Brexit Eve: Government needs to move quickly if UK is to capitalise on Sovereignty

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“Brexit will be costly for UK society” – according to the official Parliamentary briefing to MPs ahead of yesterday’s proceedings that passed the ‘EU (Future Relationship) Act’ into Law.

The study was checked and re-calibrated in the light of the outcome of the negotiations – the 1246 page ‘UK-EU Trade and Cooperation Agreement’ – which is at the core of the Act.

The introduction of trade restrictions on both goods and services is now estimated to reduce UK GDP by around 4.4% ‘relative to remaining as a member of the EU’.

This is not as harsh a view as other recent analyses – but still forecasts a high cost of reclaiming ‘sovereignty’ – unless the Government can now come up with and rapidly implement ideas about what the UK will do with its new-found freedom.

The estimate, if anything, is likely to be low.  The Covid-19 pandemic – far from fading away to nothing at the end of 2020 as expected – is spreading faster and wider than ever.  The introduction of ever more severe restrictions on commercial activity and travel is likely to reduce economic output and Brexit has coincided with the onset of a deep global recession – the like of which has not been experienced outside wartime.

The impact of the fall in value of the pound against the euro will be a further potentially economically depressing factor as it makes UK goods and services less competitive in direct proportion to the fall.  At Brexit, the pound is already 20% lower than it was at the time of the EU referendum in 2016.  Further falls may follow through external forces, such as the patterns in Covid-19, that no Government can influence or control – but to which business and commerce must respond.

It is relatively easy to identify which sectors’ exports and imports will be hardest hit by the non-tariff but ‘Brexit-induced’ trade restrictions – those that heavily export to or import from the EU.

However, the EU has enshrined into the Trade agreement that tariff-free trading is absolutely dependent on ‘Rules of Origin’ – with high proportions of ‘components and value-added services’ proven to originate in the EU or UK.  The study incudes analysis of ‘Global Value Chains’ where inputs into UK exports originate outside the UK or EU.

It also quantifies the impact of ‘less trade meaning lower incomes – and hence lower demand’.  Any hindering of trade means paying more for imports and earn less from exports.  This will have an adverse effect on the balance of trade between the UK and EU in future.

Summary of findings

  • The ‘UK-EU Trade and Cooperation Agreement’ provides for tariff and quota free trading.  The non-tariff barriers, however: increase UK-EU trade costs; reduce trade between the parties; requires resources for form-filling and additional certification for specified goods; add costs in queuing at ports and customs clearance centres ; double the certification requirements and costs for the new UKCA, NICA and CE requirements.  Additional costs mean higher prices – which in turn lead to changes in consumption – which in the long-term reduces corporate contributions to taxes – which in the long-term means less money for expenditure on UK residents’ welfare.
  • Exports by value will fall by nearly 5.5% relative to a pre-Brexit scenario.
  • UK GDP will fall by 4.4%.
  • The biggest losses in UK exports to the EU are predicted to be in motor vehicles, chemicals, and food.  These large declines in gross exports of goods reduce the indirect exports of their suppliers of services very significantly
  • Brexit will have a major impact in terms of reducing ‘global value chains’.  The ‘competitiveness of UK inputs into EU exports will induce a decline in UK multilateral value-added exports – the UK value embodied in other countries’ exports’.
  • Reduced production for manufacturers means less opportunity to apply ‘economies of scale’.
  • The ‘thin’ Trade Agreement is unlikely to redress any of the identified ‘adverse’ forces.

Case Study

New EU rules on exports dictate that from 1 January, the following animal products cannot be exported into the EU: Chilled minced red meat; Chilled meat preparations (for example, raw sausages); Minced meat (poultry); Poultry and ratite or game bird mechanically-separated meat; Raw milk from cows infected with Bovine Tuberculosis (TB); Ungraded eggs; Composite products containing dairy products made from unpasteurised milk (for example, a ready meal topped with unpasteurised cheese).

Note that these new rules do not affect exports of raw minced meats to Northern Ireland from Great Britain.

The British Meat Processors Association could see that the issues created for the sector were going to be outside the scope of the Agreement.  They “hope [the Government] will be carrying on talking to the EU and that they will push through and create an export health safety certificate for these products so they can go through.”

The BMPA is desperate for more clarity on what businesses need to do so that they can help prepare their members trade in the New Year.  They note that the Government had yet to decide on the wording on the new export health certificates and when it is finalised: “that wording tells us what we have to comply with and we hope we are not going to hear that there are things we’re not expecting to be on there”

Wilfred Emmanuel Jones is a British Devon-based farmer and founder of The Black Farmer line of meat products, including raw sausages.

Since he will no longer be allowed to export fresh sausages to the EU, he has decided to send them frozen instead.  “There’s a really big opportunity to do premium frozen sausages for the continent.” However, “one problem we have with sausages is that in this country at least, anything frozen is seen as down-market, not a premium product.”

A Government spokesperson said: “We have agreed a deal based on friendly cooperation between sovereign equals, centred on free trade and inspired by our shared history and values.  It takes the UK completely out of the EU’s customs union and single market – which means businesses should continue their preparations for changes next year.”

References

The UK-EU Trade and Cooperation Agreement: summary and implementation – House of Commons Library (parliament.uk)

https://www.gov.uk/guidance/exporting-animals-and-animal-products-to-the-eu-from-1-january-2021

Brexit Transition tomorrow: ‘EU Future Relationship’ Act – passed in a day

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Picture: 16:00 on 30 December 2020.  Boris Johnson Tweet.  Signing the TCA…choosing to ignore the democratic process – and putting himself above the Law, Parliament and the Constitutional requirements of the United Kingdom – prior to the ‘Bill’ completing the process to become an ‘Act’.

30 December 2020:  Parliament was recalled for just one day to pass legislation required to implement the draft agreement ‘Trade and Cooperation Agreement’, reached between the UK and European Union on Christmas Eve.

Without this ‘ratification’ the UK would have left the EU at 23:00 GMT 31 December 2020.

Before any international agreement can be ratified, the Law requires ‘21 Parliamentary sitting days’ – allowing time for scrutiny and open discussion.

