TRADE IN GOODS
The European Union and the United Kingdom are major trading partners. In 2019, some 13% of the EU’s total trade with third countries in goods was with the UK, whereas the UK relied on the EU for roughly half of its total trade in goods.
While the UK was an EU Member State and participated in the EU Single Market and Customs Union, this trade was completely seamless thanks to the fact that the EU, including the UK, formed a single customs territory and shared the same standards, rules, and supervision and enforcement systems.
What changes on 1 January 2021?
As of 1 January 2021, the UK leaves the EU Single Market and Customs Union. As a result, it will no longer benefit from the principle of free movement of goods.
Even with the new agreement in place, businesses will face new trade barriers, leading to increased costs and requiring adjustments to integrated EU-UK supply chains.
What is covered by the draft agreement?
To preserve their mutually beneficial trading relationship, the two sides have agreed to create an ambitious free trade area with no tariffs or quotas on products, regulatory and customs cooperation mechanisms, as well as provisions ensuring a level playing field for open and fair competition, as part of a larger economic partnership.
The provisions in the agreement do not govern trade in goods between the EU and Northern Ireland, where the Protocol on Ireland and Northern Ireland included in the Withdrawal Agreement will apply.
How ambitious is the Free Trade Agreement?
The Agreement reflects the EU’s modern trade policy thanks to the inclusion of ambitious commitments for the protection of workers’ and consumer rights, environmental protection, the fight against climate change and tax transparency, thereby ensuring that trade is not just open but also fair and sustainable. It also favours the circular economy by extending preferential treatment to products that have been repaired or remanufactured (see Chapter of Q&A on ‘Level Playing Field and Sustainability for more information).
The Trade and Cooperation Agreement foresees the most ambitious commitments towards liberalising market access for goods ever to feature in an EU free trade agreement, including zero tariffs and zero quotas on all goods from day one, as well as modern rules to avoid certain barriers in bilateral trade.
Without this agreement, products like:
- beef, dairy, poultry, pork, lamb, cereals, sugar and several processed foodstuffs could have faced tariffs of some 50% or above under World Trade Organization rates;
- processed fish products would have faced tariffs of up to 25%;
- cars would have also been hit by tariffs of 10%;
- textiles and footwear would be subject to tariff peaks of 12% and 17%, respectively.
These tariffs would have increased prices for consumers, and caused economic damage for agricultural and manufacturing producers on either side of the Channel.
In addition to providing for zero tarifs on goods, the Agreement also limits the fees that customs may charge for services rendered and includes several modern disciplines that go beyond standard World Trade Organization commitments, for instance in the areas of import and export monopolies, non-automatic import licences, import and export restrictions (prohibition of price requirements and licensing subject to performance requirements).
Will the Trade and Cooperation Agreement allow goods to be exchanged between the EU and the UK as they are today?
Trading under ‘FTA’ (free trade agreement) terms – even one as ambitious as this one, with zero tarifs or quotas – will inevitably be very different compared to the frictionless trade enabled by the EU’s Customs Union and Single Market.
- rules of origin will apply to goods in order to qualify for preferential trade terms under the agreement;
- all imports will be subject to customs formalities and will need to comply with the rules of the importing party;
- and all imports into the EU must meet all EU standards and will be subject to regulatory checks and controls for safety, health and other public policy purposes.
What action can be taken in case of unfair trade practices?
According to World Trade Organization rules, governments may take remedial action against imports that are causing material injury to a domestic industry due to a sudden surge of foreign goods or to unfair practices such as dumping or trade-distorting subsidies.
The EU-UK Agreement confirms the right of both parties to apply trade defence instruments according to those WTO rules, including a special agriculture safeguard mechanism to protect farmers against surges in imports or price declines below a certain level.
In case of unfair practices that affect the level playing field, specific, autonomous, and swift measures are also envisaged (see Chapter of Q&A on ‘Level Playing Field and Sustainability for more information).
What are the applicable ‘rules of origin’ and what will traders need to do to comply with them?
Rules of origin are an intrinsic component of every free trade area. They determine the ‘economic nationality’ of products when these have been produced using components or materials made in more than one country.
