Insights

On Thursday 24 December 2020, the United Kingdom (UK) and the European Union (EU) reached an eleventh-hour agreement in principle on a Trade and Cooperation Agreement, which has been since ratified by the UK parliament and will be formally approved by the EU parliament later this month. Although the free movement of persons, goods, services and capital with the EU ended on 31 December 2020, when the UK left the EU Single Market and Customs Union (as well as all EU policies and international agreements), the UK-EU Trade and Cooperation Agreement has secured the following:

• A tariff-free and quotas-free trade agreement on the movements of goods, the first agreement of this kind reached by the EU with any other trading partner;
• Provisions to support trade in services (including financial services and legal services), which will protect many UK service suppliers against barriers to trade when selling into the EU and will support the mobility of UK professionals doing business across the EU;
• A new and streamlined framework on law enforcement, judicial cooperation on criminal matters and exchange of data, to continue to effectively tackle serious organised crime and counter terrorism;
• A new EU-UK governance framework, which will include a Partnership Council to oversee the implementation of the Agreement and a dispute settlement mechanism accompanied by credible and robust enforcement and safeguard mechanism.

The Agreement also includes arrangements for airlines and hauliers (that provides them with certainty and gives people the ability to travel to and from the EU easily), a social security agreement (that has practical benefits for UK citizens including accessing healthcare when travelling in the EU), agreements on energy provision and collaboration on scientific research.

Notably, the Agreement is based on international law, not EU law, and there is no role for the European Court of Justice and no requirements for the UK to continue following EU law.

The Agreement leaves however many questions unanswered, particularly for Financial Services. The Agreement does not provide for an extension of the current “transitional period” for financial services or for a new "passporting" (which would continue to allow U.K. firms access to EU markets, and vice versa) and new mutual recognition regime.

We set out below an overview of certain areas covered in the Agreement, which spans over 1,200 pages.

We will continue to monitor any relevant development/announcement, but in the meantime please speak to your usual Statura contact should you wish to discuss in more detail the content of this document or indeed the way in which the implementation of the UK-EU Trade and Cooperation Agreement might affect your business.

These provisions provide for a range of matters across the Agreement including setting the object and purpose of the Agreement. These provisions also reaffirm the independence of the two Parties and remove any ambiguity about the UK’s status as a sovereign nation.

A Partnership Council will supervise the operation of the Agreement at a political level, providing strategic direction. Any decisions made will be by mutual consent. The UK must agree to anything for it to be binding. The Partnership Council will be supported by a network of other committees, including on trade. These will provide necessary opportunities for technical discussion to ensure the smooth implementation of the Agreement and its stable operation.

1. Trade in goods

The Agreement establishes zero tariffs or quotas on trade between the UK and the EU, where goods meet the relevant "rules of origin".The UK and EU have agreed on modern and appropriate rules of origin ensuring that only "originating" goods are able to benefit from the liberalised market access arrangements. To be considered ‘originating’ and qualify for preferential tariffs, products must be sufficiently worked or processed within the parties to the agreement. By contrast, ‘non-originating’ materials are materials imported from third countries or materials whose origin is unknown or not possible to determine.

The Trade chapters of the Agreement and in particular the one dealing with Technical Barriers to Trade (TBT) also contains annexes on, amongst others:

• medicinal products: to facilitate availability of medicines, promote public health and protect high levels of consumer and environmental protection in respect of medicinal products;
• motor vehicles and equipment and parts: to eliminate and prevent unnecessary barriers to trade in motor vehicles and parts;
• organic products: to provide for an equivalence agreement between the UK and EU so that products that are certified as organic in one market will be recognised as organic in the other;
• trade in wine: to provide for simplified certification, documentation, labelling and packaging requirements for the imports of wine produced in the other Party;
• chemicals: to facilitate trade in chemicals, ensure high levels of environmental and health protection and provides for cooperation between authorities.

On the subject of Customs and Trade Facilitation (CTF), the Agreement provides for efficient customs arrangements covering all trade in goods. As well as facilitating trade, the Agreement ensures that the customs authorities of both Parties remain able to protect their respective regulatory, security and financial interests.

The CTF Chapter includes measures to facilitate legitimate trade by addressing administrative barriers for traders. In particular, the UK and the EU have agreed mutual recognition of their respective programmes for trusted traders (Authorised Economic Operator or AEO), so that AEOs assessed and recognised under either the UK or EU scheme will face fewer controls relating to safety and security when moving their goods between the UK and the EU, facilitating trade and flow at the border.

2. Trade in services and investments

The Agreement includes well-established provisions on cross-border trade in services and investment that will secure continued market access across a broad range of sectors, including professional and business services, financial services and transport services, and will support new and continued foreign direct investment.

The relevant chapters of the Agreement also include obligations on:

• Market Access, to ensure service suppliers and investors do not face limitations such as economic needs tests, restrictions on corporate form and foreign equity caps;
• National Treatment, to provide for non-discriminatory treatment between UK and EU service suppliers and investors;
• Local Presence, to ensure that cross-border trade is not inhibited by establishment requirements;
• Prohibition of performance requirements, to ensure investments are not subject to conditions such as domestic content requirements or export restrictions;
• Senior management and boards of directors, to prevent nationality restrictions on senior personnel; and
• Most Favoured Nation, to ensure that the Agreement keeps pace with the UK's and EU’s future Free Trade Agreements.