As the Government ‘concluded’ negotiations on a trade deal only on 24 December – it then decided to ‘bypass’ the requirements of the ‘Constitutional Reform and Governance Act’, 2010.  The ‘European Union (Future Relationship)’ Bill completed all of the 12 Parliamentary stages through the House of Commons, House of Lords, Committees and Royal Assent in one day.  Indeed, as Boris Johnson’s Tweet shows – he chose not to wait even for this process to complete.

Embarrassingly for every British citizen that believes and has put their trust in democracy, the Prime Minister in a ‘travesty’ of a lawful and constitutional process put himself above Parliament and the British constitution by signing a Treaty mid-process.  The deal was signed whilst the House of Lords were in session and working through the details of the draft Agreement.

A cross-party House of Commons ‘Committee on the Future Relationship with the EU’ had worked through the night and published- in a unanimously agreed report –  an initial assessment of the 1,246-page draft ‘Agreement’ as an briefing for MPs overnight.  The report’s key findings include:

  • Having an agreed deal in place is better than no deal.  The Committee welcomed an outcome that “ensures UK businesses and consumers will not face the prospect of tariffs from 1 January.  Considering the interconnectedness and geographic proximity of the two markets, and their common interests, the importance of the agreement should not be underestimated.”
  • Significant change is still coming on 1 January.  The Agreement “does not preserve current trading arrangements.  It is therefore critical that the Government is clear in its communications to businesses, traders and communities about the terms of the deal and its implications.”
  • Both sides should implement the Trade and Cooperation Agreement – and get on with addressing the remaining uncertainties.  The Committee urges “both sides to proceed with implementation and establish the new institutional arrangements set out under the Agreement.  Priority should also be given to outstanding areas of uncertainty, such as equivalence for financial services and a data adequacy decision.”
  • The Committee calls on the “relevant authorities on both sides to support businesses through the implementation of new arrangements, rather than punishing them for unintended non-compliance.”
  • The “compressed timetable for ratification is concerning”.  The complexity of the Agreement means that it will take more than a day for its contents and implications to be fully understood.  MPs “have been left with very little time in which to read the TCA and the accompanying Future Relationship Bill and reach a judgement on their contents.”  The Bill will not be subject to detailed scrutiny before a vote.

Committee Chair, Hilary Benn MP, said that businesses: “will not have to face the economically damaging consequences of tariffs that would have resulted from no deal.  Reaching an agreement allows for future cooperation between the UK and EU on matters of mutual interest.  Uncertainty remains in areas such as financial services and data adequacy as the full implications of the end of the transition period become clear.”

Meanwhile, the EU has similarly not constitutionally been able to ‘fully ratify’ the Agreement in the time available.  The European Parliament will not vote until the New Year.  Instead, the 27 Member State governments agreed yesterday – 29 December 2020 – to ‘provisionally’ apply the deal, pending the consent of the European Parliament in the new year.

The treaty was, therefore, signed on behalf of the EU by European Council President, Charles Michel, and European Commission President, Ursula von der Leyen, on 30 December 2020.

A Royal Air Force plane immediately transported the text from Brussels to London – and the Prime Minister signed it immediately after stage 4 of the Parliamentary process – rather than waiting for the completion of the 12 required stages through Parliament.

The Government had already engineered Parliament into making a stark choice – accept and ratify a ‘thin’ deal – or face the cliff-edge of a ‘no-deal’.

The price of using constitutional breach to force through and ‘get Brexit done’ may yet prove to be a high one for democracy.

This legislation will underpin the most important Treaty for 47 years – one that will govern every aspect of the UK’s future relationship with the EU for decades to come.  It has been forced through parliament in an all-time record time of one day – and just one day before it takes effect.

The First Reading of the Bill dispensed with, the Second Reading was allowed 5 Hours, the ‘Commons Committee’ stage just 4 minutes, and Third Reading was put to a vote without allowing any debate.  The passage of the Bill moved on to the House of Lords at 3:00 o’clock.

Boris Johnson then, in a demonstration of utter contempt for the constitution of the United Kingdom and democracy, choose not to wait for even for this ‘charade’ to run its course – he signed the Treaty with Europe immediately after the House of Commons vote.

He tweeted: “By signing this deal, we fulfill the sovereign wish of the British people to live under their own laws, made by their own elected Parliament.”

Irrespective of the democratic outcome in the UK – the Agreement will then take effect from 1 January 2021.

What does Johnson’s deal mean according to the ‘Lords’ – 23 new joint UK-EU ‘Working Groups’, 250,000 additional customs declarations per year, 50,000 new customs and border agents to be recruited and trained, a new requirement for customs declarations for goods moving between Great Britain and Northern Ireland,…their verdict on Boris Johnson’s ‘getting Brexit done’.

The House of Commons Speaker, Sir Lindsay Hoyle, informed MPs that the European Union (Future Relationship) Act 2020 – ratifying the UK’s trade deal with the EU  – been granted royal assent by the Queen in the early hours of New Year’s Eve.  The Act comes into force at 23:00 GMT on 31 December 2020.

Recalled for the day, MSPs in the Scottish Parliament debated and voted to reject the post-Brexit trade deal agreed between the UK and the EU:  Nicola Sturgeon: “While a no deal outcome must be avoided”, the deal that has been negotiated with EU leaders will “cause severe damage to Scotland’s environmental, economy and social interests”.

And we cannot end without noting, for the record, that the Trade and Cooperation Agreement could not have been concluded without the UK yielding to the EU on the sovereignty of Northern Ireland – an action completed by Michael Gove in secret in Brussels on 17 December – with Parliament only informed as the ‘treaty-breaching’ clauses were withdrawn from the ‘Internal Market’ Bill on his return.  This move means that the Province remains in the EU customs union and there is the introduction of a new ‘hard’ border between Northern Ireland and Great Britain.

