Getting to grips with the Brexit transition agreement could have a silver lining

Two months on from the end of the Brexit transition period the big question is: are we any clearer on what the 1264 pages of the UK-EU Trade & Co-operation Agreement actually means?

The Agreement may embody the post-Brexit “deal” with the EU, but it doesn’t avoid “no-deal” outcomes, as not every aspect of our former EU membership rights is addressed.

The “no tariffs” provisions only apply if the imported product meets the “origin” rules of the Agreement. If not, WTO rules and the UK/EU third country external tariff will apply, albeit there is often a nil tariff.

Providing services

Telecommunications, shipping and e-commerce aside, the trade in services is not directly covered. We have moved from Single Market services regulated by the ‘sending jurisdiction’ to a ‘host jurisdiction’ basis. That potentially means 27 different sets of detailed rules. One answer is to open an EU Member States subsidiary and use it as the bridgehead from which to trade within the Single Market.

UK professional qualifications are no longer automatically recognised across the EU; each member state’s own recognition rules plus licensing requirements must now be met. The effect of this, and the application by different member states of the 90 days visa waiver travel rules for what activities will need a work permit varies across the EU 27, and will really only be felt once Covid-19 travel restrictions ease.

Provisional Agreement

The Agreement is currently only provisionally accepted by the EU until 28 February. Bureaucratic mechanisms can amend or supplement the Agreement until December 2024. Non-regression and rebalancing rules mean that the deal can be amended if there is a distortion between the EU and UK markets.

Rules of origin

Within the Agreement there are a number of moving parts. The rules of origin for electric vehicle battery packs work on a sliding scale allowing 70% non-domestic until 2023, then 40% to 2026. The fisheries have a five year “adjustment period” for the quota reductions. We mustn’t forget the Northern Ireland Protocol to the Withdrawal Agreement either.

So, has there been any good news? The rules of origin have created an issue for the UK’s role as a logistics hub, as simple processing doesn’t change the origin of goods. This is the Percy Pig issue – an EU product distributed back to the EU from the UK becomes subject to EU import tariffs.

The Agreement does assist industries with integrated supply chains, such as the automotive and aviation sectors, with standards recognition (also for medicines and chemicals) plus the concept of “cumulation”. That allows EU components used in UK manufacturing to be treated as of UK origin. It also means that the EU value-add of components supplied from the EU with (say) Chinese parts used in UK manufacturing can be included in the UK value calculation for the final product’s export. The Agreement did not go further to allow third country (i.e. non-UK or non-EU) inputs to be recognised, as in the UK-Japan trade deal.

Supply chain reconfiguration and a refocus of investment remain possible outcomes. Freeports (or “green ports” in Scottish Government terminology) once designated in the UK may provide an answer.

Procedural changes

In the meantime, our ports were not overwhelmed in January as many businesses had stockpiled in advance of the end of the Brexit transition period.

The agri-food sectors didn’t have that luxury. For many of them, January was more than just a learning curve; it was stressful, frustrating and costly. Dutch government figures indicate that only 10% of trucks had the correct paperwork.

For the vast majority of UK businesses which do trade internationally, that means trading with EU. It was inevitable that leaving the Single Market and the Customs Union would lead to a need to learn new processes and procedures. And the burden of doing so will be felt particularly by SMEs.

We cannot, however, simply ignore the situation. The nettle needs to be grasped. Although of little comfort when getting to grips with trading with the EU, once you’ve learnt how to do that, the knowledge can be applied to trade with other countries further afield. We’ve been helping businesses manage Brexit through our Business Resilience Unit and there’s also help available at www.gov.uk and through the Chambers of Commerce network.

You may also be interested in our other articles:

• Percy Pig and post-Brexit Rules of Origin
• UK Data Protection Law after Brexit
• Why you may find yourself trading under WTO rules despite the Brexit deal

A version of this article was published in The Scotsman.

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