A Brexit deal for Christmas! Five questions to ponder before New Year’s Eve

Later than many hoped but sooner than some expected, the EU and UK Brexit negotiators landed on a deal just in time for Christmas. The 2000 pages long draft Trade and Co-operation Agreement (the “Agreement”) that was achieved on Christmas Eve will avoid some (but far from all) of the hardship that a hard Brexit would entail as of January 1, 2021. 

Far from claiming any level of exhaustiveness, the present article offers a first look at some of the main elements of the Agreement, based on five (undoubtedly) frequently asked questions that will follow its conclusion. While the full text of the Agreement has been made available by the UK government here, the basis of this analysis is the information available to date, first and foremost at the European Commission’s website. Hence, our contribution is (primarily) written from the EU perspective. (UPDATE 28/12: the European Commission published a (slightly updated) text version here. Further "updates" are likely to follows as it is suggested by some that the drafting of the FTA was a bit of a 'rush job'.)

In an effort to keep this high level, relevant (and digestible for the Holidays) for all, we have also not delved into the specific questions on fisheries issues (one of the main hurdles during the last months of negotiation) or sector specific aspects such as aviation (note the limitations on fifth freedoms here), road transport and energy. Finally, for the time being, we are not focusing on the vast governance framework that is relied on to keep the Brexit deal afloat.

1.     So we now have a soft Brexit and therefore all the commotion about measures to prepare for hard Brexit were a waste of time, right?

Wrong.

As stated in our note published just prior to the announcement of the Agreement and as the European Commission is apt to emphasize, come January 1 2021  and the end of the Transition Period under the Withdrawal Agreement, the UK effectively becomes a third country to the European Union.

This means that, even with the Agreement in place, there will be big changes on New Year's Day. On that day, the UK will leave the EU Single Market and Customs Union, as well as all EU policies and international agreements. The free movement of persons, goods, services and capital between the UK and the EU will end.

The EU and the UK will form two separate markets; two distinct regulatory and legal spaces. This will create barriers to trade in goods and services and to cross-border mobility and exchanges that do not exist today – in both directions.

Indeed, the new EU-UK relationship will be very different from when the UK was a Member State. So what does the Agreement state on that relationship? It essentially encompasses four pillars:

? a trade agreement for free, fair, sustainable trade, with zero tariffs, zero quotas;

? a broad economic, social & environmental partnership;

? a new partnership for citizens’ security;

? a common governance framework to ensure a sound and lasting partnership.

2.     What does the Agreement state on the movement of goods and services then?

Quite a lot.

For starters, the Agreement goes beyond recent EU free trade agreements with other third countries such as Canada or Japan, by providing for zero tariffs and zero quotas on all goods. 

To benefit from these exceptional trade preferences, businesses must prove that their products fulfil all necessary ‘rules of origin’ requirements. This ensures that the trade preferences granted under the Agreement benefit EU and UK operators rather than third countries, preventing circumvention. To facilitate compliance and cut red tape, the Agreement allows traders to self-certify the origin of goods and provides for ‘full cumulation’ (meaning traders can account not only for the originating materials used, but also if processing took place in the UK or EU). 

Customs procedures will be simplified under the Agreement, as both Parties have agreed e.g. to recognise each other’s programmes for trusted traders (“Authorised Economic Operators”). Nonetheless, as the UK has decided to leave the Customs Union, checks will apply to all goods traded. The Parties also agreed to cooperate on the recovery of customs duties, and in the fight against VAT and other indirect taxes fraud. Because indeed: VAT duties (and administration) will apply to trade between the EU and UK going forward, as will applicable excise duties (e.g. on alcoholic beverages, tobacco products, etc.).

UK producers wishing to cater to both EU and UK markets must meet both sets of standards and regulations and fulfil all applicable compliance checks by EU bodies (no equivalence of conformity assessment). Having said that, the Agreement will prevent unnecessary technical barriers to trade, e.g. by providing for self-declaration of regulatory compliance for low-risk products and facilitations for other specific products of mutual interest, such as automotive, wine, organics, pharmaceuticals and chemicals. However, all UK goods entering the EU will still have to meet the EU’s high regulatory standards, including on food safety (e.g. sanitary and phytosanitary standards) and product safety. 

As to the provision of services, UK service suppliers no longer benefit from the ‘country-of-origin’ approach or ‘passporting’ concept (e.g. for financial services), which enable automatic access to the entire EU Single Market.

However, according to the Commission, “the EU and the UK have agreed to a level of openness going beyond the provisions of the WTO General Agreement on Trade in Services (GATS), but reflecting the fact that the UK will no longer benefit from the freedom to supply services across the EU.” It will remains to be seen how this will play out in practice.

We will circle back on some specific titles of interest  to businesses in the (vast) Agreement in future contributions. For instance, we are preparing a contribution on the provisions of the Agreement dealing with intellectual property post Brexit.

3.     Can I still visit my aunt in the UK? And my co-workers?

Sure. You will not need a visum for a short term stay in the UK (up to 90 days in a 180 day period), but you will need a valid passport as of October 2021.

Do expect stricter border controls at the airport or Eurostar terminal, though.

Arrangements have also been made to facilitate short-term business trips and temporary secondments of highly-skilled employees. EU service suppliers wanting to offer services in the UK will not be treated any less favourably than UK operators in areas covered by the Agreement, so long as they comply with UK rules.

