On 28 December 2020 the EU ambassadors unanimously approved the Trade and Cooperation Agreement between the EU and the UK. The agreement is to be considered by the UK parliament on 28 December and if approved it will take effect provisionally from 1 January 2021. The EU parliament will then consider and vote on the agreement in January 2021.
The agreement covers large sections of bilateral trade between the EU and the UK. In addition to establishing agreed provisions in relation to a level playing field the agreement includes technical provisions relating to sectors such as pharmaceuticals, automobiles and professional services and includes provisions on dispute resolution.
With effect from 1 January 2020 the transitional period for the UK ends and the UK will be treated as a third country operating outside the EU rules on the customs union and the single market.
Level playing field
The UK will have the power to establish its own standards in important legal areas including labour law and environmental standards. If the UK standards become too divergent from the equivalent EU provisions the EU will have the right to restrict access to the European market in the affected sectors.
The agreement provides for a rebalancing mechanism to permit either the EU or UK to impose tariffs if they can establish that their businesses were not subject to a level playing field and were therefore subject to an unfair disadvantage in their cross-border trade. These rules will be governed by arbitration rather than by EU law or the ECJ.
State aid
The State Aid rules are an important part of EU law, ensuring that businesses from a particular country are not given an unjustified competitive advantage over foreign businesses in their sector by means of government incentives, tax concessions or other measures, subject to certain defined exceptions.
Under the economic partnership agreement, it will be possible for EU businesses to challenge state aid given to their UK competitors by taking action in the UK courts. They would need to demonstrate that the alleged state aid has contravened the common principles outlined in the partnership agreement. There would be a similar right for UK businesses operating in the EU. The UK would also establish a state aid authority.
The UK and EU will have the right to unilaterally impose tariffs when they consider that subsidies have had the effect of distorting cross-border trade, subject to an accelerated arbitration procedure.
Manufacturing
The economic partnership agreement allows UK businesses to continue to sell goods to the EU market without the imposition of tariffs or quotas. There will still be a need for additional certification and testing in relation to the standards in the UK and EU. A trusted trader scheme will allow some qualified businesses to move goods quickly through customs but would require additional costs and is likely to benefit mainly the larger groups.
Professional services
There will be no automatic mutual recognition of professional qualifications between the EU and UK. Professionals will therefore need to obtain recognition for their qualifications in the member state where they are intending to perform services. There will be special provisions in relation to short business trips and temporary secondments.
Financial services
A separate process is to be followed to reach agreement on the access of financial services to EU markets. Depending on what is agreed, the EU could grant equivalence to the UK’s regulated companies; or firms could be required to request the relevant permissions from the individual member states.
The agreement does however establish that financial services will be excluded from cross retaliation measures that could be applied if there is any breach of other parts of the partnership agreement.
Other sectors
Other sectors covered by the agreement include data flows between the UK and EU; aviation and travel; logistics and road haulage; fishing rights; chemicals; pharmaceuticals; automobiles; manufacturing; retail; and defence.
