Background and coming into force
With the end of the one-year transition phase on 31.12.2020 – the United Kingdom (UK) having already exited from the EU on 1.2.2020 – the UK has to be treated as a third country in the EU Single Market. Without the agreement there would have been a hard cliff-edge exit probably with a chaotic aftermath. One consequence of this would have been, for example, that tariffs would have had to have been charged for the trade in goods.
However, for now, things have turned out differently. The Agreement was ratified by the British side on 30.12.2020. By contrast, the coming into force of the long-awaited Agreement on 1.1.2021 was merely provisional. On the EU side, the formal ratification by the European Parliament is still outstanding.
This final step towards ratification is expected by 28.2.2021, although according to initial reports the European Parliament has already called for more time to examine the Agreement. Furthermore, more and more voices on both sides are calling for adjustments to the Agreement.
The contents of the Agreement are as follows.
Key elements of the Agreement
The UK – with the exception of Northern Ireland – left the EU Single Market as of 1.1.2021. From now on, “zero tariffs and zero quotas” will basically apply to trade on both sides. This means that, initially, there will be no tariffs or quantitative restrictions via quotas for specific goods. This will however only apply on the condition that the so-called rules of origin are complied with. The aim of this is to ensure that no products from third countries can be passed through tariff-free.
While no tariffs have to be paid, nevertheless, for the businesses concerned this will represent a cost factor that should not be underestimated. This is because, in the future, various customs formalities will have to be complied with. Besides the extra expenses for export and import declarations, issuing proof of origin documents will give rise to yet more additional costs. The requirements for the respective proof of origin documents, in some cases, are based on special rules for specific product categories (e.g., batteries and electric vehicles).
Recommendation: The businesses concerned are advised to carefully review and adjust their costing.
Level playing field – fair conditions of competition
In return for granting Britain tariff-free access to the EU Single Market the EU requires fair conditions of competition, the so-called level playing field. Uniform environmental, social and subsidy standards are supposed to counteract changes in competition standards and thus a distortion of conditions.
Please note: Special arbitration panels will carry out reviews.
When Britain exited the EU the freedom to provide services was removed. This will result in, among other things, considerable obstacles if cross-border services are supposed to be provided. The financial services sector is moreover especially affected. A separate framework agreement is however expected for this sector by March 2021. For businesses whose employees are seconded on a regular basis the Agreement initially provides for new rules. From now on, applications will have to be made for the recognition of professional qualifications and, in individual cases, this might sometimes be complicated; the earlier automatic recognition is now a thing of the past.
Transport and logistics
Following the exit, the single European sky and the common transport market for road traffic no longer exist. Transporting goods and passengers within the EU will be restricted for providers from the UK. The agreement provides for special conditions in this respect.
The EU and UK have initially agreed – the adjustment period is limited to five and a half years – on a new framework for the joint management of the fisheries stocks. The fishing rights for EU fishermen will be initially reduced bodby 25%. As of June 2026, the catch shares will then be negotiated annually with the UK in multilateral bodies.
Free movement of people
Britain’s exit from the EU saw the end of the free movement of people on 1.1.2021. It is naturally still possible to travel in both directions. Visa applications generally only have to be submitted for stays of more than 90 days.
Please note: EU citizens living in the UK have to apply free of charge to the ‘EU Settlement Scheme’, by 30.6.2021, for so-called settled status to have their right of residence confirmed in this way.
The Agreement does not provide for the definitive settlement of the issue of data protection. Instead, the Agreement allows for an initial four-month transition period for data transfer to the UK. An extension to 30.6.2021 would be possible. Key regulatory content from the GDPR has been transferred to the new British Data Protection Act (UK GDPR). The British government now aims to achieve recognition of this via a so-called adequacy decision to be issued by the EU Commission in accordance with Art. 45 GDPR. The UK would then be officially classified as a ‘secure third country’ in terms of its data protection legislation so that, for example, EU companies could refer to this when making data transfers to the UK. The advantage of this for businesses would be that they would not have to put in place any further costly protection measures themselves.
Recommendation: The businesses concerned must be advised to follow further developments and in the event that the adequacy decision is not forthcoming to take appropriate measures.
Beyond the above regulations, the Agreement includes a great number of specific rules from various areas, such as, for example:
- regulatory practice,
- social security,
- state aid,
- the energy industry,
- tax transparency,
- criminal prosecution,
- dispute resolution.
Conclusion: The Agreement leaves many questions unanswered. In several areas important decisions have been merely postponed – the end point is still open. Disputes will inevitably result from this. Nevertheless, this Agreement is an important signal and a crucial step for the realignment of relations between the EU and UK.