Brexit and Trade: Goods and Services

Posted on 25 January 2021

The EU-UK Trade and Cooperation Agreement (the "TCA") provides for tariff and quota free trade in goods between the UK and EU. This is undoubtedly welcome news to businesses operating between the two territories.

However, in order to unlock these benefits, goods traded across the new UK / EU border will need to meet certain rules and conditions. In addition, the TCA does not remove many of what are known as 'non-tariff' barriers to trade, such as customs formalities and regulatory compliance.

Businesses providing services rather than trading in goods may also be less than pleased with the outcome of the negotiations, with the benefits of the TCA being relatively minor compared to a 'no trade deal' Brexit when it comes to services.

The provisions of the TCA do not govern trade in goods with Northern Ireland, where the Protocol on Ireland and Northern Ireland applies in its place. Accordingly, this note focuses on trade relations between GB and the EU.

Trade in goods: preferential treatment

As noted above, the TCA provides for tariff and quota free trade in goods between the UK and EU. In order to qualify for such treatment however, goods need to meet detailed 'rules of origin' contained within the TCA.

The 'rules of origin' aim to ensure that preferential treatment under the TCA only applies to goods that 'originate' in the UK and the EU. This in turn ensures that goods from other countries cannot 'slip through the net' and avoid tariffs or quotas that would otherwise have been placed on them.

There are four different types of rule that products may be required to comply with in order to be considered to 'originate' in the EU or UK:

  1. Wholly obtained
    • This rule is the closest to the everyday meaning of 'originate' and generally applies to natural products from the country in question (such as minerals, plants or animals) or products produced entirely from such products.
  2. Change of tariff code
    • This rule requires materials sourced from outside of the UK / EU to undergo a change in tariff classification before they can be considered to originate in the UK / EU. In effect, this rule covers goods that are substantially transformed in the UK / EU.
  3. Value added/percentage rule
    • This rule requires that the value of non-UK or non-EU inputs do not exceed a given percentage of the ex-works price of a product in order for that product to be considered to originate in the UK / EU.
  4. Specified processes
    • This rule establishes that for certain products / industries, specific actions must take place in the UK / EU for the end product can be considered to originate in the UK / EU.

The TCA aims to facilitate businesses meeting these rules by allowing for what is known as 'full cumulation'. This means that materials originating in the EU which are then incorporated into a UK product are deemed to be UK-origin materials and vice versa.

ANNEX ORIG-2 of the TCA sets out in detail which rules apply to which products / sectors.

In terms of exemptions from these rules, it is worth noting in particular that:

  • De minimis exemptions can apply in certain circumstances where the total weight or value of non-originating materials do not exceed certain levels.
  • Special treatment has been accorded in some cases (for example, transitional provisions apply to the electric vehicle sector until the end of 2026).

It is also important to note that a product will not be considered to originate in the UK or EU if the production process carried out in either territory is considered to be "insufficient". This would include for example the breaking-up / assembly of packages or the affixing or printing of marks, labels and logos.

Trade in goods: non-tariff barriers to trade:

While the removal of tariffs and quotas is clearly welcome, the TCA fails to remove various 'non-tariff' barriers to trade.

All imports will now be subject to customs formalities and will need to comply with the rules of the importing territory (even if no tariffs are payable). While the UK has put in place transitional provisions until July 2021, this is not the case for goods leaving the UK for the EU.

In addition, the TCA does not provide for mutual recognition of regulatory and product standards. As a result, in most cases businesses will need to comply with two separate regulatory regimes and undergo two separate conformity assessments.

The TCA does contain some provisions to assist with these non-tariff barriers to trade however:

  • The TCA contains limited commitments on mutual recognition in specific sectors (motor vehicles, equipment and parts, medicinal products, chemicals, organic products and wine).
  • The TCA also provides for the continued use of self-certification of conformity by suppliers where this was accepted in the UK / EU prior to end of the transition period.

Trade in services

While the TCA is fairly ambitious when it comes to trade in goods, the picture is somewhat different in relation to services.

At first glance, the TCA contains quite extensive prohibitions on restrictions in relation to market access. However:

  • Certain sectors are explicitly carved out of these provisions (for example air services – with air transport covered elsewhere in the TCA – and audio-visual services).
  • The provisions only apply to the extent that they have not been disapplied by the TCA's annexes. The annexes contain a significant list of individual Member State requirements that still need to be complied with to provide services in their territories. In addition, they reserve the right to impose certain restrictions in future. As a result, businesses will need to review these annexes in detail in order to establish whether national restrictions apply to the services they provide. For guidance on the various barriers to trade in services that may arise for UK businesses looking to operate in the EU, country-by-country guidance from the UK Department for International Trade can be accessed here.
  • With regards to professional qualifications, the TCA does not contain any requirement on the UK and EU to recognise each other's qualifications (either now or in the future). Instead, there is simply a mechanism allowing for qualifications to be recognised in the future (but with no concrete requirement to do so).
  • It is also worth noting that specific arrangements have been agreed in certain sectors, namely delivery services, telecommunications services, financial services, international maritime transport services and legal services.

Finally, the TCA includes a 'most favoured nation' clause in relation to services meaning that concessions granted to other nations in trade or investment agreements in the future that are more beneficial than those contained in the TCA will also apply to the UK / EU (subject to certain exceptions). The UK's trade negotiations with other countries will therefore be worth monitoring in order to assess their impact on trade in services between the UK and EU going forwards.

Trade with non-EU countries

While not strictly related to the TCA, it is worth reiterating that trade agreements negotiated by the EU and that previously covered the UK no longer apply to the UK. Going forwards, the UK's trading relationships with non-EU countries will be governed by any FTAs the parties negotiate or WTO rules.

A summary of the UK's trade relations and ongoing negotiations with third countries can be found here.

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