UK-EU trade deal: What co-ops need to know

We look at some of the main implications for businesses, including co-ops

With the new EU-UK Trade and Cooperation Agreement (TCA) provisionally entering into force on 1 January, businesses in both territories, including co-ops will have to readjust to a new normal.

The 1,200-page treaty agreed upon on Christmas Eve has already been ratified by the UK Parliament and is currently awaiting ratification by the European Parliament and the Council of the European Union.

An Association Agreement, not a comprehensive free trade agreement

The deal is not a comprehensive free trade agreement but rather it is an Association Agreement under Article 207 of the Treaty on the Functioning of the European Union. This means that it not only touches on trade, but also looks at as social security, law enforcement and sanctions.

This deal will be reviewed five years after entry into force and every five years after that. “This is unusual for a normal trade agreement,” explained Prof René Repasi, associate professor of international and European Union law at Erasmus University in Rotterdam. He was the keynote speaker at a British-German webinar hosted by Green MEPs Anna Cavazzini and Sven Giegold along with former MEP, Professor Molly-Scott Cato on 7 January.

Unlike other EU trade deals, TCA includes a general termination clause without stating any reasons for it or previous announcement. Should this happen, the agreement would be terminated 12 months after the notification. This type of clause is not to be found in any other EU trade deals either, added Prof Repasi.

The deal also allows for partial termination clauses. “We can never be sure whether what we are reading today will still be in force 12 months on,” said Prof Repasi, adding that the deal had “a fragile construction” and there was a danger of it being terminated due to political reasons.

Northern Ireland remains part of the single market

Under the TCA, Northern Ireland will remain part of the EU’s single market and trade between the two will continue to be governed by the Northern Ireland Protocol to the Withdrawal Agreement. This means that Irish Sea will act as a border between NI and the rest of the UK. The Northern Ireland Retail Consortium expressed concerns about the lack of measures to reduce paperwork, checks and controls on the Irish Sea border under the TCA. The apex is particularly concerned about the costs and red tape NI retail businesses and those in GB who trade with NI will incur. Furthermore, adds NIRC, the TCA includes very limited provision for mutual recognition and equivalence, and this increases the likelihood of regulatory divergence between GB and NI.

The National Farmers Union has released guidance for British based agricultural businesses trading in NI who will have to register for the Trader Support Service, the new UK Trader Scheme and contact the Movement Assistance Scheme (MAS) for further support.

Another positive is the fact that TCA includes an agreement on organic equivalence, meaning the EU has agreed to recognise the UK as equivalent for organics until 31 December 2023. 

NFU organic forum chair Andrew Burgess said in a statement: “Exports to the EU have and always will be an important part of the UK organic supply chain and to be able to continue to export to that key market is a huge relief.

“We welcome the news that the trade deal included a technical annex on organic equivalence, meaning the EU and UK have agreed equivalency in organics until 31st December 2023. This will provide longer-term certainty for those organic businesses who have been concerned about losing this valuable export market.”

Zero tariffs and zero quotas in goods depend on rules of origin

The TCA provides for zero tariffs and zero quotas on all goods. Without the agreement, exports of certain meat or dairy products would face tariffs above 40% under WTO rates, or 25% for canned fish – either way. Exports of cars, vans and trucks would also be hit by a tariff of 10% either way. However, to benefit from these trade preferences, businesses must prove that their products fulfil all necessary ‘rules of origin’ requirements. 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).

There will be non-tariff barriers to trade and costs including paperwork, Export Health Certificates and checks. With the UK leaving the Customs Union, checks will apply to all goods traded.

The agreement provides for self-declaration of regulatory compliance for low-risk products and facilitations for other specific products of mutual interest, such as automotive, wine, organics, pharmaceuticals and chemicals. However, all UK goods entering the EU will still have to meet the EU’s high regulatory standards, including on food safety, such as sanitary and phytosanitary standards and product safety.

Trade in services will be affected by the restricted freedom of movement for persons

On trade in services, the EU and the UK have agreed to a level of openness going beyond the provisions of the WTO General Agreement on Trade in Services (GATS), but reflecting the fact that the UK will no longer benefit from the freedom to supply services across the EU. Freedom of movement for persons is restricted, which indirectly impacts the ability of UK businesses to provide services in EU countries. Short-term business trips and temporary secondments of highly-skilled employees will be allowed. Arrangements have also been made to facilitate short-term business trips and temporary secondments of highly-skilled employees. EU service suppliers wanting to offer services in the UK will not be treated any less favourably than UK operators in areas covered by the Agreement, so long as they comply with UK rules.

Similarly, UK service suppliers in the EU will have to comply with host-country rules in each Member State, and will no longer benefit from the country-of-origin principle, mutual recognition of professional qualifications, or passporting rights for financial services. UK service suppliers and investors must also establish themselves in the EU if they want to offer services across the Single Market.

