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Commission says to prepare for substantial change after Brexit, whether there is a deal or not

Posted on 14 July 2020

With the deadline for agreeing an extension to the Brexit transition period having passed, UK/EU discussions over a future relationship have intensified in recent weeks, but with little progress.  It's no surprise therefore that both the Commission and the UK Government have ramped up their encouragement to businesses and individuals to prepare for the end of the transition period.  The Commission has issued guidance on getting ready and the UK Government has launched a  major new campaign with advice for businesses and individuals under the strapline "Check, Change, Go".  In this article, we review the Commission's guidance.

Change will happen in any scenario

From 1 January 2021, the UK will no longer participate in the EU's Single Market and Customs Union, nor in EU policies and programmes.  It will also no longer be a party to international agreements concluded by the EU (or Member States on its behalf), such as Free Trade Agreements, mutual recognition agreements though it will, of course, retain membership to those agreements to which it is a party in its own right, such as World Trade Organisation(WTO) agreements. 

Further, even if the UK and EU conclude the 'most ambitious future partnership' covering all areas in the Political Declaration by the end of 2020, the Commission cautions that the relationship will be very different, with barriers to trade in goods and services and to cross-border mobility: "there is no room for complacency or postponing readiness and adaptation measures in anticipation that an agreement would ensure continuity … a large number of changes will be inevitable".

A 'No Trade Deal' scenario will lead to even more far-reaching implications and areas of uncertainty than if a trade deal is reached, such as in relation to UK participation in Erasmus+ and Horizon Europe.  However it will not result in the same 'cliff-edge' as feared last year during the withdrawal negotiations because:

  • The EU-UK Withdrawal Agreement reached in October 2019 provides legal certainty in a number of important areas
  • The transition period has provided additional (but limited) time for individuals and businesses to prepare, including for a No Trade Deal scenario
  • Some EU legislative measures adopted in 2019 to prepare for No Deal during the withdrawal negotiations will remain in force/applicable after the end of the transition period.

The Commission is currently reviewing the 102 stakeholder notices it published during the withdrawal negotiations, 51 of which have been recently updated.  Its readiness guidance details a number of changes that will happen at the end of the transition period, i.e., from 1 January 2021, regardless of whether there is an agreement on the future relationship.

Trade in Goods

The guidance sets out a number of changes that will apply to trade in goods, albeit these will not apply to trade between the EU and Northern Ireland, where the Protocol on Ireland and Northern Ireland will apply, alongside any agreement on a future partnership. 

We discuss changes to trade in goods and services on our Brexit hub. The Commission's readiness page has a number of relevant Stakeholders' notices concerning trade, including ecommerce.

Increased customs formalities

The UK will no longer be part of the Customs Union.  EU Customs formalities will apply to all goods entering the Union customs territory from the UK, or leaving that territory to the UK, even if an ambitious free trade area is established, providing for zero tariffs and zero quotas on goods, with customs and regulatory co-operation.  This will lead to increased administrative burden and delays in logistical supply chains.  Businesses will need to comply with requirements for trading with the UK as a third country.

Tariffs, VAT, excise

The UK will no longer be part of the EU's VAT and excise territory.  Traders will need to demonstrate the originating status of goods traded for them to attract preferential treatment under any potential EU/UK agreement.  They should also be ready to treat UK content (inputs and processes) as 'non-originating' in the context of trade with current EU preferential partner countries.  

Businesses will need to acquaint themselves with the relevant VAT procedures.  Excise duties for excisable goods will be due upon importation into the EU, and payable when put on the market. 

If no trade agreement is reached, each side's Most Favoured Nations tariffs will apply.

The Commission has also published Notices on VAT in goods and services, and on excise duties.

Certificates and authorisations of products, establishment, labelling and marking

The EU and UK will have two separate regulatory and legal regimes, as we discuss on our regulatory page on our Brexit hub.  All products exported to the EU from the UK will have to comply with the relevant EU rules and regulatory compliance checks and controls, and vice versa for exports to the UK. 

UK-issued certificates or authorisations will no longer be valid for goods placed on the EU market and, where EU laws require establishment in the EU, establishment in the UK will no longer be acceptable. This may necessitate relocation of e.g., authorised representatives, or appointments of new representatives. Markings or labelling referring to UK bodies/persons will no longer comply with EU labelling requirements. The UK intends to introduce its own marking system (the UK Conformity Assessed – UKCA – marking system). 

The guidance specifically highlights chemical and medicinal products as raising particular regulatory issues. 