Such rules are necessary to ensure that the products benefiting from the terms of the free trade agreement (in this case, zero tarifs, zero quotas) are either wholly obtained from or manufactured in the free trade area itself (in this case, the EU and the UK), or sufficiently worked or processed there (e.g. by setting a limit on the value of non-originating materials that can be used in order to benefit from the agreement.
This ensures that the free trade agreement benefits the operators inside that free trade area, preventing circumvention.
Under the Trade and Cooperation Agreement, EU and UK traders would have to meet rules of origin comparable to those which the EU and the UK have with other trading partners. These rules and procedures are therefore familiar to our respective business operators.
The Agreement also includes specific mechanisms aimed at facilitating compliance with these rules of origin, namely:
- A provision on ‘full cumulation’, which allows traders to account not only for the origin of materials used, but also if their processing took place in the territory of one of the Parties. This mechanism enables the agreement to capture to the greatest extent the value added in the free trade area.
Exporters will also be able to self-certify the origin of the goods, thereby making it easier for traders to prove the origin of their products and reducing red tape. In addition, the operators will benefit from additional flexibility in collecting documentary evidence to prove origin during the first year, to allow them to benefit from the preferences despite the little time available between conclusion and application of the Agreement.
What new customs checks and formalities will apply between the EU and the UK?
As of 1 January 2021, the UK will no longer be part of the EU Customs Union. Therefore, all customs controls and formalities required under EU law (and in particular the Union Customs Code), including entry and exit summary declarations, will apply to all goods entering the customs territory of the EU from the UK, or leaving that customs territory to the UK. This does not concern trade in goods between the EU and Northern Ireland, where the Protocol on Ireland and Northern Ireland included in the Withdrawal Agreement will apply.
The two sides have, however, agreed to recognise each other’s ‘Authorised Economic Operators’ programmes, enabling trusted traders that benefit from this status to enjoy certain simplifications and/or facilitations relating to security and safety in their customs operations with the customs authorities of the other Party. However, there is no waiver on such security and safety declarations, as this requires alignment between the Parties on security standards.
The Agreement also reiterates a number of mechanisms provided for in EU legislation (Union Customs Code) and UK customs rules to facilitate trade and reduce administrative burdens for businesses.
It sets the ground for further developing customs cooperation in the future, including for instance with regard to innovative solutions, in full respect of both Parties’ domestic rules, concerning the handling of customs procedures for roll-on/roll-off (“ro-ro”) traffic, i.e. ships carrying loaded trucks, or exchange of customs-related information.
The Trade and Cooperation Agreement also includes a Protocol on mutual assistance to combat customs fraud as well as an ambitious Protocol allowing Parties to cooperate on Value Added Tax (VAT) matters and the recovery of claims relating to indirect taxes and duties. It also provides for clauses to protect taxpayers’ money from customs fraud and administrative errors, where these lead to consequences in terms of import duties.
Will traders have to comply with two different sets of regulations and compliance procedures if they want to serve both the EU and UK markets?
As of 1 January 2021, the Union and the United Kingdom will be two separate regulatory and legal spaces. This means that all products exported from the EU to the UK will have to comply with UK technical regulations and will be subject to any applicable regulatory compliance checks and controls. Similarly, all products imported from the UK to the EU will need to comply with EU technical regulations and will be subject to all applicable regulatory compliance obligations, checks and controls for safety, health and other public policy purposes.
Nonetheless, the Trade and Cooperation Agreement contains a number of provisions aimed at preventing and addressing unnecessary technical barriers and requirements, including through bilateral cooperation, and simplifying procedures used to demonstrate compliance with them (conformity assessment procedures).
In particular, the two sides agreed a definition of international standards that identifies the relevant international standard-setting bodies. This will ensure that both sides’ domestic product standards and technical regulations are based on the same international references and are therefore compatible to the extent possible. This will make compliance of products with the other Party’s rules easier and less costly, all the while safeguarding each side’s ‘right to regulate’.
In the field of conformity assessment, the Parties agreed to maintain simplified access to each other’s markets through, in particular, the continued use of self-certification of conformity by the manufacturer where this is currently applied in both the EU and the UK. This covers a very large share of bilateral trade.
