The impact of the deal on businesses

On 1 January 2021 the transition period expired (Transition Period) and the UK exited the EU Single Market and Customs Union.

From this date, the UK and the EU embarked upon a new relationship, governed by the post-Brexit EU-UK Trade and Cooperation Agreement (the Agreement).

On 24 December the UK and the EU announced that they had concluded their tumultuous negotiations and agreed on the terms of the Agreement.  At 1,246 pages, the Agreement governs not only how trade is to continue between the UK and the EU, but also includes terms governing data protection, services, fisheries, security co-operation, aviation and other matters.

Notably, the Agreement is structured as a “framework” deal and leaves many issues open to be decided in future discussions and negotiations between the UK and the EU.  Indeed, given that the Agreement is light on certain areas, particularly around services, it is anticipated that future agreements will be made to bolster those areas.

Understandably, the Agreement is lengthy and complex and we will be exploring some of the key areas of the Agreement in more depth in the near future.  In this guide, we set out our initial thoughts on some of the key areas within the Agreement that businesses should be aware of.

Trade of goods

One of the fundamental aspects of the Agreement is that it ensures that tariff and quota-free trading in goods between the UK and the EU will continue – no doubt a welcome relief to the majority of the UK’s manufacturing businesses which rely on “just in time” delivery for parts and raw materials, as well as other businesses which import/export goods.

However, it is important to note that trade of goods will no longer be as seamless as it was prior to the end of the Transition Period, as certain non-tariff barriers to trade will arise as a result of the UK’s departure from the single market. Businesses will need to be prepared for a higher degree of administrative oversight with regards to customs formalities and regulatory checks as these will vary depending on the type and classification of goods being traded.

Additionally, the tariff and quota-free assurances under the Agreement relate to products which “originate” in the UK. This means that the products must comply with the appropriate rules of origin and demonstrate that the products include the amount of local content required under the Agreement. Businesses will be able to self-certify the origin of the goods and cumulation of UK and EU goods is provided for. However, businesses will need to be aware of the rules and, to the extent the goods are not deemed to originate in the UK, tariffs and quotas may apply.

The Agreement does attempt to mitigate the effect of other non-tariff barriers by allowing businesses to self-certify the conformity of low-risk imported goods with regulatory standards and permitting certain customs formalities to be handled by Authorised Economic Operators. However, despite these measures, some friction will remain and it is clear that businesses will need to devote additional thought to any elements of their supply chain that straddles the border between the UK and EU.

For the first time in decades, customs checks and regulatory oversight on the movement of goods between the UK and EU will become a familiar aspect of this relationship.

Trade in services

The Agreement’s treatment of trade in services is not as expansive as its provisions relating to the trade in goods.

The consequence of this is that UK businesses will no longer be able to operate with relative freedom when providing services across the EU; businesses must now ensure that they remain compliant with the local laws and regulations of each member state in which they operate. This is particularly apparent for the financial services market as UK businesses providing such services will no longer be able to rely on “passporting” rights to operate across the EU (and vice versa).

Additionally, the Agreement does not contain any mutual recognition of professional qualifications, meaning that individuals must hold separate qualifications in each member state to conduct regulated professions such as engineering, architecture, medical practices and dentistry. There does exist a high-level framework for mutual recognition decisions to be made but this is a forward-looking provision and decisions must be made on a case-by-case basis.

Data transfers

The Agreement permits the flow of personal data to continue between the UK and the EU for a grace period of up to 6 months (commencing 1st January 2021) provided that the provisions of the GDPR continue to be complied with.

At the end of this period, it is hoped that an adequacy decision regarding the UK’s data protection regime will be reached to make the transition seamless. An adequacy decision is effectively approval of the UK’s data protection regime as an equivalent to the protections afforded within the EU by the GDPR.

However, an adequacy decision is not guaranteed and it is recommended that businesses review their compliance with data protection legislation on an ongoing basis and remain vigilant of any change in data protection law in the coming months.

Free movement of people

As expected, the Agreement does not include any terms to continue the free movement of people, which ended on 31 December 2020.

UK citizens travelling overseas will need to comply with the relevant laws of each country they are travelling to.

EU nationals will need to comply with the same requirements as migrants to the UK from the rest of the world, however, EU nationals already settled within the UK pre-December 2020 are eligible to apply for settled status until June 2021. Equivalent rights will be granted to UK citizens settled within the EU prior to 31st December 2020.

The Agreement does, however, include provisions allowing for both visa-free short visits by UK and EU citizens in their respective countries and short business-related trips.

Explore the Myerson Brexit Hub

More information regarding Brexit and its impact on businesses and employers can be found on our Brexit Hub.

The full text of the Agreement is available here. The Government has also published a helpful summary of the Agreement, the Summary Explainer, which is available to read through.

We are here to help

If you would like further information on how we can help with the changes that have been made in the post Brexit deal or if you have any questions, please do not hesitate to contact a member of our corporate team on 0161 941 4000 or via email.

The Brexit Trade Deal - Assessing its Impact on SMEs