References:

The UK-EU future relationship: the Trade and Cooperation Agreement [PDF]

Committee on the future relationship with the European Union

Bypass of the Constitutional Reform and Governance Act 2010

Member State governments agreed yesterday to provisionally apply the deal

Brexit Transition in 2 Days: EU announces a €5 billion ‘Brexit Adjustment’ fund for EU businesses

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On Christmas Day 2020, the European Commission announced a ‘Brexit Adjustment Reserve” – a fund of €5 billion available to support to businesses across the 27 Member States.

It was published in Brussels just one day after the EU concluded a draft trade deal with the UK.

Brexit Adjustment Reserve

At 23:00 GMT on 31 December 2020 – midnight in Brussels – Great Britain leaves the EU ‘single market’ and EU ‘customs union’.

Even with the new ‘EU-UK Trade and Cooperation Agreement’ in place, there will be big changes on 1 January 2021.  There will be disruption to smooth operations and ‘business as usual’ for millions of companies and hundreds of millions of citizens.

The EU ‘Brexit Adjustment Reserve’ will: “provide support to Member States, regions and sectors, in particular those that are worst affected by the adverse consequences of the withdrawal of the UK from the Union, mitigating thus its impact on economic, social and territorial cohesion.”

It aims to fund “specific measures set up by the Member States to help businesses and economic sectors, workers, regions and local communities suffering from the impact of the end of transition period”.

The Brexit Reserve will apply across all 27 Member States – with up to €5 billion in total available.

Its allocation method, architecture and functioning have been designed to focus support to those that are “worst affected”.  It has been set up as a “special instrument” – and is, therefore, additional to the EU budget ceilings set in the ‘Multiannual Financial Framework 2021-2027’.

Financial support will be disbursed in two allocation rounds.  The first – and more substantial one – will be activated in 2021.  The amount per Member State will be determined “taking into account the relative degree of economic integration with the UK, including trade in goods and services” – and an amount to reflect the “losses that some Member States will suffer from the limitations in accessing the UK waters for fishing activities”.

The second payment round will be disbursed in 2024 as based on the expenditure incurred and declared to the Commission – and how the initial tranche was put to use.

The Reserve will support “measures specifically set up in relation to the withdrawal of the UK from the Union.”  Measures can include the following:

  • support to economic sectors, business and local communities, including those dependent on fishing activities in the UK waters;
  • support to employment and reintegration in the labour market of citizens returning from the UK, including through short-time work schemes, re-skilling and training; and
  • ensuring the functioning of border, customs, sanitary and phytosanitary and security controls, fisheries control, certification and authorisation regimes, communication, information and awareness raising for citizens and businesses.

Each Member State can design and implement “necessary measures aimed at stemming the immediate impact of the withdrawal.”

The withdrawal of the UK from the EU: “poses specific risks to the fisheries sector in terms of less favourable access to the UK waters.”  This has been taken into account in calculating the initial disbursement to Member States.

Member States must: “respect of the principles of sound financial management, transparency and non-discrimination and the absence of conflict of interest.”   The Commission’s proposal sets out requirements for the: “management, control and audit of the financial contribution under the Reserve” – striking the right balance between legality and regularity of expenditure on the one hand and simplification on the other.

Member States may use “existing systems already used for the management and control of cohesion policy funding or the European Union Solidarity Fund.”

The Brexit Adjustment Reserve will be made available “as soon as possible” to address the immediate consequences of the withdrawal.

Background

Free movement of persons, goods, services and capital between the EU and UK ends as the UK leaves the EU.  For the avoidance of doubt this means: the EU single market; the EU customs union; all EU regulatory regimes; and all EU ‘international agreements’.

The EU and the UK will, from 1 January 2021,  form two separate markets – two distinct regulatory and sovereign legal spaces.  This will, according to the European Commission: “recreate barriers to trade in goods and services and to cross-border mobility and exchanges that have not existed for decades”.  It impacts “public administrations, businesses, citizens and stakeholders on both sides”.

There is no equivalent financial support proposed by the UK Government to businesses in Great Britain.

Reference

com_2020_854_final_act_v1.pdf (europa.eu)

e-Guide “UK – EU: Doing Business in the Post-Transition World”

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Our downloadable e-Guide – “UK – EU: Doing Business in the Post-Transition World that began on 1 January 2021” has been updated to incorporate the UK-EU Trade Agreement that underpins the ‘EU (Future Relationship) Act’.

There is a summary of the key elements from the 1296 page ‘Agreement’ – along with commentary and pointers to Post-Brexit changes business and citizens all need to make.

There are sections on the Northern Ireland Protocol, Gibraltar, the latest post-Brexit economic forecasts, and the £33.4 billion cash ‘settlement’ that the UK has agreed to pay to the EU.

It aims to help business quickly check or identify the changes with greatest impact on them so they can plan and implement a rapid response.

PostTransitionBusinessGuideV7

Brexit Transition in 4 Days: The rest of ‘the deal’

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This post completes a review of the ‘UK-EU Trade and Cooperation Agreement’ completed on Christmas Eve and – assuming it completes the ratification process in the next 72 hours – sets the terms as the UK leaves the EU ‘single market’ and ‘customs union’.

For an overview:  Brexit Transition in 6 Days: Overview of the ‘deal’ and immediate next steps in order to ratify it – Europartnership

For matters relating to trade plus some specific aspects such as aviation, energy and road transport: Brexit Transition in 5 Days: With only hours remaining – focus on high impact changes – Europartnership

In this post:  social security; cooperation on law enforcement and criminal justice; “thematic” issues, notably health collaboration; UK participation in EU Programmes; dispute settlement; and territorial limits.

Part 2 (continued from yesterday’s post)

Social Security Coordination and Visas for Short-term Visits:

  • Workers and employers are only liable to pay social security contributions in one state at a time. ‘Generally, this will be in the country where work is undertaken’;
  • where the UK or an EU Member State is responsible for the healthcare of an individual, they will be entitled to reciprocal healthcare cover.  Healthcare provisions – akin to those provided by the European Health Insurance Card (EHIC) scheme – continue.
  • the UK will treat the each of the EU 27 states ‘as a bloc’ with respect to ‘short-term visit visas’;

Fisheries

  • The UK’s leaves the EU’s Common Fisheries Policy.  It has a ‘new identity as a sovereign independent coastal State’ with ‘the right to manage the resources in its waters’;
  • UK and EU share a ‘commitment to sustainable fisheries management’ alongside shared principles of ‘promoting long-term environmental, social and economic sustainability’;
  • Whatever value of fish is caught by EU vessels in UK waters, British fishers will be allowed to catch 25% in value of that sum in EU waters;
  • the new quota arrangements will be phased in over five years to allow the respective fleets time to adapt to the changed ‘opportunities’;
  • a specialised ‘Committee on Fisheries’ will provide a forum for the UK and the EU to discuss and cooperate on a range of fisheries matters.  These include, but are not limited to: cooperation ahead of annual fisheries consultations, multi-year strategies, data-sharing and monitoring and compliance;
  • EU vessels may fish in ‘Crown Dependency waters to levels consistent with historic patterns of fishing’;
  • the Agreement can be terminated at any point with nine months notice.

Part 3 – Law Enforcement and Judicial Cooperation in Criminal Matters

  • DNA and fingerprint data will continue to be exchanged through the Prüm system;
  • the Agreement: enables the exchange of vehicle registration data in the future; provides for transfers of Passenger Name Record data from the EU to the UK; and information sharing ‘in response to requests’, as well as the ‘spontaneous provision of information, including that which relates to wanted and missing persons and objects’;
  • the Agreement does NOT: provide for the UK to continue membership of either Europol or Eurojust.  It is possible that the UK may be allowed to ‘second’ liaison officers to each of Europol and Eurojust.
  • the Agreement means that the UK is no longer a member of the EU-wide ‘arrest warrant’ scheme, but will have extradition arrangements, similar to the EU’s ‘Surrender Agreement’ along with Norway and Iceland;
  • the Agreement ‘supports effective cooperation on mutual legal assistance in criminal matters’;
  • the Agreement provides for the ‘fast and effective exchange of criminal records data between the UK and individual EU Member States’;
  • the Agreement ‘commits the UK and EU to support international efforts to prevent and fight against money laundering and terrorist financing’;
  • the Agreement ‘supports effective cooperation on asset freezing and confiscation’;

Part 4 – Cooperation

Cooperation on Health Security: 

  • the Agreement supports effective arrangements and information sharing between the UK and the EU in the event of a serious cross border threat to health – particularly important in the context of Covid-19;
  • the EU may invite the UK to participate in the EU Health Security Committee to support the exchange of information and facilitate coordination in relation to specific serious cross-border threats to health.

Cooperation on cybercrime:

  • the Agreement provides a framework for UK-EU cooperation in the field of cyber security;
  • the UK may voluntarily participate in the activities of expert bodies including the European Union Agency for Cybersecurity (ENISA) and the Network and Information Systems (NIS) Cooperation Group.  It may voluntarily cooperate with the EU’s Computer Emergency Response Team (CERT-EU).

Part 5 – UK participation in EU programmes such as Space exploration and Nuclear Energy

  • The Agreement sets out the arrangements for any UK participation in EU programmes and ‘access to programme services’ – including ‘how the UK’s financial contribution will be calculated’.
  • The UK has stated its intention to participate in: ‘Horizon Europe’, ‘Euratom Research and Training’, and ‘Copernicus’.  Details will be added in a protocol to the main Agreement when they have been finalised.

Part 6 – Disputes Resolution

  • The Agreement includes ‘dispute resolution mechanisms’ that are appropriate for a relationship between sovereign equals.
  • There is no role for the Court of Justice of the European Union.
  • There is restatement by both UK and EU of their existing commitments to ‘human rights, the rule of law, the fight against climate change and countering the proliferation of weapons of mass destruction’.
  • Both the UK and EU have restated their ‘commitment to high personal data protection standards’.
  • In the event that ‘serious economic, societal or environmental difficulty arises’ between them, the UK or the EU may unilaterally take ‘strictly proportionate and time-limited measures to remedy the situation’.

Part 7

  • The Agreement is subject to review every five years, or should a new country accede to the EU.
  • Territorial Scope of the Agreement includes Great Britain, Northern Ireland, Gibraltar, and the 50 Worldwide ‘UK Overseas Territories and Crown Dependencies’

Related Agreements

  • The UK and the European Atomic Energy Community (Euratom) have agreed a separate Nuclear Cooperation Agreement (NCA).
  • An Agreement on ‘Security Procedures for Exchanging and Protecting Classified Information’ will supplement the Trade and Cooperation Agreement.

Contact me by Email or LinkedIn for further detailed insight or potential mitigation action.

Brexit Transition in 5 Days: With only hours remaining – focus on high impact changes

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The changes for ‘businesses and citizens’ resulting from leaving the EU ‘single market’ and ‘customs union’ are unparalleled.  No country has ever left the EU before.  New rules apply to the relationship between Great Britain and the 27 EU states from 1 January.  The rules and penalties will be strictly applied across Europe – and there will be, according to the UK Government, “friction” in many aspects of life and work.

The relationship will be governed by an Agreement that will – if and when it is ratified – be the basis for an International ‘Treaty’.  The new regime is forecast to last for “decades”.

The UK negotiators wanted individual agreements on the many aspects of the separation, allowing areas to be ‘tuned’ in the light of experience.  They have had to settle for a comprehensive multi-provision agreement – the EU simply wanting to settle the terms of the split and move on to focus on its own agenda and priorities.

The UK has chosen to become a ‘third country’ – and the EU will want to divert as little attention as possible on a nation that has – according to the Prime Minister’s foreword in the 34 page summary of the ‘UK-EU Trade and Cooperation Agreement’: has implemented “the instruction of the British people – expressed in the referendum of 2016 and the general election last year – to take back control of our laws, borders, money, trade and fisheries.”

The full details of the Agreement – which we are told will run to 1200 pages – will be structured into 7 ‘Parts’.  My intention in this summary post is to allow business to home in on the areas that will impact them for further study and rapid response.