The Parties also agreed a comprehensive framework for cooperation on market surveillance and product safety that will underpin the robust enforcement of product safety rules and the high levels of protection of consumers and other users both Parties are committed to. This framework will be implemented in particular through arrangements for information sharing concerning the Parties’ respective market surveillance activities and measures taken with respect to unsafe or otherwise non-compliant products.
In a number of sectors, the Parties have agreed specific arrangements to facilitate bilateral trade, as well as regulatory cooperation. These sectors include automotive, pharmaceuticals, chemicals, wine and organic products.
The main trade facilitation outcomes can be summarised as follows:
What was agreed to facilitate trade in automotive?
- Regulatory convergence will be based on the use of the international technical standards set at UNECE (United Nations Economic Commission for Europe) level. Both Parties will cooperate and, where appropriate, plan initiatives to promote greater international harmonisation of technical requirements.
- Both Parties will accept, in their respective markets, products that are covered by a valid UN type-approval certificate.
- There will be cooperation and exchange of information in the field of market surveillance to support the identification and addressing of non-conformities of motor vehicles.
- There will be cooperation in the field of research and exchange of information linked to the development of new vehicle safety regulations or related standards, advanced emission reduction, and emerging vehicle technologies.
What was agreed to facilitate supplies of medicinal products?
- Recognition of results of inspections carried out by the authorities of the other Party in manufacturing facilities located in the territory of the issuing authority. This will avoid unnecessary duplication of inspections of manufacturers of medicinal products to assess their compliance with Good Manufacturing Practice requirements.
- Possibility for each Party to unilaterally extend such recognition for manufacturing facilities located outside the territory of the issuing authority, under specific terms and conditions.
What was agreed to facilitate trade in chemicals?
- Regulatory cooperation, while respecting each Party’s right to regulate, both bilaterally and in relevant international fora, on the assessment of hazards and risks of chemicals and the formats for documenting the results of such assessments.
- Both Parties’ commitment to implementing the United Nations Globally Harmonized System of Classification and Labelling of Chemicals as well as any scientific and technical guidelines issued by relevant international organisations and bodies.
- Transparent procedures for the classification of substances and the possibility of the exchange of non-confidential information.
What was agreed to facilitate trade in wine?
- Simplified certification requirements for reciprocal market access: wine producers will be allowed to self-certify conformity and quality of their wine.
- Common principles on labelling, ensuring adequate information for consumers while avoiding unnecessary or disproportionate labelling requirements.
- Both Parties’ commitment to mutually accept the importation of wines produced according to each other’s definitions and oenological practices, as long as in line with oenological practices recommended by the International Organisation of the Vine and Wine (“OIV”). Some additional oenological practices and restrictions not covered by OIV have also been agreed.
- Exchange of information and cooperation on wine matters and a review clause whereby the Parties will consider, within three years from the entry into force of the Agreement, further steps to facilitate trade in wines.
What was agreed to facilitate trade in organic products?
- Reciprocal recognition of equivalence of the current EU and UK organic legislation and control system, for all categories of organic products.
- Organic products complying with EU law and certified by control bodies recognised by the EU will be accepted on the UK market and vice-versa.
- In view of new EU rules for organic products applying as of 1.1.2022, equivalence will be reassessed by end-2023.
What does the agreement say about cultural objects?
The EU has long been committed to the safeguard of cultural property, developing a series of measures to tackle the illegal excavation and trafficking of items of cultural property (such as antiquities and archaeological objects), combatting their illegal trade (also recognising the clear links between terrorist financing, money laundering and the illicit movement of cultural goods), and returning unlawfully removed cultural objects to their countries of origin.
The Agreement ensures that the UK will continue to work with the EU in these important endeavours by including an innovative enhanced cooperation provision to facilitate the return of cultural property illicitly removed from the territories of either side.
Will sanitary and phytosanitary requirements (SPS) for imported food, animals and plants change?
Sanitary and phytosanitary (SPS) measures are a set of rules defined by the importing party necessary for the protection of human and animal health (“sanitary”) and plant health (“phytosanitary”). EU law includes detailed SPS rules to ensure high levels of food safety, and reduce or eliminate possible health threats to EU citizens, as well as to animals and plants in the EU. This also includes high standards on matters such as the use of hormones or genetically modified organisms (GMOs).