Sanctions and implementing the level playing field

The agreement is accompanied by enforcement and safeguard mechanisms, including the possibility to suspend market access commitments, by reintroducing tariffs and/or quotas in the affected sector. Furthermore, both parties will be able to cross-retaliate if the other does not comply with a ruling of an independent arbitration tribunal. In addition to this, any substantial breach of obligations enshrined as “essential elements” of the Agreement, such as the fight against climate change, respect for democratic values and fundamental rights, or non-proliferation, can trigger the suspension or termination of all or part of the entire EU-UK Agreement.

Prof Repasi believes that key to determining whether a party has failed to comply with the agreement will be examining whether trade has been affected by the breach in question. For example, in 2011 the US claimed that Guatemala had not complied with labour laws and standards that formed part of the 2006 Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR FTA). While it was easy to prove some provisions had not been complied with because certain laws didn’t exist in Guatemala, the USA failed to prove that there were cost savings from labour rights violations, explained Prof Repasi. He added that it would be difficult to predict what would happen should the UK and the EU find themselves in a similar situation in the future.

The social security protocol

Under the agreement, EU citizens temporarily staying in, working in or moving to the UK and of UK nationals temporarily staying in, working in or moving to the EU after 1 January 2021 will benefit from a number of social security measures. A wide range of benefits are covered, including old-age and survivors’ pensions, healthcare (e.g. European Health Insurance Card) pre-retirement benefits, maternity/paternity benefits related to the birth of a child, or accidents at work.

“This went much further than was expected,” said Prof Repasi.

The deal is work in progress

While the deal covers important tariffs, customs and trade aspects, it is neither future oriented nor future proof, thinks Prof Repasi

“We have a trade deal that is unprecedented,” he said during the webinar.

He expressed concerns about role of NI within the UK and provisions that allow both the UK and the EU to unilaterally terminate the agreement or implement sanctions without involving their Parliaments in the process.

“This is not the end of the story,” he concluded.

During the same webinar MEP Sven Giegold said he was disappointed the TCA did not include any obligations for the UK and the EU to keep evolving jointly on tax matters. According to Mr Giegold the EU is in the process of drafting stricter legislation on money laundering supervision.  “The same won’t happen on the UK’s part because the trade deal will remain the status quo in the future,” he said, adding that the UK tax haven territory networks account for over a third of the world’s corporate tax avoidance (£395bn). Prof Scott Cato expressed similar concerns.

The sector remains resilient, says Co-operative UK

As businesses in the UK and the EU continue to navigate through the changes brought by the new EU-UK trade deal, co-operative apex bodies continue to work with members to support them adjust to a new regulatory environment.

Co-operatives UK says that while these are challenging time for co-ops in the UK, particularly those impacting goods, the sector remains resilient.

In collaboration with Anthony Collins Solicitors, the apex has published an outline of some of the key elements co‑ops should consider the impacts of the Brexit UK‑EU trade and co‑operation agreement.

With regard to VAT, is warns that UK co‑operatives “can no longer use the Mini-One-Stop shop (MOSS) single VAT return with HMRC to report sales of digital services to EU consumers and pay over EU VAT”.

This will affect any co‑op which operates in the EU via the cloud or sells services automatically over the internet.

“Whether selling to a UK or EU customer, you must still charge the VAT rate of their country of residency,” it adds. “You will need to register for VAT in each EU member state where you sell digital services to consumers, noting that the digital services sales threshold (€10,000) will no longer apply. EU businesses must apply for a regular UK VAT number to report on a quarterly basis any sales to UK customers.”

Co-operatives UK also warns that protection for trademark or design in the UK can no longer be done via the EU – it will have to be done through a national application to the Intellectual Property Office (IPO) or the Madrid Protocol or the Hague Convention for designs.

The IPO automatically converted the existing 1.4 million EU trademarks and 700,000 EU designs to comparable UK rights with effect from 1 January 2021. Co‑operatives that have applications for an EU trademark or designs which are ongoing have a period of nine months from 31 December 2020 to apply in the UK for the same protections.

Leaving the EU does not affect the current European patent system and existing European patents covering the UK are also unaffected.

Rose Marley, CEO of Co-operatives UK, said: “The end of the transition period sees co-ops that import goods simultaneously experiencing higher costs and reduced profitability, which may be impacted by further weakening of the pound. The extent of the impact of Brexit will not be known until post-transition conditions are actually experienced in real-time and it’s still early days.

“However, coupled with the ongoing economic impact of the Covid-19 pandemic, these are certainly challenging times for co-ops. However we know that co-ops are resilient, focus more on the longer term and put people and member needs before profits. Co-operatives UK will be monitoring the activity and impact of our members on an on-going basis and will provide advice and support in line with our member needs.”