  1. common and institutional provisions in the Agreement;
  2. trade and some specific aspects of the relationship such as aviation, energy, road transport, and social security;
  3. cooperation on law enforcement and criminal justice;
  4. “thematic” issues, notably health collaboration;
  5. participation in EU Programmes, principally scientific collaboration through Horizon;
  6. dispute settlement; and
  7. final provisions.

In parallel, there is a separate ‘Nuclear Cooperation Agreement; and an agreement on ‘Security Procedures for Exchanging and Protecting Classified Information’.

Details

Part 1 – Institution

The relationship between the UK and the EU will be based on in ‘international law’ and not ‘EU law’.  A joint ‘Partnership Council’ will ‘supervise’ the Agreement.

Part 2 – Trade

  • The Agreement establishes ‘zero tariffs or quotas’ on trade between the UK and the EU where ‘goods meet the relevant rules of origin’.
  • The EU may apply ‘preferential tariff rates’ e.g. non-UK components in UK manufactured products such as electric cars that support a move towards a carbon ‘Net Zero’ future.
  • ‘EU inputs and processing’ may be counted as ‘UK input’ in UK products exported to the EU – and vice versa under ‘Rules of Origin’.
  • The Agreement ‘envisages’ arrangements to share information on dangerous and non-compliant products on the UK and EU markets.
  • There are Annexes detailing specific arrangements for: medicinal products; motor vehicles, equipment and parts; ‘organic’ products; wine; and chemicals.
  • Provision is made for ‘rapid notification and emergency measures’ to ‘protect consumers, animals and plants during disease and pest outbreaks’ and ‘food and feed safety incidents’.
  • The Agreement ‘ensures that the customs authorities of both Parties remain able to protect their respective regulatory, security and financial interests’.  There will, however, be ‘mutual recognition’ through ‘trusted trader’ schemes – aiming to support: efficient documentary clearance, transparency, advance rulings and non-discrimination. There may be measures in the longer term to promote ‘cooperation at roll-on roll-off ports like Dover and Holyhead’ aimed at reducing administrative burdens on business – such as sharing import and export declaration data.
  • An Annex provides for the mutual recognition of the Parties’ respective ‘Authorised Economic Operator’ – AEO – security and safety schemes.  AEOs will face ‘fewer’ controls relating to safety and security when moving their goods between the UK and the EU.
  • The EU and UK will both comply with existing international agreements such as the OECD ‘Convention on Mutual Administrative Assistance in Tax Matters’. UK and EU authorities will cooperate and exchange information relating to VAT for the purpose of combating VAT fraud.  Either Party may request the other to recover unpaid customs duties, excise or VAT on its behalf.

The Agreement on Trade also includes:

  • provisions on ‘cross-border trade in services and investment’ 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;
  • a framework for ‘the recognition of professional qualifications between the Parties’ – based on the EU’s recent FTA agreements;
  • provisions on authorisations, access to and use of telecoms networks, interconnection, fair and transparent regulation and the allocation of scarce resources;
  • provisions on ‘authorisations, access to and use of telecoms networks, interconnection, fair and transparent regulation and the allocation of scarce resources’;
  • promotion of trade in ‘postal and delivery services’;
  • commitments on non-discriminatory access to ports; use of port infrastructure; use of maritime auxiliary services such as storage and warehousing; customs facilities; and the assignment of berths and facilities for loading and unloading;
  • protections to ensure ‘regulatory and supervisory authorities will be able to act to ensure financial stability, market integrity and protect investors and consumers’;
  • UK solicitors, barristers and advocates having the right to advise their clients across the EU on UK and public international law;
  • cooperation on ‘digital trade issues’, including emerging technologies;
  • commitments on the ‘free flow of capital and payments for goods and services in order to facilitate trade and investment’;
  • mechanisms for ‘cooperation and exchange of information’ on Intellectual Property issues;
  • requires both sides to be transparent about the subsidies they grant.  Either side may ‘take rapid action where a subsidy granted by the other Party is causing – or is at serious risk of causing – significant harm to its industries’;
  • commitment of both Parties to ‘uphold global standards on tax transparency and fighting tax avoidance’;
  • reciprocal commitments ‘not to reduce the level of protection for workers or fail to enforce employment rights in a manner that has an effect on trade’;
  • reciprocal commitments ‘not to reduce the level of environmental or climate protection’ – this includes meeting ‘cross-economy greenhouse gas emission reduction targets’.

Aviation

  • Majority owned and controlled UK airlines as at the end of December 2020 may continue to operate air transport services between the UK and the EU.  Majority owned and controlled EU/EEA/EFTA airlines may continue to operate air transport services between the UK and the EU.
  • There is a framework for future ‘cooperation on aviation safety’.  These will be detailed in a series of Annexes on such matters as airworthiness certification.

Road Transport

  • Operators will continue to be able ‘to move goods to, from and through each other’s territories with no permit requirements, and make additional movements within each other’s territories’.
  • Standards apply to international journeys – including ‘restrictions on driver hours, requirements about professional qualifications and tachographs and vehicle weight and dimension limits’.
  • Passenger transport operators continue to be covered by the multilateral ‘Interbus Agreement’ – and will be able to run ‘occasional services to, from and through each other’s territories’.
  • Passenger transport services on the island of Ireland will be able to pick up and set down passengers in both Ireland and Northern Ireland – enabling ‘cross-border services to continue with no restrictions’.

The following Parts of the Agreement will be dealt with in our next post:

Part 2 – Trade

Social Security Coordination and Visas for Short-term Visits;

Fisheries

Part 3 – Law Enforcement and Judicial Cooperation in Criminal Matters

Part 4 – Cooperation

Cooperation on cybercrime;

Cooperation on Health

Part 5 – UK participation in EU programmes such as Space exploration and Nuclear Energy

Part 6 – Disputes Resolution

Part 7 – Territorial Scope of the Agreement

Great Britain, Northern Ireland, Gibraltar, and the 50 Worldwide ‘UK Overseas Territories and Crown Dependencies’

Contact me by Email or LinkedIn for further detailed insight or potential mitigation action.

