Brexit deal done; What next?

Aidan Scollard, Partner, provides his view on what Irish businesses dealing in cross-border trade with the UK need to consider following the recent Brexit agreement between the European Union and United Kingdom of the Free Trade and Cooperation Agreement.   

The Deal 

The (European Union) EU and the United Kingdom (UK) finally reached agreement on a Free Trade and Cooperation Agreement (TCA), avoiding a hard Brexit and the risks of duties and tariffs under WTO rules. However, this does not change the fact that the UK has left the EU and therefore is no longer part of the EU single market and customs union and is now regarded as a third country. This status has significant consequences for businesses in different areas such as cross border trade, the imposition of VAT on transactions and the free movement of people. At 1,246 pages and affecting over $900 billion worth of goods and services, the TCA is the most ambitious and far-reaching trade agreement ever concluded by the EU. 

Irish businesses will need to fully comprehend the effect of the TCA on cross-border trade between the EU and UK. A new Partnership Council, co-chaired by the European Commission and the UK government, will oversee the agreement’s implementation and management. A large number of committees and working groups will be established to oversee the details of new arrangements at a more-granular level, including resolving any technical issues arising from the agreement or ensuring proper functioning of new rules. The new UK-EU relationship is fluid, and these bodies will be making judgments and issuing guidance that will have the potential to change market access and frameworks. In short, things are likely to change and there will be an extended period of adjustment. 

Highlights

Further review of particular aspects of the TCA will be required in the coming months, but in the meantime we set out some highlights of the main initial impacts of the TCA:  TARIFF AND QUOTA FREE TRADE OF GOODS

• The TCA establishes zero tariffs or quotas on trade between the UK and the EU, where goods comply with rules of origin requirements.
• Notwithstanding the tariff and quota free trade enshrined in the TCA, certain technical barriers to trade continue to apply and address issues related to technical regulation, conformity assessment, standardisation, accreditation, market surveillance and marketing and labelling.
• While Brexit ends the EU ease and simplicity of moving goods freely, the TCA adds administrative burdens and no duty or tariff taxes.

Trade in Services 

• The TCA includes well-established provisions on cross-border trade in services that will secure continued market access across a broad range of sectors, including professional and business services, financial services and transport services, and will support new and continued foreign direct investment.
• In relation to financial services, although the TCA provides for “continued market access” the details have been left for later. The EU and the UK are yet to discuss “specific equivalence determinations” which will eventually be codified in a Memorandum of Understanding.
• The UK and the EU have agreed a framework for the recognition of professional qualifications which is based on the EU’s recent free trade agreements.
• The effect of Brexit and the TCA on cross-border trade in services differs from sector-to-sector. For example, UK resident financial services firms previously possessed “passporting rights” which allowed them to sell financial services into the EU. The TCA has not granted equivalent rights meaning that on 1 January 2021 UK resident financial firms will (as expected) lose their right to sell financial services in the EU.

Subsidies and State Aid 

• One of the key issues of concern of the EU was ensuring that the UK could not grant subsidies (tax or otherwise) to UK businesses which would effectively allow them to undercut similar businesses in the EU.
• The EU and UK are free to determine their own rules relating to the granting of subsidies but are bound by broad principles which must inform the contents of the rules which must ensure that the granting of a subsidy does not have detrimental effects on the trade between the EU and UK.
• The EU and UK shall each establish independent bodies which will design and oversee these rules and which are subject to the review of their respective domestic courts.
• The EU and UK have agreed on a reciprocal dispute resolution mechanism (an accelerated arbitration procedure) where a party is of the opinion that a subsidy is causing, or is at risk of causing, significant harm to its industries.
• Whilst part of the EU, the UK was bound by EU laws related to state aid and government subsidies and was subject to oversight by the European Court of Justice (EUCJ), a sore point for the UK public. Brexit effectively removes the applicability of these laws and jurisdiction of the EUCJ.
• There is also a ‘most-favoured nation’ clause, which ensures that, if either the UK or the EU gives more-favourable terms to another country in future, those terms will automatically extend to the UK/EU deal.
• However, these provisions are subject to a long list of exceptions, which vary from one member state to another.

People and Mobility 

Residence rights in existing cases in the UK and EU will continue to be respected as long as the residence situation remains unchanged. New residency applications after the transition period will likely be subject to the same procedures as for third countries.

• Existing (frontier) workers will have the right not to be discriminated against on grounds of nationality as regards employment, remuneration and other conditions of work and employment. In addition, they will have the right to take up and pursue activities and assistance by employment offices in the same way as offered to own nationals as well as rights to tax, social advantages, housing benefits and access to education for their children.
• Prior to Brexit, UK citizens (like all other EU citizens) were granted unrestricted rights to live and work in the EU, and vice versa. Post Brexit, closer consideration will be required for non-EU workers and transfers, however the UK / Ireland Common Travel Area provisions allow for continuation of citizens of each of those countries to live, work and retire to each other’s jurisdiction.

Conclusion 

While many potential immediate difficulties have been avoided the devil will be in the detail. The implementation of the trade and cooperation agreement (TCA) in the coming months will require ongoing review by Irish companies trading with the UK (and vice versa) as practical issues arise on the movement of goods and supplies of services.  Particular changes around taxation and accounting treatments will likely arise as the UK changes its relationship to having a third country status with the EU. We will provide ongoing updates and can assist your business as circumstances change. If you require any assistance on these matters please contact us.