The Key Terms of the Brexit Deal Analyzed
U.K. Prime Minister Boris Johnson’s post-Brexit trade deal is unique in that it will leave businesses facing more barriers to trade than they did while Britain was a member of the European Union.
Trade in Goods
Summary: The agreement ensures that most goods traded between the EU and the U.K. won’t face new tariffs or quotas. However, British exporters will face an array of regulatory hurdles that will make it more costly and burdensome to do business in Europe.
Rules of origin: U.K. firms will have to certify the origin of their exports to qualify for tariff-free access to the EU. There will be limits on what proportion of goods can be assembled from parts made overseas to qualify for tariff-free access.
Cumulation: EU parts will count as local content.
Cars will face special restrictions. Gasoline or diesel vehicles will need to be made with at least 55% local content to escape tariffs.
Electric transition: electric and hybrid vehicles will be allowed to contain 60% overseas content -- but that will fall to 55% by 2026. Batteries will be allowed to contain 70% international content, but that will drop over the same period of time to 50%.
Testing and certification: The absence of a mutual recognition agreement means U.K. regulatory bodies won’t be able to certify products for sale in the EU, a potentially big barrier to trade.
Summary: The deal offers little clarity for financial firms. There is no decision on so-called equivalence, which would allow firms to sell their services into a single market from the City of London. The agreement only features standard provisions on financial services, meaning it doesn’t include commitments on market access.
The U.K. and EU will discuss how to move forward on specific equivalence decisions. The European Commission, which is in charge of allowing access to the EU’s market, said it needs more information from the U.K. and it doesn’t plan to adopt any more equivalence decisions at this point.
Regulatory cooperation: The two sides made a joint declaration to support enhanced cooperation on financial oversight. They aim to agree on a Memorandum of Understanding by March.
Level Playing Field
Summary: This was one of the thorniest parts of the negotiation. Both sides committed to upholding their environmental, social, labor, and tax transparency standards to make sure they don’t undercut each other.
The deal doesn’t include ratchet clauses that would force the U.K. to stiffen its rules in lockstep with the EU. Instead, it includes a re-balancing mechanism: Either side will be able to retaliate with tariffs if they diverge too much.
“Such measures shall be restricted with respect to their scope and duration to what is strictly necessary and proportionate in order to remedy the situation,” according to the agreement.
Any retaliatory measures will also be subject to arbitration by an independent panel -- not the European Court of Justice.
Both sides will be prevented from giving an unlimited state guarantee to cover a company’s debts or liabilities. In line with EU law, the U.K. won’t be able to rescue a failing firm without a restructuring plan, and any aid to failing banks will have to be the minimum necessary to help it wind down.
The U.K. and the EU will have to disclose the subsidies they award.
Summary: Disputes on the deal must be negotiated between the EU and the U.K. with no role for the EU courts.
An arbitration panel may rule on some areas and can order one side to resolve the problem or offer compensation.
Failure to do so allows the other side to “suspend obligations” which could mean blocking some access or cooperation.
If there’s a “serious economic, societal or environmental difficulty,” either side can react with time-limited measures.
Summary: This was one of the most contentious areas after disputes over the control of British fishing grounds came to symbolize the country’s desire to leave the EU.
U.K. fleets will take 25% of the current EU to catch in British waters, worth 146 million pounds ($198 million), phased in over five years. Britain’s opening negotiating position called for an 80% increase, so this represents a significant compromise.
There is a transition period of five-and-a-half years during which reciprocal access rights to each other’s waters remain unchanged.
After that point, British officials stress, the U.K. will be in control of its own waters -- but the EU would be able to impose tariffs on fish if its access to British waters was limited.
Summary: The U.K. exit from the European single market on Jan. 1 was going to lead to more customs bureaucracy for both sides regardless of whether they reached a free-trade deal or not. The accord largely commits the EU and Britain to follow international practices aimed at minimizing customs costs for businesses.
Both sides pledge to limit customs red tape and will have trusted-trader programs.
The U.K. says there will be “bespoke” measures to help firms including cooperation at roll-on, roll-off ports such as Dover and Holyhead. The EU says there will be specific “facilitation arrangements” for wine, as well as organic, automotive, pharmaceutical, and chemical products.
Aviation and Trucking
Summary: The EU has stopped short of granting automatic recognition to British aerospace designs and products, according to the U.K. government.
