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The UK-EU trade agreement: Implications for business

The accord provides some certainty following the end of the post-Brexit transition period, but many challenges still loom for businesses.
The UK-EU trade agreement: Implications for business

The narrative of the past several years surrounding Brexit has been about seeking certainty where there was none. At long last, a welcome degree of certainty arrived when the Trade and Cooperation Agreement (TCA) between the UK and the EU was agreed on 24 December 2020 and came into force from 11pm on 31 December 2020, the end of the transition period. However, alongside this certainty, there are also significant changes to which UK businesses will have to adapt to enable them to continue to do business with the EU.

Whilst the announcement that the UK and EU had reached a deal was undoubtedly good news for businesses concerned about the possibility of a no-deal Brexit, challenges remain. The TCA is far from comprehensive (eg, some sectors are not covered by the deal), nor does it reflect the ambition that both sides hoped for at the start of the negotiations. It is a lengthy document, with numerous intersections between different aspects. As always, the devil is in the detail — the text is complex, and it will take some time to understand exactly what impact it will have on businesses and how they operate. What we do know is that there are significant changes to business travel, social security, VAT, and customs, which businesses will have to get to grips with at pace.

The changes that businesses will have to understand apply not only to those doing business between the UK and the EU but also to those who operate within the UK internal market, trading between Great Britain and Northern Ireland, due to the specific rules that apply to Northern Ireland under the terms of the Northern Ireland Protocol, which also came into effect from 11pm on 31 December 2020.

Despite the prolonged negotiations, there are some aspects of the new relationship that still require clarification and for which further negotiations are necessary; for example, data adequacy and financial services equivalence. It is expected that the UK and the EU will continue to negotiate and build on the deal for the foreseeable future, and businesses must remain alert to developments that might affect their operations going forward.

All businesses must adapt to the changes arising as a result of leaving the single market and customs union and be prepared for the additional costs this will bring, as well as the time it will take to comply with new requirements. These costs may be especially challenging at a time when cash flow is under considerable pressure in many sectors due to COVID-19.

Whilst there is still much to do to understand the deal’s impact on specific sectors, three areas of significant change relate to the movement of goods, people, and data.

Movement of goods

The TCA confirms there are no tariffs or quotas on the majority of goods that move between the EU and the UK. However, additional processes and paperwork are required when exporting to the EU, including customs declarations, product safety certifications, new VAT requirements, and new procedures for controlled goods (eg, alcohol).

Under the rules-of-origin requirements, manufacturing businesses will need not only to claim zero tariffs for qualifying goods that do not originate wholly in the UK but also be able to prove that goods comply with the rules-of-origin requirements.

These changes will affect trade between the UK and the EU, and there will also be changes for businesses operating between Great Britain and Northern Ireland. Under the Northern Ireland Protocol, Northern Ireland will remain in the EU customs union and single market for goods, and, as a result, there will be checks required on certain goods imported into Northern Ireland from Great Britain. In particular, there will be checks on certain food products arriving into Northern Ireland to ensure that they comply with EU standards, although a three-month grace period has been granted to minimise disruption to food supplies into Northern Ireland.

Movement of people

The UK’s new immigration rules came into effect from 1 January 2021, and these, together with the changes in the TCA, mean that travelling to carry out work in the EU is no longer as straightforward as it has been. Immigration rules are not included in the TCA and are dealt with at a national level, but the TCA does include rules covering short-term business visitors.

Once travel between the UK and the EU resumes, UK travellers will need to ensure that they have at least six months’ validity on their passports on the day of travel to the EU. Whilst UK nationals can spend 90 out of 180 days in the Schengen Area for both business and personal travel, there will be additional border checks. Further, for business travel, it is important to understand what permissible business activities are in each member state to determine whether a visa or work permission is required. In the short term, if businesses have not already done so, they should make sure that any EU staff employed in the UK have applied for settled status under the EU Settlement Scheme, and if they are considering employing staff from the EU in the future, they should also apply for a sponsor licence.

Movement of personal data

The movement of personal data is not considered specifically in the TCA, and the EU is still assessing the UK’s data privacy regime before deciding whether to grant a data adequacy decision in favour of the UK. Under the EU General Data Protection Regulation, personal data — whether relating to employees, customers, or suppliers — can’t be moved to countries outside of the EU and the European Economic Area (EEA), unless covered by an adequacy decision.

The deal does allow for a grace period of four months (extendable by a further two months) during which time personal data can continue to flow between the EU/EEA and the UK, as long as the UK does not change its data protection laws. Whilst this grace period is helpful, it does not guarantee that the UK will be granted data adequacy status. As a result, businesses need to understand the personal data flows for their businesses and determine which personal data flows from the EU/EEA would have a negative impact on their operations in the event of there being no positive data adequacy decision. These personal data flows will need to be protected by standard contractual terms.

Businesses need to consider other key steps in relation to personal data irrespective of whether a data adequacy agreement is granted. These include assessing whether an EU supervisory authority should be the lead supervisory authority for UK businesses controlling or processing data across EU borders and whether an EU/EEA representative needs to be appointed for UK businesses that are targeting goods or services to, or monitoring, individuals in the EU.

Note that the UK Information Commissioner’s Office regards EU/EEA member states as adequate, and as a result, transfers of personal data from the UK to the EU/EEA should not be affected.

Professional and financial services

The TCA contains little on professional or financial services, and as a result, the situation remains unclear.

There are provisions relating to the mutual recognition of professional qualifications, but for both professional and business services the UK is dependent on an equivalence determination from the EU. In the joint declarations that accompany the TCA, the UK and EU have agreed to establish structured regulatory cooperation on financial services and are aiming to agree a memorandum of understanding to establish this framework by the end of March 2021. Note that this does not guarantee that the EU will grant equivalence decisions, although there were some limited temporary equivalence decisions granted by the EU late in 2020. These included equivalence for UK-based central counterparties (CCPs) to allow EU entities to continue to clear derivatives trades (for 18 months) in the UK and for central securities depositories (for six months). Most large UK-based firms have prepared by setting up and authorising EU-based entities and are now obliged to shift business (eg, share trading, noncentrally cleared derivatives) for EU-based clients through them.

The end of the transition period and the TCA do not mean that the Brexit effort for businesses is over. Rather it is now that businesses must renew their efforts to manage this new way of working and should not underestimate the work still needed to implement changes brought by the fine print of the deal.

Caroline Turnbull-Hall is director of regulation and legal issues at PwC Caroline Turnbull-Hall is director of regulation and legal issues at PwC. To comment on this article or to suggest an idea for another article, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.