Brexit Transition in 6 Days: Overview of the ‘deal’ and immediate next steps in order to ratify it

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The full text of the ‘UK-EU Trade and Co-operation Agreement’, announced yesterday – 24 December 2020 – will be published shortly.

UK ‘Service’ and ‘Finance’ industry sectors are outside the scope the agreement.

Summary information provided by the UK Government and European Commission:

  • The scope of the deal is a ‘free trade agreement ensuring no tariffs or quotas on trade in goods’.
  • Governance will be managed by a ‘UK-EU Partnership Council supported by other committees’.  This includes ‘binding enforcement and dispute settlement mechanisms covering the economic partnership’ – and ultimately an ‘independent arbitration tribunal’.
  • Either party can ‘engage in cross-sector retaliation in case of violations of the agreement’ – for example, by imposing tariffs on the other.  Cross-sector retaliation applies to ‘all areas of the economic partnership’.
  • ‘Level playing field provisions’ give both parties the right to take counter-measures – ‘subject to arbitration’ – where they believe competition is being distorted.
  • ‘25% of the EU’s current fisheries quota in UK waters will be transferred to the UK’ over ‘a period of five years’.  After this, there will be annual discussions on fisheries opportunities.  Compensation may be payable should one side decide not to grant access to its waters
  • A new ‘security partnership providing for data sharing and policing and judicial co-operation’ comes into effect.  This will be at a ‘reduced compared to previous levels of co-operation’.  The EU is empowered to suspend ‘security cooperation’ in the case that the UK ‘no longer adheres to the European Convention of Human Rights’ or its enforcement domestically.
  • UK will continue to participate in certain EU programmes: ‘Horizon Europe, Euratom Research and Training, and Copernicus’.  The UK will cease its participation in other EU programmes, such as Erasmus.

In order to ratify the Agreement such that it comes into effect at 23:00 GMT on 31 December 2020:

UK Parliament will be recalled on 30 December in order to approve the legislation.  There are legal and constitutional requirements to ratify international agreements – and they must be completed prior to its implementation. ‘Constitutional Reform and Governance Act (2010)’.

The law requires a minimum of 21 Parliament ‘sitting’ days in order to allow time for discussion and ‘scrutiny’ of the detail.  The Government will, therefore, have to find a ‘mechanism’ to bypass the law and complete the process in one day.

The EU will not be able to fully ratify the agreement by the end of the year.  The European Parliament is also required to ratify and pass legislation on international agreement – but is precluded from passing the necessary consent vote until the New Year.  It may be able to ‘provisionally’ apply the deal – provided it is agreed unanimously by each one of the 27 EU Member State governments.  This could be achieved by the 27 Heads of State meeting in a special session of the ‘Council of Europe’.

Christmas Day

EU chief negotiator Michel Barnier is updating diplomats on the agreement., reached after months of fraught talks on fishing rights and business rules.

Labour said it was a “thin agreement” – but they would back it as the only alternative to no deal, meaning it should win approval.

The agreement runs to a 1,246-page document – including about 800 pages of annexes and footnotes.

The UK Government has, today – Christmas Day – published a 34 page ‘summary’ document going into the next level of detail from the highlights, above.  Many of the topics were widely anticipated – such as visa requirements for UK wishing to visit, work, or study in the EU.  Other subjects – such as the future of Gibraltar – are flagged for further discussion.

Key topics needed for businesses and citizens to plan, work and travel from 1 January 2021 will be covered in postings coming shortly.

For those that want the facts in a concise form, our ‘e-booklet’ will be updated over the coming days.  Version 5 – correct up to 23 December – is available at: Guide to trading with the EU from 1 January 2021

Reference

The UK-EU trade and co-operation agreement: the path to the deal

TCA_SUMMARY_PDF.pdf (publishing.service.gov.uk)

Picture:  Getty

Brexit Transition in 7 Days: Boris decides that a “bad deal” is better than “no-deal” after all

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The deal negotiated by the Government represents a humiliating defeat for the UK by the “Giant” that is, according to President Von der Leyen, the European Union.

In a significant defeat and ‘U-turn’ the UK Government has concluded a bad deal to end the Brexit transition period in 7 days’ time.  Worse than Norway, worse than Switzerland and Lichtenstein, worse than Turkey – and worse than Canada as far as trade in goods is concerned.

From the perspective of European Commission President, Ursula Von der Leyen: “We have finally found an agreement.  It was a long and winding road, but we have got a good deal to show for it.”  A good deal for Europe.

From the other side, here is the UK Government’s statement in full:

“Everything that the British public was promised during the 2016 referendum and in the general election last year is delivered by this deal.”

“We have taken back control of our money, borders, laws, trade and our fishing waters

“The deal is fantastic news for families and businesses in every part of the UK.

“We have signed the first free trade agreement based on zero tariffs and zero quotas that has ever been achieved with the EU.

“The deal is the biggest bilateral trade deal signed by either side, covering trade worth £668bn in 2019.

“The deal also guarantees that we are no longer in the lunar pull of the EU, we are not bound by EU rules, there is no role for the European Court of Justice and all of our key red lines about returning sovereignty have been achieved.

“It means that we will have full political and economic independence on 1st January 2021.”

“A points-based immigration system will put us in full control of who enters the UK and free movement will end.

“We have delivered this great deal for the entire United Kingdom in record time, and under extremely challenging conditions, which protects the integrity of our internal market and Northern Ireland’s place within it.

“We have got Brexit done and we can now take full advantage of the fantastic opportunities available to us as an independent trading nation, striking trade deals with other partners around the world.”

So much for the rhetoric.  Reality will prove whether the wide-eyed optimists in the Government are right.

One saving grace is that it keeps open some channels of communications and cooperation that would, indeed, have been lost in ‘no-deal’ – such as exchange of security and policing data.

Assuming that the queue of 6,000 or more trucks currently stacked in Kent and waiting to cross into Europe can be cleared – those crossing the border from 1 January will face major operational and reporting changes.  If there are any that delayed their trip to Europe – or if they end up at 23:00 GMT on 31 December stuck in a queue  system this side of the Channel – they will need to submit clearance documentation in addition to a ‘negative’ Covid test.  There is no provision in HMRC’s new regulations to avoid a fixed penalties of £300 – payable on the spot by the driver- for emergencies such as reduced capacity and increased handling times presently being experienced due to the pandemic.