Other than that, the reality is that there is no more free movement of people: UK nationals no longer have unfettered freedom to work, study, start a business or live in the EU. Fortunately, the Agreement does foresee in coordination of some social security benefits (old-age and survivors’ pensions, pre-retirement, healthcare, maternity / paternity, accidents at work) making it easier to work abroad and not lose rights. This too will undoubtedly be the subject of extensive further commentary and analysis going forward.

4.     What does the Agreement NOT deal with?

Again, quite a lot actually. Many questions remain.

Thus, foreign policy, external security and defence cooperation is not covered by the Agreement as the UK did not want to negotiate this matter. As of 1 January 2021, there will therefore be no framework in place between the UK and the EU to develop and coordinate joint responses to foreign policy challenges, for instance the imposition of sanctions on third country nationals or economies.

Importantly, the Agreement does not cover any decisions relating to equivalences for financial services. Specifically, UK financial service suppliers no longer benefit from the ‘passporting’ concept which enable automatic access to the entire EU Single Market.

Also, there is no more automatic recognition of professional qualifications: Doctors, nurses, dentists, pharmacists, vets, engineers or architects must have their qualifications recognised in each Member State they wish to practice in.

Likewise, the Agreement does not cover possible decisions pertaining to the adequacy of the UK’s data protection regime, or the assessment of its sanitary and phytosanitary regime for the purpose of listing it as a third country allowed to export food products to the EU. These are and will remain unilateral decisions of the EU and are not subject to negotiation. 

For information: in relation to data protection and privacy, the statement on the end of the Brexit transition period by the European Data Protection Board (dated 15 December 2020) can be found here. (Note: There is a temporary exemption on cross-border flows of personal data from the EU and EEA to the UK. Those transfers will not be considered as data flows to a third country under the terms of EU Privacy Laws for a period of six months. During this period, transfers of personal data between the EU and the UK can continue without requiring Standard Contractual Clauses or Binding Corporate Rules.)

Finally, the UK no longer benefits from EU funding programmes and is excluded from sensitive, high-security projects or contracts. The Agreement does list 5 EU programmes “open to third country participation” in which the UK can continue to participate, subject to financial contribution (Horizon Europe, Euratom Research and Training, ITER, Copernicus and the EU satellite surveillance and tracking (SST) services).

5.     What are the next steps?

It is fair to say the deal was rushed to land on Christmas Eve. This means that at present, technically it is still only a “draft” Agreement, that needs to be put thought the legal motions of ratification and adoption on both sides of the Channel. In the UK, Parliament will have its say. Likewise, in Brussels the European Parliament will get a chance to debate and its consent will be required to adopt the Agreement into EU law.  

The problem is that none of that is feasible prior to the end of the Transition Period on January 1, 2021. In order to chase away the spectre of an “interim hard Brexit” (and resulting business and relationship disruptions) in the absence of a legally valid deal, some legal wizardry will be applied to have the Agreement enacted and applied “provisionally” by that date and until February 28, 2021.

Thus, the European Commission, citing that this is “a matter of special urgency”, will swiftly propose Council decisions on the signature and provisional application, and on the conclusion of the Agreement. The Council, acting by the unanimity of all 27 Member States, will then need to adopt a decision authorising the signature of the Agreement and its provisional application as of 1 January 2021. Once this process is concluded, the Trade and Cooperation Agreement between the EU and the UK can be formally signed. The European Parliament will then be asked to give its consent to the Agreement. As a last step on the EU side, the Council must adopt the decision on the conclusion of the Agreement.

On the UK side, MPs will vote on the Agreement in Parliament on December 30 in what is likely to be a more heady political debate. Commentators agree, however, that the “ayes” will have it, the negative consequences of a failure at the doorstep being too significant.

In summary

In her press conference on December 24, a visibly relieved Ursula von der Leyen stated that “finally, we can leave Brexit behind us and look to the future. Europe is now moving on.” 

That however remains to be seen. While the collective sigh of relief at a last minute deal in both EU and UK camps appears warranted in principle, it is fair to preach realism as the dust settles on this Yuletide deal. 

First, as the European Commission consistently underscores (with no small measure of political awareness) in its initial communications on the topic, come New Year’s Eve the UK is effectively a third country to the EU: the free movement of persons, goods and services will end and the Agreement will by no means match the level of cooperation that existed while the UK was an EU Member State. The many preparations that persons and companies alike have made anticipating a hard Brexit will most likely prove to have been anything but a waste of time and resources.

Second, as stated above, many questions remain on the aspects of legal and economic life and the UK-EU relationship that the Agreement does not deal with. These include (financial) services, foreign policy and data protection to name just a few. From a purely legal point of view, also the concerns regarding (non-exclusive or asymmetrical) jurisdiction clauses in agreements remain very much alive. 

Third, it will remain to be seen how both parties will behave (under no doubt significant national political pressures) in the coming months and years when implementing the many aspects of the Agreement and how the horizontal agreement on Governance will play out. Any (political) threat to the hard fought “economic level playing field” for instance could result in a stress test for the Partnership Council at best and a full blown trade war at worst.

As always, the proof of the (Christmas) pudding will be in the eating.