The Agreement also sets out the commitments taken by the UK and EU on business mobility, i.e. there will be no market access restrictions (such as economic needs tests) or discriminatory barriers for short-term business visitors, business visitors for establishment purposes, intra-corporate transferees (secondees and their partners and dependents), contractual service suppliers and independent professionals. UK short-term business visitors will have the ability to travel to the EU for 90 days in any 180-day period, and vice versa.

3. Digital Trade

The relevant provisions in the Agreement will promote trade in digital services and facilitate new forms of trade in goods and services and will ensures that the UK and the EU will cooperate on digital trade issues in future, including emerging technologies.

These provisions will help to facilitate the cross-border flow of data by prohibiting requirements to store or process data in a certain location.The Agreement includes a guarantee that neither the UK nor the EU will discriminate against electronic signatures or electronic documents on the basis that they are in digital form. The Agreement also ensures that contracts can be completed digitally, with a small number of exceptions.

The Agreement includes online consumer protection and anti-spam provisions giving consumers strong protections when buying from businesses in either the UK or the EU. In parallel it ensures companies are protected by a guarantee against the forced transfer of source code, protecting valuable intellectual property.

4. Capital movements, payments, transfers and temporary safeguard measures

The UK and EU have agreed commitments on the free flow of capital and payments for goods and services in order to facilitate trade and investment.

5. Intellectual property

The Agreement includes commitments on Intellectual Property (IP) that provide high standards of protection for, and enforcement of, IP rights. These include registered IP rights such as patents, trademarks and 16 designs, and unregistered rights such as copyright, trade secrets and unregistered designs. The Agreement also includes mechanisms for cooperation and exchange of information on IP issues of mutual interest, whilst retaining regulatory flexibility for both the UK and the EU, e.g. to develop an IP system in line with respective priorities.

6. Energy

The energy provisions of the Agreement support and strengthen the UK and the EU’s respective energy and climate ambitions. This includes the way in which the parties trade electricity and gas over interconnectors, work together on security of supply, cooperate on renewable energies and develop opportunities in the North Sea.

7. Aviation and Road Transport

The Agreement builds on existing precedent and sets out the arrangements for the operation of air transport services between the UK and the EU. UK airlines that are majority owned and controlled by UK and/ or EU/EEA/EFTA nationals at the end of December 2020 may continue to operate air transport services between the UK and the EU. EU airlines that are majority owned and controlled by EU/EEA/EFTA nationals may also continue to operate air transport services between the UK and the EU.

The Agreement ensures continued market access rights for UK and EU road haulage operators. Operators will continue to be able to move goods to, from and through each other’s territories with no permit requirements, and make additional movements within each other’s territories, with limits on the number of permitted movements.

The provisions in the Protocol on Social Security Coordination will ensure that individuals who move between the UK and the EU in the future will have their social security position in respect of certain important benefits protected. Individuals will be able to have access to a range of social security benefits, including reciprocal healthcare cover and an uprated state pension.

1. Social Security

UK workers who are sent by their employer to work temporarily in an EU Member State which has agreed to apply the “detached worker” rules will remain liable to only pay social security contributions in the UK for the period of work in that EU Member State. Similarly, if an EU worker is sent by their employer to work temporarily in the UK from a Member State which has agreed to apply the “detached worker” rules, they will remain liable to only pay contributions in that EU Member State.

2. Healthcare

Where the UK or an EU Member State is responsible for the healthcare of an individual, they will be entitled to reciprocal healthcare cover. This includes certain categories of cross-border workers and state pensioners who retire to the UK or to the EU. In addition, the Protocol will ensure necessary healthcare provisions – akin to those provided by the European Health Insurance Card (EHIC) scheme – continue. This means individuals who are temporarily staying in another country, for example a UK national who is in an EU Member State for a holiday, will have their necessary healthcare needs met for the period of their stay.

The scope of this part of the Agreement is to provide for law enforcement and judicial cooperation between the UK, the EU and its Member States in relation to the prevention, investigation, detection and prosecution of criminal offences and the prevention of and fight against money laundering and financing of terrorism. In particular these provisions include provisions on:

• Exchanges of DNA, fingerprints and vehicle registration data
• Transfer and processing of Passenger Name Record data
• Cooperation on operational information
• Cooperation with Europol (on serious and organised crime and terrorism)
• Cooperation with Eurojust (on the investigation and prosecution of serious cross-border criminal cases)
• Extradition arrangements
• Mutual legal assistance in criminal matters
• Exchange of criminal record information
• Anti-Money Laundering and counter-terrorist financing
• Freezing and confiscation of assets
• Dispute settlement.

The Agreement supports effective arrangements and information sharing between the UK and the EU in the event of a serious cross border threat to health and in the field of cyber security