In any event, HMRC has estimated the extra form filling and compliance will cost British business over £7bn – and an equal amount for those moving goods from Europe.  An additional 250,000 customs declarations will be needed in 2021.

At least a ‘zero tariff’ end to the transition avoids immediate imposition of duties up to 40% on goods moving between UK and Europe.  However, the decision of ‘if and when’ to apply tariffs in the future is for the EU to make alone.  The bloc retains the right to impose tariffs should they feel that the UK is in any way subsidising its businesses to the disadvantage of EU competitors – in other words, tilting ‘the level playing field’.

Northern Ireland, meanwhile, is confirmed as getting a new ‘customs’ border between the Province and the remainder of Great Britain.  The Withdrawal Agreement and Protocol (much of which was dedicated to maintaining a single borderless island of Ireland) agreed between Theresa May’s government and the EU stands.  The freedom for unfettered movement of people and goods between south and north Ireland has resulted in a new set of reporting and certification requirements between Ulster and Great Britain.

Brexit Transition in 8 days: Economy is forecast to weaken – ‘deal’ or ‘no-deal’

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In its final briefing before the UK gives up its membership of the EU’s ‘single market’ and ‘customs union’, MP’s have been warned to prepare for weaker economic growth in both the ‘short’ and ‘long’ term.  Down by 2% in 2021 leaving with an agreement, and 4% in a no-deal scenario.

This will be further adversely affected by disruption to trade and smooth flow of goods due to the new requirements for border checks, product certification and customs formalities.  Note that the report, published on 18 December, pre-dates the cross-channel border closures due to the Covid-19.

The NAO report on the ‘lack of preparedness’ has been proven right – the Government has demonstrated lamentable understanding of and complete disregard for logistics businesses and the human costs to truckers on whom we all rely.

The Road Haulage Association describes today’s situation in Dover as “chaos”. Thousands of drivers are trapped on the M20 and Marston Airport.  They lack adequate information; food provision is “very inadequate”; and there are not enough toilet and washing facilities.  The same drivers face new requirements and personal fines of £300 – £1,000 for any missing information in the truck – or its load – documentation.  And the UK cannot feed the nation unless hauliers and drivers feel confident and welcome as they drive from across Europe.  Brexit has got off the worst possible start.

Brexit Transition in 9 Days: Parliament report ‘time to trigger final preparations’ – Europartnership

Parliamentary report on short term economic impacts from leaving the EU single market and customs union – ‘deal’ or ‘no-deal’

  • Potential border disruption – the degree of disruption will depend on how prepared businesses are, as well as the administrative and operational readiness of UK and EU authorities to ensure minimal disruption at the border;
  • New barriers to UK-EU trade – there will be additional costs to UK-EU trade.  This is likely to result in lower amounts of trade flowing between the UK and EU;
  • Uncertainty – with a week to go, the terms of UK-EU trade from 1 January 2021 remain unclear;
  • The value of sterling – the pound fell sharply following the EU referendum – and has never recovered its previous level.  This has resulted in higher import prices, rising inflation and lower real (inflation-adjusted) average household disposable incomes.  It is difficult to imagine a scenario that will halt the continual fall in the pound, exacerbating these impacts;
  • Interaction with coronavirus economic impact – the compound effects have yet to be modelled, but it is difficult to imagine a scenario where the impacts of Covid act to mitigate the impacts of leaving the EU.

Long-term economic impact

  • Trade – barriers between EU and UK will increase.  Most economic studies show overall UK trade with non-EU countries will not compensate – translating into a lower level of GDP compared with the UK staying in the EU;
  • Investment – as a member of the EU single market and customs union has provide the opportunity for firms to trade with the EU from a UK base with minimal trade barriers.  Without this access, firms may see the UK as a less attractive destination for investment – and domestic firms may shift some of its output to be based in the EU.  This may be somewhat offset as the UK has flexible labour markets, a language spoken widely around the World, an educated workforce and a strong rule of law – all of which are attractive for investors;
  • Regulation – the UK will have more control in setting regulations once it is no longer subject to EU laws.  However, most economic studies find only limited potential economic gains from such freedoms;
  • Immigration – by leaving the EU single market, freedom of movement ceases.   The impact of the pandemic on immigration is likely to outweigh benefits to the economy;
  • Public finances – as an EU member state, the UK had been a net contributor to the EU budget, paying in roughly 0.4% of annual GDP more than it received from EU programmes. However, this will be far outweighed by the forecast 2%-4% drop in GDP from the lower economic activity and consequential loss of tax revenues.

Economic impact assessments

There are four ‘authoritative’ assessments quoted in the Parliamentary report of 18 December –  The Government (Office for Budget Responsibility), Bank of England, Think-Tank ‘National Institute of Economic and Social Research’, and the ‘Institute for Fiscal Studies’.

All conclude that ‘no-deal’ – or ‘WTO’ – scenario has the most “negative impact on UK GDP”.  This is true even for the ‘long’ term of between 10 – 20 years, depending on the study.  The UK was warned to plan for a “smaller economy” – and that was before the devastating compound impact of Covid.

To date, there is little sign of acknowledgement or understanding of reality coming from Government – with the Chancellor of the Duchy of Lancaster, Michael Gove, telling MP’s that the UK’s future outside the EU is bright.  That is not what his own experts, business and commerce leaders have been telling him.

References

https://researchbriefings.files.parliament.uk/documents/CBP-9096/CBP-9096.pdf

Outside the EU, a bright future awaits Britain – GOV.UK (www.gov.uk)

Picture:  Marston Lorry Park 23 December 2020 (Getty)

Brexit Transition in 9 Days: Parliament report ‘time to trigger final preparations’

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A week before the UK leaves the EU ‘single market’ and the EU ‘customs union’, it is still not clear if there will be a new UK-EU agreement at 23:00 GMT on 31 December.

