. Full information regarding this can be viewed on the government website.
Reduced tariffs and trade barriers
One of the most prominent achievements of the UK-EU trade deal is that it allows both sides to continue to trade without tariffs, such as those that would have been otherwise applicable under World Trade Organisation rules. However, it is worth noting that specific criteria need to be met for the zero-tariff to stand, such as the customs procedures detailed above and ‘rules of origin’.
The TCA also alleviates some of the barriers to trade between the two sides. Under the agreement, hauliers can transit between the UK and EU without permits, which will allow the continued movement of goods between the two sides. Air transport is similarly unimpeded for both cargo and passengers, to the benefit to trade and travel.
The agreement also reduces some other technical trade barriers. For example, products deemed as organic in the UK can be marketed as such in the EU without additional checks being required. Similarly, medicines do not need to go under separate inspections to be sold in the EU and UK. Other barriers have also been removed for the trade of wine and chemicals, as viewed in the government UK-EU TCA guide.
Access to EU programmes and contracts
Another welcome aspect of the TCA for many businesses will be the continued access to EU programmes for UK businesses. This includes funding programmes such as Horizon 2020 and programmes dedicated to research, testing, surveillance and so on. It is hoped this will enable the two sides to continue to work collaboratively and benefit from innovation, technology and co-operation brought by either the UK or EU.
Under the deal, UK companies can also continue to bid for EU government procurement contracts and vice versa. For firms that do so, this means that they will still be able to generate business in this manner, while the UK government will be able to work with EU companies to deliver contracts where required.
Compliance for manufactured goods
One area that was not addressed under the TCA was how manufactured goods are deemed fit for market in the UK and the EU. When the UK was an EU member state, any goods manufactured and approved here would be suitable for sale in the rest of the EU under mutual recognition rules.
However, under the new relationship, goods exported to the EU must receive separate conformity assessments from an EU approved organisation so UK manufacturers will need to seek this assessment if they intend to sell on an EU market. Similarly, EU manufacturers will need to do the same if they wish to target UK markets. Goods sold in the UK will require a UKCA mark while in the EU they will require a CE mark. For manufacturers who wish to target both markets, this means undergoing two sets of assessments rather than one universal system. There is a period of grace until 31st December 2021 whereby the CE mark can continue to be used for goods entering the UK market.
Another element of the agreement regards ‘rules of origin’. Under these rules, a percentage of parts in a product needs to have been produced in the exporting country. So, for example, if a UK manufacturer were to export a car to the EU, at least 45% of the parts need to have been created in the UK. If a manufacturer fails to meet this, a 10% tariff will apply on the product before export to the EU.
Under the agreement, there is “full bilateral cumulation” meaning that parts from both the EU and UK can add towards the percentage target (as opposed to just UK parts). The UK requested parts from Japan and Turkey to be included here, but this was rejected by the EU. As a result, UK manufacturers – particularly car manufacturers – may need to seek alternative sources for parts to meet the appropriate target.
There is a one year grace period within the agreement for UK exporters not having to provide proof of origin for exported goods to the EU. This ends on 31st December 2021. Exporters are advised to keep internal records of the origin of components comprising their exports to the EU. The easement also applies for EU exports to the UK.
Trade of services
One of the criticisms of the agreement is that few provisions were made regarding the trade of services between the UK and the EU. Under the single market, the UK benefitted from ‘passporting rights’, allowing UK businesses to provide financial, wholesale and retail services to the EU freely. With the new agreement, it is expected that the UK can continue to provide these services, but these are likely to be subject to specific rules and constraints from the country where they are being supplied.
The EU has yet to decide whether UK financial rules are equivalent to those in the EU, thereby allowing services to be unimpeded. This decision is expected in the coming month, with both sides committing to creating a regulatory co-operation framework in financial services by March. It should then become more apparent how financial service providers are impacted and how they can market in the EU moving forward.
Now that the EU transition has taken place, you may be beginning to feel the consequences on your operations or considering how your long-term strategies may be affected. This includes understanding the role the UK-EU trade agreement may play.
If you need to support adapting your business for the new challenges brought by Brexit or have queries you need answering, we are here to help. Our team of advisors have expertise across critical topics, such as trade, finance and employment, allowing us to provide tailored guidance for you.