Landmark Post-Brexit Trade and Cooperation Agreement Reached

On 24 December 2020, the European Commission and the UK reached an Agreement in principle, on the terms of their future cooperation. The deal has been agreed just in time, as the transition period – which has allowed the UK and the EU to function as before, on the basis of a single market – will end on 31 December 2020, ending free movement. As from 1 January 2021, the UK will leave the EU Single Market and the EU Customs Union. It will no longer be a part of or subject to EU policies, laws, and international agreements.

Hong Kong traders selling their goods to European customers will likely know that, starting on 1 January 2021, the EU and the UK will comprise two separate markets. They will operate on the basis of two distinct regulatory and legal jurisdictions. This will inevitably create barriers to trade in goods and services, as well as to cross-border mobility. There will no longer be free movement in either direction.

The terms of the new Trade and Cooperation Agreement will, instead, govern the two jurisdictions’ future relations as the UK becomes a third country. It commits both Parties to upholding common high standards ensuring the protection of labour and social standards, environmental protection, the fight against climate change including carbon pricing, and tax transparency. Furthermore, the Agreement is based on international law, not EU law. According to the British Prime Minister’s office, there will be no role for the European Court of Justice and no requirements for the UK to continue following EU law.

However, perhaps most importantly for Hong Kong traders, the EU-UK Agreement goes beyond other EU free trade agreements with other third countries such as Canada or Japan, by providing for zero tariffs and zero quotas on all goods. The UK and EU have agreed to unprecedented 100% tariff liberalisation. This means that there will be no tariffs or quotas on the movement of goods produced between the UK and the EU. This is hailed as the first time the EU has agreed a zero tariff zero quota deal with any third country trading partner.

However, it should be kept in mind that the Agreement’s zero tariffs or quotas on trade between the UK and the EU will be maintained where goods meet the relevant rules of origin. Businesses must prove that their products fulfil all necessary rules of origin requirements to benefit from such trade liberalisation. This will ensure, according to the Commission, that the trade preferences granted under the Agreement will benefit EU and UK operators rather than any other third countries, thus also preventing circumvention. To facilitate compliance and cut red tape, the Agreement allows traders to self-certify the origin of goods and provides for ‘full cumulation’ (meaning traders can account not only for the originating materials used, but also if processing took place in the UK or EU).

As the free movement of goods will end, customs checks and controls will apply, even though, it is stated, customs procedures will be simplified pursuant to the Agreement. For example, each side has agreed to recognise the other’s programmes for trusted traders (“Authorised Economic Operators”). This includes provisions to support the efficiency of documentary clearance, transparency, advance rulings and non-discrimination. The Parties have agreed measures that are tailored to the UK-EU trading relationship, such as cooperation at ‘roll-on roll-off’ ports (e.g., Dover and Holyhead on the UK side) and also on exploring the possibility of sharing import and export declaration data, including by setting up pilot programmes where appropriate. This will aim at reducing administrative burdens on businesses in the longer term.

The Agreement includes a Chapter on technical barriers to trade (TBT) which addresses regulatory barriers to trade between the UK and EU. Hong Kong sellers should know that each Party will have the freedom to regulate goods in the way most appropriate for their own market. This means that the existing and any future EU rules in the products field – including for toys, textiles, footwear, electronics, cosmetics, chemicals, medical devices and PPE – will no longer apply to the UK. For exports of products such as these, from the UK to the EU, the EU rules including the CE marking requirements will of course continue to apply.

The Agreement nonetheless builds on the WTO TBT agreement and includes provisions on technical regulation, conformity assessment, standardisation, accreditation, market surveillance as well as marking and labelling. For example, on marking and labelling, the Agreement states (among other things) that where a Party requires mandatory marking or labelling of products, it shall only require information which is relevant for consumers or users of the product or information that indicates that the product conforms to the mandatory technical requirements.

The Agreement also envisages arrangements to share information on dangerous and non-compliant products on the UK and EU markets. Combined with operational cooperation between UK and EU market surveillance authorities, this exchange of information will, it is stated, help both sides better protect their consumers.

Both parties will henceforth advance with the signature and ratification of the Agreement, in line with their respective rules and procedures, with a view to its provisional application from 1 January 2021. In addition, the deal still has to be approved by all 27 EU Member States. Due to the negotiations being finalised at a very late stage, before the expiry of the transition period, the Commission has proposed to apply the Agreement on a provisional basis, for a limited period of time until 28 February 2021. This date may, if need be, be amended by mutual consent of the European Union and the UK.