Brexit
EU/UK Trade & Co-operation Agreement
Our Sectors • • • •
Technology, Communications & Digital Media Construction, Land & Planning Personal Affairs, Private Wealth & Philanthropy Retail & Hospitality
Our Expertise • • • • • • • • • • • • •
Arbitration Banking & Finance Charities Commercial & Corporate Data Protection & Information Disputes Employment Family & Matrimonial Insolvency & Restructuring IP & Technology Real Estate Tax Trusts, Estates & Private Client
This information is offered on the basis that it is a general guide only and not a substitute for legal advice. We cannot accept any responsibility for any liabilities of any kind incurred in reliance on this information.
Brexit
EU/UK Trade & Co-operation Agreement Like a disappointing episode of Maigret where, despite a convoluted plot the culprit turns out to be your original suspect, the tortuous UK/EU free trade negotiations ended in the 11th hour signing of the Trade and Cooperation Agreement (TCA). Given the stakes for the politicians involved – personal and economic – it was perhaps inevitable that the negotiations would end in a deal of some description. That said, the consensus indicates that the TCA was little more than a successful pilot with a number of seasons ahead of it. Johnathan Rees Partner | Head of Corporate & Commercial johnathan.rees@laytons.com +44 (0)20 7842 8000
laytons.com | 3
Brexit | EU/UK Trade & Co-operation Agreement
Structure • The TCA governs the UK/EU future trading and security relationship and came into effect at 11pm on 31st December 2020. In essence it represents a limited free trade agreement meaning tariff and quota-free trade in goods. For businesses not involved in the manufacture or trading of goods the effects of the TCA are marginal. Indeed the TCA has been described universally as “thin” and in many key areas provides little more than a platform for future negotiations albeit in a hopefully more constructive context. It is clear that the EU and UK are likely to be in negotiations of some description for years to come. • The agrrangements comprising the deal are the TCA and two separate agreements covering nuclear co-operation and the exchange and protection of classified information. The TCA contains provisions relating to trade in goods and services and specific chapters on aviation, road transport, social security co-ordination and short term visits, fisheries and UK participation in EU programmes. Security is also covered as the TCA sets out the proposed arrangements for EU/UK cooperation on criminal matters. • The TCA is capable of termination by the EU or UK on 12 months’ notice and is subject to automatic review at 5 yearly intervals.
4 | laytons.com
Implementation • The treaties are implemented in the UK by the European (Future Relationship) Act 2020 (the Brexit Act), which received Royal Assent on 31 December. The implementation of these arrangements will require adjustments to UK law and the Brexit Act provides that, pending the relevant legislation being amended, domestic law will take effect with such modifications as are required to implement the treaties. • Consequently in areas where amendments have not yet been made to reflect the deal, the provisions of the TCA should be read as the prevailing law in the UK, to the extent they conflict with or supplement existing law. • From the EU’s perspective its implementation process was curtailed albeit the EU27 member states authorised the provisional application of the TCA. Formal approval of the European Parliament is expected by the end of February.
Brexit | EU/UK Trade & Co-operation Agreement
TCA Summary Goods • Generally perceived as its principal achievement, the
Financial Services As anticipated The TCA does not provide access to the EU
TCA provides that there will not be any import tariffs
single market for UK financial services firms. In the absence
or other customs duties or quotas on the movement
of passporting rights UK firms must comply with individual
of goods between the EU and the UK.
member states requirements to service their EU customers. In a non-binding joint declaration the EU and UK have
• However this is subject to detailed rules of origin
agreed in principle to establish a non-binding Memorandum
(RoO) requirements. This is a common feature of
of Understanding framework of financial services regulatory
free trade agreements which generally only reduce
co-operation by March 2021. Yes, you read that correctly.
tariffs on goods originating from the counterparty. This could have been problematic where goods or products move back and for between the EU/UK in
Transport
the manufacturing process. In meeting the relevant local content value thresholds, both UK and EU
Goods lorries will continue to be allowed to operate
contributions count towards the %. However these
between the EU and UK without requiring new permits
RoO requirements will require business to keep
or certificates. However, new restrictions will apply – e.g.
records and review their supply chains.
once they have crossed the border UK/ EU hauliers will be permitted to make no more than 2 additional pickup and
Services The sections of the TCA relating to trade in services are
drop-offs within the other party’s territory.