Trade in Services

UK businesses currently benefit from freedom of establishment and can provide services in any EU Member State, alongside an advanced system of recognition of professional qualifications. Some cross-border services benefit from a country-of-origin approach or 'passporting', e.g., in relation to financial, audiovisual, or transport services.

From 1 January 2021, freedom of establishment and freedom to provide services will no longer benefit UK individuals and businesses operating in the EU, or EU individuals and businesses operating in the UK. UK service providers and professionals will need to demonstrate compliance with rules, procedures and authorisations that apply to the provision of services by businesses and professionals from non-EU countries – these rules may be found in EU law, but more likely in individual national regimes.

Financial services

Authorisations to provide financial services from the UK across the EU will stop applying, but provision of financial services from the UK to the EU will be possible subject to the relevant third country rules of the relevant Member State, subject to WTO commitments, and any future trade agreement that is reached.  Equivalence decisions may be made in certain areas, but these will not replicate the benefits of the Single Market. The Political Declaration had stated that the EU and UK would endeavour to complete their respective equivalence assessments by the end of June 2020 but this has not yet been completed. We discuss these issues in our financial services page on our Brexit hub and the Commission has issued an updated Stakeholder notice.

Transport services

All transport businesses conducting operations across the EU and the UK must ensure compliance with both EU and UK certification requirements. The likely access conditions for transport operators will largely depend upon the outcome of the negotiations in this area. The Commission's readiness page has individual Stakeholder notices on different modes of transport.

Audiovisual services

UK businesses will no longer benefit from the country-of-origin principle in the Audiovisual and Media Services Directive, and will therefore need to comply with each of the national regimes where they intend to provide services. The Commission has issued an updated Stakeholder notice.

Recognition of professional qualifications

Recognition of UK nationals' qualifications (and of qualifications of EU citizens acquired in the UK) will depend upon the relevant Member State's rules for third country nationals/qualifications. 

Mobility

Free movement between the UK and EU will end, with implications for those EU/UK citizens who cannot benefit under the Withdrawal Agreement and who wish to stay in the UK or an EU Member State for longer periods.  Our guidance materials on immigration issues discuss these requirements in more detail. Certain aspects will depend on the outcome of negotiations, such as healthcare costs and pension rights.

 Company Law

UK-incorporated companies will be third country companies and will not automatically be recognised under Article 54 TFEU. Their recognition will become subject to national law for third country-incorporated companies. In some countries, this could result in loss of limited liability status of the company and the shareholders may be personally liable for the debts of the company. Where a company has a branch in an EU country additional branch requirements may also apply.  The Commission has issued an updated Stakeholder notice.  The UK Government has also issued guidance on structuring your business from 1 January 2021, which confirms these points and also states: 'UK citizens may face restrictions on their ability to own, manage or direct a company (such as needing to live in the country in which the business operates).'

Contractual Choice of Jurisdiction

EU rules facilitating the cross-border recognition and enforcement of judgments in the EU and UK will no longer apply, subject to the provisions in the Withdrawal Agreement relating to ongoing proceedings. The Commission's guidance notes the UK's planned accession to the Hague Convention on Choice of Court Agreements but that this applies only to the recognition and enforcement of judgments given by courts designated in exclusive choice of court agreements concluded after the UK becomes a party. There is however no reference to the UK's potential accession to the Lugano Convention.

Intellectual Property Details

Preservation of existing EU-wide IP rights in the UK have been largely dealt with under the Withdrawal Agreement, though the guidance notes that after the end of the transition period it will be necessary to obtain dual EU and UK rights, if protection is required in both territories.  A significant outstanding issue relates to parallel imports.  EU traders will no longer be able to rely upon exhaustion of IP rights when sourcing parallel-traded products from the UK; however, the UK's position on exhaustion of IP rights remains unresolved.

Businesses established in the UK, and UK residents who are not EU citizens, will no longer be able to register or hold .eu domain names.  

We provide further information on IP rights on our Brexit hub, and the Commission has issued updated Stakeholder notices on trade marks and designs, .eu domain names, copyright, geographical indications, supplementary protection certificates, and exhaustion of IP rights.  The UKIPO has issued its own guidance.

Data transfers and protection

Whilst data transfers to the UK can continue after the end of the transition period, they will have to comply with the rules and safeguards relating to the transfer of personal data to third countries in GDPR, unless the Commission adopts an adequacy decision in favour of the UK. The Commission has also updated its Stakeholder notice on data protection.

The guidance states that the Commission is currently conducting its adequacy assessment and has held a number of meetings with the UK to gather relevant information.  However, as we note on our data protection Brexit page, this is not a foregone conclusion.

 

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