The UK voted to leave the European Union in a referendum on 23 June 2016. Notice of its intention to leave was formally triggered on 29 March 2017, in accordance with article 50 of the Treaty on European Union.
After some extensions, the UK left on 31 January 2020, but with a transition, or implementation, period which expired at 11pm GMT on 31 December 2020. During that period, formal negotiations on a future agreement between the UK and EU took place.
The EU-UK Trade and Cooperation Agreement was agreed on 24 December 2020 and has been signed by the UK and received royal assent on 31 December 2020. It has been signed by the EU and applies provisionally from 1 January 2021 until 28 February 2021, by which time it is expected to have been ratified by the European Parliament.
The Agreement brings the transition period phase of the Brexit process to a conclusion.
The Agreement provides for a free trade area between the UK and EU with zero tariffs and zero quotas on the movement of goods, which was one of the main objectives on all sides.
In addition, many separate trade provisions were agreed in respect of:
- Continuation of aviation and road transport links, and related connectivity and safety
- Social security coordination for those working between the EU and the UK
- Energy trading and interconnectivity
- Public procurement
- Data adequacy, including a commitment to the free transfer of data
- Cooperation on matters relating to Health Security and cybersecurity
- Protocols on administrative assistance in combatting VAT fraud, in customs matters and in social security coordination
There is also a framework for law enforcement and judicial cooperation in criminal law matters.
Many of these items will be covered in more detail in sector-specific Reed Smith alerts.
Not all the provisions of the Agreement replace the old arrangements on a one-for-one basis, and many changes have been introduced in some areas, such as energy. The UK is now outside the EU internal energy market, and no longer part of the EU’s joint action plan on climate change, nor in the EU Emissions Trading System.
The parties may diverge in the future on standards, but there is an agreed definition of international standards and standard-setting bodies, ensuring compatibility wherever possible, and the possibility remains of self-certification when assessing conformity.
The Agreement’s provisions on certain key issues, including a mutual recognition of conformity, and clarity over rules of origin and procedures for customs purposes, are also welcome to ensure that barriers to trade are not erected unnecessarily.
The Agreement permits both parties to apply World Trade Organization rules to resolve any disputes regarding dumping or trade distortion. Rules of origin include full cumulation within the free trade area, and recognition of each other’s Authorised Economic Operators programmes.
However, the Agreement contains very little in respect of the provision of services. 80 per cent of the UK’s trade with the EU is in services, and the restrictions which were not addressed in the Agreement will impact companies trading in services between the UK and the EU. Key areas falling outside the Agreement include:
- Mutual recognition of professional qualifications
Accountants, auditors, engineers, architects, surveyors and many other professionals qualified in the UK will no longer have an automatic right to practise their profession in individual EU member states. Instead, they will be required to obtain recognition in the specific country in which they intend to practise, the process for which will depend on the country’s approach to the relevant profession.
Recognition for legal services and advisers has been maintained for lawyers advising on international law and the laws of the countries in which they are admitted.
- End of the automatic right to the free movement of people
EU citizens will no longer have the right to live and work in the UK, and UK citizens will also lose the automatic right to live and work in the EU.
Some limited rights are included in the Agreement, including for managerial, specialist and trainee roles in intra-corporate transfers.
Short-term business visitors will be allowed entry, but only to carry out a list of defined activities, for up to 90 days in any 180-day period.
Passporting rights have been lost for financial services (apart from some temporary permissions), and so UK financial services companies will need to adjust how they conduct business. As the EU requires clarification of how regulation and supervision will diverge post Brexit, the Agreement only includes a commitment to review passporting rights and enter into a memorandum of understanding by March 2021.
The Agreement is one of the largest trade deals in history in terms of the volume of trade covered. It is also one of the first that erects barriers, rather than removing them, creating potential uncertainty as to how easily it can be implemented practically in such a short time scale.
However, there are many areas of cross-border economic activity that are not included in the Agreement or require further discussions, on which attention will need to be focused in 2021.
In particular, the Agreement focuses on the free movement of goods, and in anticipation of that, customs and VAT procedures should already have been reviewed, in preparation for the end of the transition period. However, some disruption in 2021 cannot be completely ruled out.
Attention now needs to turn to agreement on the other freedoms – the free movement of services, free movement of people, and free movement of capital – which will now all be restricted from 1 January 2021.
Companies will need to review the freedoms they took for granted in the past, and look at how they have handled similar movements from the UK to outside the EU, or from the EU to non-EU countries, to use as a model when considering potential issues that may arise and how to resolve them.
It is also important to note that the Agreement represents a framework, and additional provisions will continue to be negotiated throughout 2021 and potentially beyond.
- The Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the One Part, and the United Kingdom of Great Britain and Northern Ireland, of the Other Part.
- The Agreement on the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (2019/C 384 I/01).