Tax Qube’s Simple Guide to EU UK Trade Deal – Is Brexit really over?

U.K. Prime Minister Boris Johnson’s post-Brexit trade deal is unique in that it will leave businesses facing more barriers to trade than they did while Britain was a member of the European Union.

The following encapsulates the main points of the agreement:

 Fishing Rules:

This was one of the most contentious areas after disputes over the control of British fishing grounds came to symbolize the country’s desire to leave the EU.

U.K. fleets will take 25% of the current EU catch in British waters, worth 146 million pounds ($198 million), phased in over five years. Britain’s opening negotiating position called for an 80% increase, so this represents a significant compromise.

There is a transition period of five-and-a-half years during which reciprocal access rights to each other’s waters remain unchanged.

After that point, British officials stress, the U.K. will be in control of its own waters — but the EU would be able to impose tariffs on fish if its access to British waters was limited.

 Trade in Goods:

The agreement ensures that most goods traded between the EU and U.K. won’t face new tariffs or quotas. However, British exporters will face an array of regulatory hurdles that will make it more costly and burdensome to do business in Europe. Rules of origin: U.K. firms will have certified the origin of their exports to qualify for tariff-free access to the EU. There will be limits on what proportion of goods can be assembled from parts made overseas to qualify for tariff-free access.

Cars will face special restrictions. Gasoline or diesel vehicles will need to be made with at least 55% local content to escape tariffs.

Electric transition: electric and hybrid vehicles will be allowed to contain 60% overseas content — but that will fall to 55% by 2026. Batteries will be allowed to contain 70% international content, but that will drop over the same period to 50%.

Testing and certification: The absence of a mutual recognition agreement means U.K. regulatory bodies will not be able to certify products for sale in the EU, a potentially big barrier to trade.

 Financial Services:

For financial institutions, the agreement provides no transparency. There is no decision on so-called equivalence, which will enable businesses to export their services from the City of London to the single market. The deal only contains standard financial services clauses, which means that it does not include market participation commitments.

The U.K. and EU will explore how to go forward on unique equivalence judgments. The European Commission, which is responsible for facilitating access to the EU market, has stated that it wants more information from the UK. And at this point, it does not intend to take any further decisions on equivalence.

Regulatory cooperation: A joint statement was made between the two parties to promote improved financial supervision cooperation. They are planning to settle by March on a Memorandum of Understanding.

 Level Playing Field:

Both sides committed to upholding their environmental, social, labour and tax transparency standards to make sure they do not undercut each other.

The deal doesn’t include ratchet clauses that would force the U.K. to stiffen its rules in lockstep with the EU. Instead, it includes a re-balancing mechanism: Either side will be able to retaliate with tariffs if they diverge too much.

Both sides will be prevented from giving an unlimited state guarantee to cover a company’s debts or liabilities. In line with EU law, the U.K. won’t be able to rescue a failing firm without a restructuring plan, and any aid to failing banks will have to be the minimum necessary to help it wind down.

 Dispute Settlement:

Disputes on the deal must be negotiated between the EU and the U.K. with no role for the EU courts. In certain areas, an arbitration court can rule and may order one party to settle the issue or give compensation.

Failure to do so causes the other party to “suspend obligations,” which could mean that any access or collaboration may be blocked.

If there is a “serious economic, social or environmental difficulty,” with time-limited interventions, either side may respond.

 Data Flows:

The deal includes a temporary solution to keep data flowing between the EU and U.K. until the block has adopted a data adequacy decision.

This period starts on the date the new deal takes effect and will last a maximum six months, or end as soon as the EU’s data adequacy decision has been finalized, which is expected to happen in early 2021. If the U.K. applies a new transfer tool to ship data to a third country during the interim period, it should “as far as is reasonably possible” inform the EU.

Both sides committed to upholding high levels of data protection standards and to ensure “cross-border data flows to facilitate trade in the digital economy” without imposing limits on where data can be stored or processed.

 Agriculture:

Trade of farm goods will benefit from the zero-tariff, zero-quota terms between the two sides. But the lack of an equivalence agreement on Phyto-sanitary rules means shippers will face new hurdles at the border. Food and Agri-products entering Northern Ireland from Great Britain will be subject to checks and Phyto-sanitary controls.

 Law Enforcement:

The deal will allow cooperation between the U.K. and EU, particularly as part of investigations into terrorism and serious crime, including with the exchange of DNA, fingerprint, and airline passenger information.

There will be cooperation between the U.K. and EU law-enforcement agencies, but the U.K. loses membership in Europol and Eurojust.

 Customs:

In the U.K. On January 1, exiting the European Single Market would lead to more customs bureaucracy for both sides, regardless of whether they had achieved a free trade agreement. The arrangement primarily binds the EU and Britain to adopting diplomatic practices aimed at minimizing company customs costs.

In the U.K. It notes that “bespoke” steps will be taken to assist businesses, including coordination at roll-on and roll-off ports such as Dover and Holyhead. Special ‘facilitation agreements’ will be in effect for wine, as well as organic, automobile, medicinal and chemical products, the EU states.

 Taxation:

“There are no provisions constraining our domestic tax regime or tax rates,” according to the U.K. government. Both sides pledged to “uphold global standards on tax transparency and fighting tax avoidance.”

 Professional Services:

The deal means that there will no longer be automatic mutual recognition of professional qualifications. Doctors, nurses, dentists, pharmacists, vets, engineers or architects must have their qualifications recognized in each member state they wish to practice in, according to the deal. However, the deal does create a framework for the recognition of qualifications in future.

 Energy:

The U.K. won’t have access to the EU’s internal energy market. This was expected but there will be new arrangements in place by April 2022 to make sure that trading is smooth and efficient on interconnectors — huge power cables that run between the U.K. and Europe.

The U.K. is a net importer of electricity and gets 8% of its power from the continent. As an island nation, making sure trading across these interconnectors is efficient is important to Britain.

Making trading smooth will “benefit U.K. consumers and help integrate renewables and other clean technologies onto the grid in line with our domestic commitment to net zero emissions” the U.K. document says.

The deal includes guarantees on security of energy supply.