There will be no changes to these food safety standards and the Trade and Cooperation Agreement will safeguard the EU’s high levels of SPS standards.
Just like agri-food exporters from every other non-EU country, UK agri-food exporters will have to meet all EU SPS import requirements and be 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 will have to meet all UK SPS import requirements.
If either Party has significant concerns with respect to food safety, plant or animal health or an SPS measure of the other Party, it can request technical consultations with that Party, or request audits and verifications of the other Party’s inspection and certification system.
Does the agreement provide for any faciliations on SPS?
The Trade and Cooperation Agreement includes a number of measures aimed at limiting SPS import procedures where possible, while upholding strict sanitary standards.
In particular, the Agreement 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.
What happens in case of an animal or plant disease outbreak?
In case of animal or plant disease outbreaks in the territory of either Party posing a serious threat to animal or public health, the authorities of either Party may apply temporary protective measures – including suspension of imports from all or part of the country concerned or special requirements on products from that country.
Nevertheless, in order to improve the predictability of agri-food trade, the EU and the UK have agreed on procedures to speed up the recognition of disease-free regions in such cases.
What about trade between Great Britain and Northern Ireland?
The provisions of the Trade and Cooperation Agreement do not govern trade in goods between the EU and Northern Ireland, where the Protocol on Ireland and Northern Ireland included in the Withdrawal Agreement will apply.
In accordance with that Protocol, Union acquis, including the Union Customs Code, legislation on goods, sanitary rules for veterinary controls (“SPS rules”), rules on agricultural production/marketing, or VAT and excise in respect of goods, will apply to all goods entering Nortern Ireland.
As a result, from 1 January 2021, goods entering Northern Ireland from Great Britain will constitute “imports”. This means that such goods will need to comply with EU product rules and be subject to checks and controls for safety, health and other public policy purposes, including all necessary SPS controls applicable between the EU and the UK.
This solution was agreed between the EU and the UK to avoid a hard border on the island of Ireland, protects the all-island economy and the Good Friday (Belfast) Agreement in all its dimensions, and safeguards the integrity of the Single Market.
Following discussions in the Joint Committee on the Implementation of the Withdrawal Agreement, the EU and the UK have agreed to certain flexibilities that will help limit disruptions caused by the implementation of the Protocol on trade between Great Britain and Northern Ireland.
An agreement in principle has been found in the following areas, amongst others: export declarations, the supply of medicines, the supply of certain chilled meats and other food products to supermarkets, and a clarification on the application of State aid under the terms of the Protocol.
For example, certain chilled meat, for which imports in the Union market are normally prohibited, will be accepted for delivery to supermarkets in Northern Ireland during a limited period of 6 months:
- Minced meat of poultry, frozen or chilled. Chilled minced meat from animals other than poultry (e.g. minced beef.
- Chilled meat preparations (e.g. sausages, meatballs, pork pies)..
- Any fresh meat, including minced meat and meat preparations, produced from triangular trade (e.g. EU meat exported to Great Britain, cut or minced in Great Britain and re-exported to Northern Ireland).
Another example is that, during a limited period of 3 months, the goods coming from Great Britain and destined for supermarkets located in Northern Ireland will be accompanied with a simplified, collective certificate covering all the goods transported in the same truck, instead of individual certificates.
During this period of time, the UK shall maintain its current EU SPS legislation for the products concerned.
The scope is limited to a restricted number of food suppliers for supermarkets which are approved by the UK authorities after demonstrating that they meet a range of trust criteria. This list of members will be established by the United Kingdom in cooperation with the European Commission before 31 December 2020 and cannot be extended after that date.
Why will the current UK pet passport no longer be valid as of 1 January 2021 ?
The United Kingdom does not commit to align with the EU’s sanitary acquis and more specifically the rules on pet dogs, cats and ferrets after the end of the transition period, and that it will thus not remain in the EU’s SPS area.
Therefore, for pet dogs, cats and ferrets introduced into the EU and Northern Ireland an animal health certificate will be required (without the requirement for a test for rabies antibody).
This also applies to the UK Crown Dependencies.
More information is available on the Commission’s “readiness notice” on travelling between the EU and the United Kingdom.