What just happened?
On Christmas Eve, the EU and UK announced a new trade deal, which will take effect when the EU Exit Transition Period ends on 31 December. The deal is called the Trade and Co-operation Agreement (TCA).
The TCA addresses a major source of uncertainty and risk for businesses on both sides, especially in food and drink markets, which would have been impacted severely if talks had ended with ‘no-deal’.
It also reduces personal risk for workers and shoppers. Without a deal, they might have been subject to interruption of supplies and price increases for vital goods, adding to the economic pressures of COVID-19.
No tariffs or quotas on agri-food goods
The major measure of interest to food and drink businesses is elimination of tariffs and quotas on trade in qualifying food and drink between the EU and the UK.
This is unusually liberal on the part of the EU, which has never made a similar concession in its previous trade deals.
Note, however, that only ‘qualifying’ goods will benefit – to qualify, goods must be counted as genuine products of either the EU or the UK, under the agreed Rules Of Origin (ROOs).
The ROOs are complex and there are special rules that apply to certain categories.
For example: to benefit from the deal, white chocolate must not contain non-EU or non-UK content greater than 40% (by weight) or 30% (by value).
Classification of processed and ‘composite’ products (e.g. ready meals combining ingredients from multiple origins) may create challenges for both businesses and officials.
Further guidance is expected soon and the EU has suggested it will allow some flexibility over ROOs, for a limited period (no further details).
Goods that do not qualify can still be traded between the EU and UK but will be subject to the usual tariff arrangements.
- The EU and the UK will regulate products separately
- There is no recognition of regulatory ‘equivalence’ (except for organic foods)
- Traders must demonstrate that goods comply with law in the destination market
- Each side will be free to impose sanitary and phytosanitary (SPS) checks on agri-food products at the border
- SPS rules and enforcement regimes must be proportionate to risk
- There are ‘no regression’ clauses covering environmental protection and labour standards
- Neither side may reduce protections in ways that impact trade
- The EU will continue to have access to UK fishing grounds and fish stocks
- The quota allowed to the EU will be reduced gradually over 2021-26
- By 2026, UK ships will catch two thirds of the fish taken from UK waters (versus half now)
- After 2026, there will be annual negotiations on the Total Allowable Catch
- There is some provision for free trade in services
- However, these are hedged around with many exceptions and provisos
- This may be a major issue for the UK, which is a net exporter of services to the EU
- Haulage businesses will benefit from mutual market access for transport, including transit
- All vehicle movements will be subject to compliance with local law (e.g. driver hours)
- Cabotage (see below) rights for UK hauliers in the EU will be limited
- “Cabotage” is the right to make a delivery within another market
- For example, a UK truck goes from London to Lyons to drop off a load (a “point-to-point” delivery)
- It then takes a load from Lyons to Paris on the return leg (a “cabotage” delivery)
- Cabotage rights are essential to backhaul and other transport practices
What the deal does not do
The trade deal does not mean that trade between the EU and the UK can continue on previous lines. With the UK outside the EU’s Single Market and Customs Union, trade will inevitably be subject to greater ‘friction’.
Businesses moving goods between the EU and the UK will still need to make procedural changes and, probably, bear higher costs as a result of EU Exit.
This applies especially to food and drink businesses, which will be subject to special regulations, including sanitary and phytosanitary measures – government advice can be found here.
The trade deal does not prevent the disruption of trade between the EU and UK on grounds of biosecurity, national security and so on – it would not in itself deal with current border disruption, for example.
The trade deal does not deal with Northern Ireland. The Northern Ireland Protocol is a separate measure intended to address this and it will take effect with or without a trade deal.
Finally, the deal would not necessarily remove the potential for trade tensions and disputes. Hopefully, any problems will be dealt with via the mechanisms included in the deal.
The next steps will be political, rather than diplomatic. The draft trade deal must receive approval by elected representatives before it takes legal effect.
The UK Parliament will meet on 30 December and is expected to pass the deal, since the government has a large majority, at least in the Commons.
The EU is permitted to implement the deal on a provisional basis, with approval of members and this has now been given by the various ambassadors. Provisional approval gives MEPs until 28 February 2021 to scrutinize the full provisions of the trade deal.
IGD will provide further news and analysis as the situation develops.