Business Travel
significantly less permissive than those applicable to goods. The TCA is structured so that all services are liberalised but
• Short term EU/UK business trips are allowed on a
the principle is subject to lengthy exceptions contained
visa-free basis for specific purposes such as attending
in annexures whereby member states can elect to apply
meetings, training seminars, conferences and trade
restrictions. The consequence is that those Annexes will
fairs as well as visits for the purpose of taking orders
need to be scrutinised by businesses looking to provide
or negotiating the supply of services or goods. Such
services across relevant borders.
trips are limited to 90 days in any 6 month period. • It should be borne in mind that different member states have different restrictions and requirements depending on the nature of the business activity. Businesses will need to check the rules in each member state to establish permitted activities during business visits.
laytons.com | 5
Brexit | EU/UK Trade & Co-operation Agreement
Data The TCA provides for a 4 months’ window (capable of
State Aid • The TCA contains provisions by way of set of common
extension to 6 months) during which the UK will still not be
principles governing the grant of subsidies. A
treated as a ‘third country’ for GDPR purposes. This allows
mechanism to deal with “significant differences” in
for the continued seamless transfer of personal data from
standards that affect trade between the parties (which
the EU to the UK during the interim period. The UK had
allows unilateral rebalancing measures) also applies to
already separately deemed all relevant EU member states
the area of subsidy control.
to be adequate for UK to EU transfers and the expectation is that the interim period will allow the EU Commission to
• With the exception of Northern Ireland EU state aid
reciprocate. However, the Information Commissioner’s Office
rules no longer apply to the UK. However the UK
has cautioned businesses to implement alternative transfer
must establish its own subsidy control regime with “an
mechanisms to safeguard against any disruption to data
appropriate role” for an independent authority and
flows.
recourse through UK courts by interested parties.
Competition
Employment laws
The TCA contains little detail on competition law or merger
As a result of the “non-regression” commitments in the TCA
control. The UK/EU commit to maintain effective antitrust and merger control regimes, and to maintain/establish independent authorities to enforce those rules. In so doing
neither the EU nor UK is permitted to reduce protections for workers. While the UK government is on the hunt for areas where it may diverge these commitments will restrict its
the parties hope to prevent trade distortions.
options though the provisions are sufficiently flexible to allow
It follows that both EU and UK merger control regimes
Examples are thought to include overtime and allowances in
will run in parallel. The likelihood therefore is more parallel investigations these areas with an increased risk of
some changes to aspects of EU-derived employment law. holiday pay and restrictions on buyers changing employees’ terms and conditions following a TUPE transfer.
inconsistent or conflicting decisions.
Climate Change/Environment The EU and UK affirm their ambitions to achieve “economywide climate neutrality by 2050”. Encouragingly climate change is positioned as a central plank of the TCA meaning attendant consequences for the parties if they fail in their commitments.
6 | laytons.com
Brexit | EU/UK Trade & Co-operation Agreement
Level playing field • These provisions were among the most fraught aspects of the negotiations and derive from the Political Declaration accompanying the EU-UK Withdrawal Agreement. In a bid to prevent any post-Brexit UK bonfire of regulations, the EU insisted
• Establishing whether a party has diverged will be problematic and the absence of a dispute mechanism means the parties will likely resort to unilateral remedial action – and ask questions later.
that the UK commit to alignment with EU laws across a number of areas. These range from competition, state aid and employment to taxation, climate and environmental policy. The UK government initially regarded this as fundamentally undermining its reclaimed sovereignty – the raison d’etre of the Brexiteers’ Brexit. • Ultimately the TCA represents a compromise with the parties being allowed a limited amount of “taking back of control” subject to various conditions. In short the UK and EU can operate different regulatory regimes but not without the other having the right to take protective measures if significant divergences emerge. Whilst the position does not give the UK carte blanche in terms of setting its future policies and legislation, nevertheless the restrictions are looser than originally anticipated. • The TCA describes the principles on which the parties will legislate in the relevant areas as part of the conditions of market access. More importantly it also specifies the consequences of any failure to comply which vary according to the area. In particular the TCA contains “non-regression” commitments in the spheres of employment and environmental/ climate change laws.
laytons.com | 7
Brexit | EU/UK Trade & Co-operation Agreement
In Conclusion • Most free trade agreements are an exercise in managed convergence where the protaganists look to promote trade by eliminating tariffs and reducing nontariff barriers. In contrast the TCA was an exercise in controlled divergence by two parties who commenced negotiations with 45 years’ worth of extensively harmonised regulations and deeply integrated markets. The TCA controls the way in which the UK/ EU will diverge in the future. • The relief that most commentators and businesses felt at the signing of the deal is tempered by the knowledge that in many material aspects the can has been truly hoofed down the road. Ultimately the TCA is best viewed as a work in progress and the start of a long process which will see the EU and UK in near constant negotiations over a decade or more. However if nothing else the TCA provides a platform for those discussions to take place in a calmer context. • The UK government will be under increasing pressure from Brexiteers to demonstrate to the UK public that it was all worth it. However identifying areas where the UK can diverge will not be straight forward and certainly not without consequences. • The timing of the UK government’s recent National Security and lnvestment legislation is increasingly ironic as the government will seek to encourage international investment and promote its “Global Britain” agenda. It is not difficult to foresee that legislation being the subject of review.
8 | laytons.com
• There are significant loose ends from equivalence for financial services to the temporary regimes implemented for data protection, fisheries, energy and R&D. Things to watch out for in the near future are the resolution of the financial services MoU and data protection framework. • Notwithstanding all this, given the timeline for negotiations, the complexity of the issues, the novelty of the arrangements (managed divergence) and the often diametrically opposed objectives of the parties, that a deal was concluded at all is a relief and minor mercy.
Brexit | EU/UK Trade & Co-operation Agreement
Expertise
Corporate & Commercial We provide a complete range of corporate and commercial advice and support for clients who extend from start-ups, individual entrepreneurs and family offices to multinational corporations. Our teams focus on acquiring a deep understanding of the particular needs and objectives of our clients to deliver advice and outcomes that are tailored to those needs and objectives and which meet them swiftly and cost-effectively. The approach to technical problems is informed, insightful and proportionate, and we take pride in viewing problems from a fresh perspective to provide innovative solutions.
9 | laytons.com
John Gavan
Esther Gunaratnam
Robert MacGinn
Partner john.gavan@laytons.com +44 (0)20 7842 8000
Partner esther.gunaratnam@laytons.com +44 (0)20 7842 8000
Partner robert.macginn@laytons.com +44 (0)20 7842 8000
Daniel Oldfield
Daniele Penna
Johnathan Rees
Partner daniel.oldfield@laytons.com +44 (0)20 7842 8037
Partner daniele.penna@laytons.com +44 (0)20 7842 8053
Partner johnathan.rees@laytons.com +44 (0)20 7842 8009
Christopher Sherliker
Cameron Sunter
Liza Zucconi
Partner christopher.sherliker@laytons.com +44 (0)20 7842 8015
Partner cameron.sunter@laytons.com +44 (0)20 7842 8036
Partner liza.zucconi@laytons.com +44 (0)20 7842 8092
2 More London Riverside, London SE1 2AP +44 (0)20 7842 8000 | london@laytons.com laytons.com
Š Laytons LLP which is authorised and regulated by the Solicitors Regulation Authority (SRA Nº 566807). A list of members is available for inspection at the above offices.