There are thousands of changes whether or not there is a ‘deal’.  A Parliamentary briefing, published yesterday, sets out key changes and UK and EU preparations.

It builds on Prime Minister, Boris Johnson’s statement that there is a “strong possibility” that the UK and EU would not reach an agreement – and that it is time for the public and businesses to prepare for this scenario on 1 January 2021.

Without an agreement in place, UK-EU trade will revert to World Trade Organization (WTO) rules and current co-operation arrangements in several areas will cease.

Leaving the single market and the customs union

The UK is due to leave the single market and customs union at 23:00 GMT on 31 December 2020. This will be the case both under the UK Government’s stated objective of a free trade agreement with the EU, or if no agreement is reached.

The European Commission emphasises, “there will be broad and far-reaching consequences for public administrations, businesses and citizens as of 1 January 2021 – regardless of the outcome of negotiations.”

EU chief negotiator, Michel Barnier, explained that even with a “best-in-class” free trade agreement as long as the UK is outside the ‘single market’ and customs union, there will be “two separate markets”. He highlighted examples of things that would change, including the need for customs checks and rules of origin (to determine where a product or its components were made).  In addition, UK goods entering the EU would be subject to regulatory checks to ensure they comply with EU product standards.   UK financial services suppliers would also no longer have the passporting rights they previously had.

Cabinet Office Minister, Michael Gove, told the House of Commons that “leaving the single market and customs union will herald changes, and significant opportunities, for which we all need to prepare—Government, business and individual citizens.”

The end of free movement

Free movement for UK citizens travelling to the EU – or living and working in the EU – ends on 31 December, as it will for EU citizens in the UK.

UK citizens will not need visas to enter the EU for short trips.  The EU has said that UK citizens coming to most EU states for a short stay – 90 days cumulatively in any 180 day period – will be allowed visa-free travel.  For longer stays, Member States’ own rules are likely to apply.  The UK Government has said that EU citizens visiting the UK will be able to do so without visas for six-month periods.

Government guidance warns UK citizens they will need six months on their passports when travelling to the EU – and may no longer be able to use the border control lanes for EU citizens.  They may need additional documentation for other reasons: the EHIC health card providing cover for visits to the EU may no longer be valid, and an international driving permit may be needed for driving in the EU.

The existing pet passports scheme are no longer be valid.  Pet owners will need to get the appropriate vaccinations and certificate for them in advance of travel.

Replacing international agreements

The EU’s wide range of international agreements cease to apply to the UK at the end of the transition period.  The Government is trying to negotiate new or replacement trade agreements and 23 of 58 have been ‘rolled over’ on the same terms.  The Government has not provided a recent update on progress on these agreements.

UK preparations for end of transition

The Government will introduce import controls in three phases: in January, April and July 2021.  There are 80 new combinations of reporting to complete, depending on the nature of the goods.  There are dozens of new or upgraded IT systems to come on line – and thousands of new civil service posts in Border Control, veterinary and plant certification, and HMRC that take effect on 1 January.

Gove announced a new border operating model in October – and a public information campaign to help businesses and individuals to prepare for the seismic changes.

In a final review of preparations in November, the Government watchdog – the National Audit Office reported that the UK border and systems will not be for the change.  This, potentially, will lead to even more severe issues than have been witnessed this week resulting from the Covid-19 border closures – and no legal route to overcome them.

EU preparations for end of transition

The European Commission published a communication on “readiness at the end of the transition period” highlighting “changes happening in any scenario.”  Sectors covered included trade in goods and services, financial services, transport, recognition of professional qualifications, data protection, intellectual property, and the EU international agreements which no longer apply to the UK.  The Commission has published 89 “readiness notices” across a wide range of policy sectors and technical issues.  These advise administrations, businesses and citizens on what they have to do to prepare for the changes at the end of the year.

The bottom line is that none of these notices is new for EU businesses – they exist already for non-EU – or ‘third countries’.  The UK is simply added to this list on 1 January.

EU ‘no deal’ contingency plans

On 10 December, the European Commission published some temporary ‘no-deal’ mitigation  measures:

  • Basic air connectivity: to ensure the provision of certain air services between the UK and the EU for 6 months, provided the UK ensures the same.
  • Aviation safety: to ensure various safety certificates for products can continue to be used in EU aircraft without disruption.
  • Basic road connectivity: to allow for continuing road freight, and road passenger transport for 6 months, provided the UK assures the same to EU hauliers. This would be subject to the application by the UK of fair competition, social and technical rules equivalent to those of the EU.
  • Fisheries: providing a legal framework to agree reciprocal UK-EU fisheries access for 2021.

The Commission emphasised that contingency measures could not provide continuity or replicate the benefits of EU membership or of the transition period.

Gove said the UK would “look closely at the EU no-deal contingency plans” – but whilst aviation and road transport measures sounded positive, fisheries was “of greater contention“.

Background

Under the Withdrawal Agreement (WA) the UK and EU could have agreed an extension to this period – but a decision on this had to be made before 1 July 2020.   The idea of a new treaty providing for a short “standstill period”, which would enable some or all of the current arrangements to continue for a time limited period, has been revived by some political and business commentators.  This is viewed as a possible way of overcoming the difficulties presented by the very short period left before the end of December for both sides to conclude and ratify the deal.  Such an arrangement might be politically difficult to agree for both sides, and legally difficult for the EU.   There is no indication from the UK or EU that this has being seriously considered.

The European Parliament’s deadline for organising a consent vote on a UK-EU deal passed on 20 December.

On 21 December there were renewed calls for an extension of the transition, but the UK Government rejected the idea.

References

http://europartnership.com/brexit-transition-cross-party-end-of-term-report-critical-of-governments-lack-of-preparedness/

http://europartnership.com/post-brexit-products-sold-in-britain-need-a-new-uk-kitemark-as-ce-will-no-longer-be-recognised/

http://europartnership.com/post-brexit-uks-finance-industry-loses-out-as-chancellor-yields-to-eu-with-nothing-in-return/

http://europartnership.com/post-brexit-national-security-and-policing-concerns-raised-by-crime-fighting-agencies-to-parliament/