According to recent research carried out by the British Chamber of Commerce (“BCC”), the UK-EU Trade and Cooperation Agreement (“TCA”) does not work for a large proportion of UK businesses.
Only 12% of exporters to the EU agreed that the TCA was helping them, while 71% disagreed. Overall, just 8% of firms agreed that the TCA was ‘enabling their business to grow or increase sales’, while 54% disagreed.
Similar views have been expressed on the other side of the Channel: according to a study by the British Chamber of Commerce in Germany (“BCCG”) and KPMG in 2021, 77% of the surveyed companies in Germany had difficulties when importing from one its most important trading partners, whereas 72% faced these difficulties upon export. Overall, 67% of the surveyed companies considered Brexit to be worse than they had expected at the end of the transition period.
It appears that businesses feel that the TCA led to rising costs for both them and their clients, and that smaller businesses did not have the time and money to deal with the bureaucracy it had introduced.
What are major issues when trading with the EU – and how could they be solved?
As of the end of the Brexit transition period (31 December 2021), and as a result of Great Britain having left the EU Customs Union (“EUCU”), full customs checks have had to apply to movements of goods from Great Britain to the EU. They now also apply to movements of goods from the EU to Great Britain (this was initially deferred to 1 January 2022, apart from ‘controlled goods’ such as alcohol and tobacco).
Departure from the Internal Market means that exporters need to ensure compliance with different UK and EU product regulations as they have started to diverge.
The TCA goes further than any other Trade Agreement: it prohibits quotas on the other party’s goods and provides that tariffs are not charged on goods that are traded between the UK and the EU (“preferential tariffs”).
1. Rules of origin and related paperwork – a complicated affair
It must be demonstrated that the goods originate in the UK (and vice versa) to qualify for preferential tariffs (“rules of origin requirements”).
These rules of origin are complex. They are based on the Harmonized System (HS), an internationally standardised system of description and numbers, which is administered by the World Customs Organization (“WCO”) and updated every five years. Some of the specific rules of origin set out in the TCA have been interpreted differently at the UK border and entry points of the EU.
Enhanced customs cooperation will be key, as noted in the minutes of the First Meeting of the Trade Partnership Committee under the TCA to rectify any divergence in interpretation.
To ensure rightful access to preferential tariffs, the supplier may be asked to provide a Supplier’s Declaration to prove either that the goods meet the rules of origin, or that the supplier has processed or added value to the goods (goods with non-preferential origin status). This had been deferred until 31 December 2021; however, businesses are now being asked to retrospectively provide a Supplier’s Declaration.
A more pragmatic approach to enforcement on both sides of the Channel to ensure companies recovering from the pandemic do not face heavy demands on paperwork too quickly would be welcome.
2. Only limited mutual recognition
While the TCA contains various easements relating to Technical Barriers to Trade (TBTs), including to allow continued self-certification of conformity by exporters, it only contains limited commitments on mutual recognition.
There was only so much that the EU could do to restrict such “TBTs, as many of the related issues do not only touch on EU powers and competences, but also on those of the EU member states.
The TCA includes commitments related to short-term business visitors; business visitors for establishment purposes; intra-corporate transferees; contractual service suppliers; and independent professionals.
Within this remit, the UK and EU have agreed not to impose market access restrictions such as economic needs tests and, in certain circumstances, work permits. Business visitors in categories covered by the TCA will therefore be treated similarly to domestic suppliers during their stay.
However, various reservations and exemptions apply. This is because as of 1 January 2021, UK service providers have faced the 27 different regulatory regimes of each EU member state. As a result, national immigration regulations, rules on work permits and employment regulations of the respective EU member state must be observed. In return, the UK maintains control over its own immigration rules and access to work.
To solve resulting issues, the BCC has suggested that the government should make side deals with the EU and its member states to boost access in this area as a priority for 2022. Such deals would indeed make a strong improvement to business travel.
Sanitary and Phytosanitary measures
In addition, the TCA does not contain the more ambitious commitments on equivalence for Sanitary and Phytosanitary (“SPS”) measures or on mutual recognition, that the UK had requested.
The TCA allows for either party to unilaterally decide to reduce the frequency of certain types of border import controls, taking into account the extent to which their SPS rules converge.
It also ensures a simplified process for the approval of imports, where relevant by drawing up lists of establishments that are eligible to export to the other party, based on guarantees provided by the authorities of the exporting party.
However, UK agri-food exporters now have to meet all EU SPS import requirements and are subject to official controls carried out by member states’ authorities at Border Control Posts. Where required, these controls include the verification of health certificates in line with international standards. Similarly, EU agri-food exporters now have to meet all UK SPS import requirements.
This means that, in particular, food exporters have had to provide health certificates in order to trade their goods with the EU.
The BCC is advocating for the negotiation of a supplementary deal in this respect, which would either eliminate or reduce the complexity of exporting food. This would be a first of its kind, but certainly would tremendously help smaller food exporters in particular, for whom the current bureaucracy takes up too much time and money.
CE / UKCA mark
It would also be advisable to give businesses more time to prepare and adapt to the UK Conformity Assessment (“UKCA”) mark. UKCA is the new UK product marking that will be required from 1 January 2023 for certain products being exported to Great Britain (this excludes Northern Ireland). It covers most products that previously required the CE mark.
At the least, action from the government to help businesses with these timelines would be needed.
Businesses have had to deal with many other issues when trading between the UK and the EU, such as VAT registration requests in diverse EU member states, and requests to mention specific country origin instead of EU origin when importing into Great Britain, to mention a few.
Only time will tell to what extent trade between the UK and the EU will become easier. As the title of the TCA shows, trade and cooperation go hand in hand – let’s make it a reality.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.