Such recognition will be confined to minor changes until the EU “gains confidence in the U.K.’s capability for overseeing design certification,” the document says.
On trucking: Both sides commit to “good and efficient management of visa and border arrangements for road hauliers, in particular across the U.K.- Union border” and to “appropriately facilitate the entry and stay of” truckers.
Summary: The deal includes a temporary solution to keep data flowing between the EU and U.K. until the bloc has adopted a data adequacy decision.
This bridge period starts on the date the new deal takes effect and will last a maximum of six months, or end as soon as the EU’s data adequacy decision has been finalized, which is expected to happen in early 2021.
Personal data shipped to the U.K. during this interim period “shall not be considered as a transfer to a third country” under EU law, the document says, adding that the U.K. has to suspend its own transfer mechanism.
If the U.K. applies a new transfer tool to ship data to a third country during the interim period, it should “as far as is reasonably possible” inform the EU.
Both sides committed to upholding high levels of data protection standards and to ensure “cross-border data flows to facilitate trade in the digital economy” without imposing limits on where data can be stored or processed.
Summary: The U.K. won’t have access to the EU’s internal energy market. This was expected but there will be new arrangements in place by April 2022 to make sure that trading is smooth and efficient on interconnectors -- huge power cables that run between the U.K. and Europe.
The U.K. is a net importer of electricity and gets 8% of its power from the continent. As an island nation, making sure trading across these interconnectors is efficient is important to Britain.
Making trading smooth will “benefit U.K. consumers and help integrate renewables and other clean technologies onto the grid in line with our domestic commitment to net-zero emissions,” the U.K. document says.
The deal includes guarantees on the security of energy supply.
The U.K. is no longer part of the EU’s emissions trading system but both sides agreed to cooperate on carbon pricing in the future and “consider linking their respective systems.”
The U.K.-EU agreement would be suspended if either side breaches their commitments to the 2015 Paris Agreement on climate.
Summary: The deal means that there will no longer be automatic mutual recognition of professional qualifications.
“Doctors, nurses, dentists, pharmacists, vets, engineers or architects must have their qualifications recognized in each member state they wish to practice in,” according to the deal.
This is a loss for the U.K., which had wanted “comprehensive coverage” to ensure there were no “unnecessary” barriers to regulated services.
However, the deal does create a framework for the recognition of qualifications in the future.
Summary: The U.K. and EU agreed that short-term business visitors won’t need to hold work permits or undergo economic needs tests.
“Managers and specialists” will be allowed to stay for up to three years and trainees for up to a year. People visiting to set up businesses will be permitted to remain for as long as 90 days in any six-month period, according to the deal.
Summary: “There are no provisions constraining our domestic tax regime or tax rates,” according to the U.K. government. Both sides pledged to “uphold global standards on tax transparency and fighting tax avoidance.”
Summary: Trade of farm goods will benefit from the zero-tariff, zero-quota terms between the two sides. But the lack of an equivalence agreement on phytosanitary rules means shippers will face new hurdles at the border.
No tariffs: The lack of levies is “especially important“ for the agriculture and fishing sector, as some meat and dairy products would have faced taxes topping 40% under WTO terms, according to the EU.
Extra checks: U.K. agri-food consignments will have to have health certificates and undergo sanitary and phyto-sanitary controls at member states’ border inspection posts.
Both sides will be able to maintain their own sanitary standards going forward.
Food and agri-products entering Northern Ireland from Great Britain will be subject to checks and phyto-sanitary controls.
Summary: The deal will allow cooperation between the U.K. and EU, particularly as part of investigations into terrorism and serious crime, including with the exchange of DNA, fingerprint, and airline passenger information.
There will be cooperation between the U.K. and EU law-enforcement agencies, but the U.K. loses membership in Europol and Eurojust.
Extradition: The U.K. said there will similar cooperation on extraditions to that between the EU and Norway and Iceland, “but with appropriate further safeguards for individuals beyond those in the European Arrest Warrant.”
An arrest warrant “may not be refused on the grounds that the offense may be regarded by the executing State as a political offense, as an offense connected with a political offense or as an offense inspired by political motives.”
Where extradition isn’t possible, there will still be “a path to justice in every case” such as requiring EU countries to refer cases to prosecution.
Source Bloomberg News