The UK ceased to be an EU Member State on 31 January 2020, although many of the effects of that change have not yet been felt due to the Transition Period from 1 February 2020 to 31 December 2020, introduced by the Withdrawal Agreement, during which EU law has effectively continued to apply in and to the UK. The Withdrawal Agreement remains in place going forward; aside from the Transition Period, it covered other issues arising from the UK's withdrawal that are of continuing relevance, including certain rights of UK and EU citizens and specific arrangements regarding Northern Ireland.
From 1 January 2021, the UK is a non-EU country (a "third country" in EU terminology) and the Trade and Cooperation Agreement (the TCA) is an international treaty. However, this status would not necessarily have ensured that it was as free from the ambit of EU law as the UK government had promised1. It is therefore important to note the provisions in the TCA which seek to ensure, beyond doubt, that the interpretation of it is to be governed only by international law principles and not by the "domestic law of either party" (which, for the EU would certainly include EU law)2.This makes the TCA distinct from certain other EU free trade agreements which envisage EU law as being relevant in certain contexts3. The practical takeaway here is that while businesses may, in practice, compare the new relationship and processes with those that have applied while the UK was an EU Member State, the TCA is based only on international law, and most notably the GATT4 and the GATS5.
As the TCA was agreed only days before the end of the Transition Period, there is not sufficient time for the European Parliament to ratify the TCA before the Transition Period ends. However, the European Commission has noted that having the TCA in place on 1 January 2021 is "a matter of special urgency", and has accordingly proposed its application on a provisional basis (the Council of the EU, and the UK, including Parliament, have already given approval)6, and UK Parliament approved it on 30 December), pending ratification by the EU Parliament by 28 February 20217.
The TCA is only one part (albeit a central part) of the overall package of agreements reached on 24 December 2020. Other "supplementing agreements", which will also form part of the UK-EU relationship include:
There are various ways to categorise or group the various provisions of the TCA. The European Commission identifies four major pillars of cooperation8:
The TCA is not however structured by reference to pillars. Rather, it consists of four components:
The governance of the TCA is to be conducted through a hierarchy of bodies established by the TCA, all of which are to be co-chaired by an EU and a UK representative, making decisions by mutual agreement:
The powers given to these bodies, culminating in the Partnership Council, should enable the parties to make any necessary adjustments to the TCA and/or to any specifics of its operation, assuming goodwill and cooperation. However, the mutual consent decision-making model between the EU and UK representatives may, in the event that tensions arise, be the cause of bottlenecks, especially noting the role given to these bodies, including the Partnership Council, in the consultation stage of dispute resolution.
It is not yet clear how often each committee will meet or where, but each committee must meet at least once a year. Nor is it clear what oversight the UK Parliament (or the European Parliament) will have over the activities of these committees, or indeed who will sit on them.
The TCA also creates an obligation for both the EU and UK to consult “domestic advisory groups" and "civil society organizations” on the implementation of the TCA and any supplementing agreement. This includes non-governmental organisations, business and employer organisations as we well as trade unions. The EU and UK must "promote interaction between their respective domestic advisory groups, including by exchanging, where possible, the contact details of members of their domestic advisory groups.”
The dispute process was a sensitive part of the TCA negotiation in the context of, in particular, the UK's insistence that the CJEU should have no role, and the EU's insistence on robust enforcement mechanisms in view of the lack of trust consequent, it appears, in the UK government’s proposed Internal Market Billl, of elements which were inconsistent with its Withdrawal Agreement commitments vis à vis Northern Ireland.
The core elements of the dispute resolution process (which apply not only to the TCA but also to other Supplementing Agreements) are (i) a consultation phase to be conducted in the framework of a Specialised Committee or the Partnership Council, followed (if no resolution has been achieved) by (ii) referral of the matter to an arbitration tribunal. Additionally, either party may also take safeguard measures (including the re-imposition of tariffs) "if serious economic, societal or environmental difficulties of a sectorial or regional nature, including in relation to fishing activities and their dependent communities, that are liable to persist arise". In principle, these measures may be taken only one month after notification to the Partnership Council, with the caveat that "when exceptional circumstances requiring immediate action exclude prior examination, the party concerned may apply forthwith the safeguard measures strictly necessary to remedy the situation".
Some provisions, including the level playing field provisions, have their own enforcement measures, including suspension of TCA obligations and the use of rebalancing measures9. It is notable that the European Commission's explanatory memorandum to the Council10 emphasises the robustness of the enforcement and safeguard powers, while the UK government's summary11 gives only brief reference to these safeguard measures, observing that they must be "strictly proportionate and time-limited".
Trade between the UK and EU will be very different under the TCA relative to how it was as an EU Member State. Announcing the deal on 24 December, the UK Prime Minister observed that "there will be no palisade of tariffs on January the 1st, and there’ll be no non-tariff barriers to trade". However, although the TCA ensures tariff-free trade in goods between the UK and EU in many cases, this will depend on the goods themselves fulfilling certain conditions (notably as to origin); and even if there is no future legislative or regulatory change in either the UK or the EU, there will in fact be significant non-tariff barriers to trade between the parties, both in relation to goods and services, that did not exist when the UK was an EU Member State.
There is more detail than can be summarised in this note, but we draw out some key elements here:
The TCA includes relatively ambitious measures on trade in goods. While cross-border traders will notice more friction and more restrictions than they have been accustomed to, the TCA goes some way to preserving the flow of trade in goods:
As expected, the provisions in relation to services are similar to those seen in other recent EU FTAs, and fall well short of the freedoms of movement, and establishment and provision of services, that UK businesses enjoyed within the EU. However, there are some valuable commitments worth noting:
Of greater note as regards services is what is not included. In particular:
The TCA contains some measures to ensure continued commercial transport connectivity and movement of goods away from the border, albeit with significantly more restrictions than have applied until now. In particular:
Chapter V of the EU's GDPR12 prohibits the transfer of personal data outside the EEA without additional protections (principally an "adequacy decision" that the laws of the third country contain adequate protections for such data or that the recipient entity would have included additional compliance measures (in practice standard contractual clauses). The UK has carried the GDPR over into UK law as retained EU law (with necessary operational amendments):
Businesses can therefore continue to transfer personal data from the EEA to the UK for at least the next 4-6 months without additional compliance measures. The inclusion of this provision may also suggest that the European Commission is close to reaching an adequacy decision, in relation to the UK, such that 4-6 months will be sufficient time to allow that adequacy decision to be finalised:
This part of the TCA was one of the last parts to be agreed, touching as it does on the tension between the UK's objective of being outside of the ambit of EU law, and the EU's aim to ensure that it could not be undercut by subsidised imports or products with lower compliance standards from the UK. The key elements of the balance struck are that:
While the TCA is an agreement between the UK and EU, the situation of Northern Ireland remains subject to the provisions in the Withdrawal Agreement. The Protocol on Northern Ireland effectively creates a customs and regulatory border between Great Britain and Northern Ireland. The TCA will not govern trade in goods between the EU and Northern Ireland and goods entering Northern Ireland from Great Britain will count as imports. There will be facilitations for goods moving between Great Britain and Northern Ireland. In terms of services, Northern Ireland will be subject to the UK's rules.
The TCA spans over 1000 pages, and covers more detail and more topics than can be addressed in a short summary note. Dentons will be continuing to analyse the TCA and will be issuing more materials focussing on specific aspects of the TCA and the wider framework of EU-UK trade after Brexit in the coming weeks and months. In the meantime, for advice on how your business may be affected, please contact your usual Dentons contact or any of those listed as contacts for this note.
See for example: