The UK and EU have announced that they have provisionally agreed a Trade & Cooperation Agreement that will determine the framework for a new UK-EU relationship.
Whilst the trade deal negotiated by the government falls short on the trade benefits we previously enjoyed, it is a starting point for our future relationship with the EU. A no deal outcome would have done catastrophic damage to manufacturing in Britain.
When compared with the UK’s integration in the EU’s wide-ranging legal, regulatory and economic structures, the provisional agreement still marks a fundamental moment in the UK-EU relationship.
Even with commitments in the provisional agreement to support elements of the existing relationship in the trade in Goods and Services, there will be significant change for any business operating in Great Britain (GB), Northern Ireland (NI) and EU markets.
The rules that govern how business deal with the previous EU/UK border will end. Business will need to learn to operate in and through the UK differently, under new regimes that will be interpreted, enforced and developed in different ways for trade between GB and EU, and GB and NI.
The passing of the EU (Future Relationships) Bill ends more than four years of uncertainty and dispute, during which investment has faltered. We now have at least some clarity from which we can build.
That said, it confirms the introduction of other trade barriers for businesses exporting from the UK and creates large amount of friction with significant burden and immediate uncertainty for many.
Cause for concern for manufacturers from the agreement
1. Implementation: No bilateral easement or phasing of new arrangements
The Trade agreement will introduce new rules that the UK Government and EU will need to enact and set out in guidance to provide the framework that will allow for the legal certainty required by firms to conduct trade.
The timing of the provisional trade agreement does not address all of the challenges that the economy is responding to at the end of the transition period. To help address the immense implications, the UK and the EU need to urgently conclude a series of bilateral easements for a period of time so that Business in the UK, EU and globally who are dependent upon the efficient and frictionless trade between both Parties, have time to adjust. Without such adjustments, trade will be disrupted, businesses will become less competitive and increase broader economic vulnerability at a time when maximum (global) co-operation is necessary.
2. Rules of Origin
The Trade agreement delivers on duty and quota free trade, only so long as exports meet stringent local content requirements. The lack of inclusion of allowing imported non-EU parts to count towards the agreement’s rules-of-origin thresholds, which determine whether a product can be traded tariff-free or not, will provide complications for UK business and could quickly lead to punitive tariffs being placed on UK business.
There are a number of issues that arise:
- Bilateral cumulation: While bilateral cumulation is helpful it is not sufficient for a number of sectors in manufacturing, particularly sectors who depend on non-UK/EU inputs.
- EU tariff schedule; A number of key UK manufacturing sectors are vulnerable to the imposition of high EU’s tariffs if they fail to meet cumulation requirements. For goods that attract a zero or low tariff, there is little or no consequence. The higher the EU’s tariff, the greater the possible cost implications for UK firms.
- Certification: self-certification for the origin of goods in order to demonstrate content towards ‘cumulation’ requirements experience and resources. UK firms will need identify the complete economic origins across their supply chain and understand the ‘’transformation” requirements to meet cumulation
3. Non-Tariff Barriers/Red Tape
The provisional agreement has done nothing to resolve the significant paperwork filling that businesses will have to get used to – an estimated up to 400 million new forms. The cost to business from this will be significant and even after all systems have bedded in and the queues at our ports have normalised, we would still expect each delivery to take longer than it did before this deal. In today’s optimised supply chains, this could impact operations in the UK in the longer term and will impact integrated supply chains.
4. Conformity Assessment
The Trade agreement does have the opportunity to maximise trade opportunities and extend the ongoing collaboration to minimise non-trade barriers. However the failure to include provisions allowing UK-based product testing and assessment bodies to continue certifying products for the EU market will add additional costs for firms supplying goods requiring such authorisations to supply goods to the EU, NI and GB markets.
- New product certification requirements will be needed for GB firms wishing to export to EU and NI who will have to comply with ‘new’ UK and EU technical regulations & standards.
- Increased costs from new design, test, certification, and administration to cater for this new double regulation for no real gain. The theoretical gain is that it allows deregulation for domestic market.
- Implications for the UK to diverge from EU rules and approaches, and the consequences of doing so such as; low cost destination for importing nations; future disputes/reviews with the EU, loss of UK’s influence & reputation in global standards
5. Dispute Resolution
The provisional agreement provides for a new institutional and governance infrastructure set up through the future Treaty. This will manage the relationship and resolve any disputes and governs the whole agreement. Committees will review matters and any dispute will be handled diplomatically, or can be escalated to an independent arbitration arrangement. A failure to enforce joint commitments or rectify a breach can lead to suspension of part of the agreement, or the imposition of trade remedies such as tariffs. Termination of the agreement is also possible in the extreme. Only 12 months’ notice needs to be given by either side to trigger this termination.
6. Services: Short term business travel and Mutual recognition of professional qualifications
While the agreement allows for short-term business visits (for example, for discussions on a contract for sale) as well as provision of services, these are all subject to numerous restrictions. For example, independent professionals must possess a degree and six years’ experience to qualify for access, and some sectors still remain closed to them. They may still be required to apply for visas or work permits and will be dependent on the sector and/or member states.
The provisional agreement does not provide for mutual recognition of professional qualifications, although it does set up a framework for the mutual recognition of professional qualifications through the Partnership Council, but no new qualifications will be recognised on day one. This is a very significant problem for many industries as movement of key personnel to carry out work in the EU will much more restricted. For example, a service engineer needing to repair a piece of equipment delivered from a UK company, may not be able to carry out the service, if their UK qualifications won’t be recognised. The framework is in line with the EU CETA agreement which has produced little success in this area in almost 7 years.
7. UK REACH
Having dual bodies now in the UK and the EU to certify products containing chemicals. It will create significantly more cost and increased bureaucracy, without any obvious advantage.
This will especially be a problem for small companies who will have to register their products in the EU REACH and now will have to do the same for an equivalent UK REACH, which in reality is quite a small market. There will definitely be some EU companies that will consider importing products into the UK as not worthwhile, given the extra cost, so there will be limited consumer choice on some items.Government must act quickly to address issues and publish a robust Industrial Strategy It is clear that Government must move quickly to finalise data adequacy arrangements and work with both UK business and our EU partners to address a wide range of issues such as rules of origin, recognition of professional qualifications and chemical registration systems where the new arrangements are likely to be most challenging. Finally, if we are to maximise future success and opportunities, it is critical that the Government sets out a clear, powerful, ambitious and funded industrial strategy so that business can develop the confidence needed to restart investment, create jobs and boost economic growth.
Author: Fergus McReynolds Director of EU Affairs, MAKE UK