The EU-UK Trade and Cooperation Agreement (TCA) provides a robust framework for trade between the EU and the UK. Despite this, trade will inevitably be less simple than it was before Brexit.
The customs border created between the EU and the UK has implications for importers and exporters. In addition to customs declarations, checks and controls, traders are required to register with customs officials and are expected to provide relevant paperwork. Rules related to goods – from VAT payments to rules of origin standards – further complicate the customs process.
For traders inexperienced in non-EU trade, the post-Brexit customs process can be difficult. Disruptions and delays to imports and exports have an impact on consumers as well.
What are Tariff-free terms?
In theory, the EU-UK Trade and Cooperation Agreement (TCA) provides for tariff-free and quota-free trade between the EU and the UK. However, tariff-free terms only apply to goods that satisfy the Agreement’s ‘rules of origin’ standards. These ensure that only goods which are produced or processed in the EU or in the UK are allowed tariff-free market access.
Goods that comply with rules of origin standards will be tariff-free, while goods that fail to comply with rules of origin standards will not be tariff-free.
The Agreement provides ways to determine the origin of a product, these include evaluating the proportion of a product’s parts manufactured outside of the EU or UK and the country or countries in which a product was processed or assembled.
Customs Process & the Union Customs Code (UCC):
In the EU, the customs process is governed by the Union Customs Code (UCC). Introduced in 2016, the UCC outlines the legal framework for customs rules and procedures in the EU. Since 1 January 2021, Irish traders must comply with customs obligations when transporting goods to and through the UK.
Traders have to register for customs through Revenue Online Services (ROS). In addition to designating an individual responsible for the submission of customs declarations, importers and exporters are required to have an Economic Operators Registration and Identification (EORI) number. EORI numbers are used as a reference for EU customs officials, providing information on customs interactions.
Traders that meet certain customs criteria are entitled to apply for recognition as an Authorised Economic Operator (AEO). These are economic operators that have consistently complied with customs rules and that have met safety and security standards, financial solvency standards and standards of competence. AEO’s are entitled to benefits including: Priority if physical controls are conducted; simplified procedures; and a reduction in waivers and Comprehensive Guarantees.
Plant/ Animal Products & TRACES:
The EU-UK Trade and Cooperation Agreement (TCA) recognises the right of the EU and the UK to independently regulate Sanitary and Phytosanitary (SPS) measures. This means that the EU and the UK will operate independent regulatory regimes for the protection of humans, plants and animals from diseases, toxins and contaminants.
For example, the EU is entitled to raise poultry processing standards without UK compliance, and similarly, the UK is entitled to raise food labelling standards without EU compliance. Despite divergence on SPS measures, UK goods entering the EU are expected to adhere to strict EU food safety standards.
Irish importers and exporters of plant and animal products are required to register with the Department of Agriculture, Food and the Marine (DAFM) and with TRACES, the European Commission’s platform for SPS certification. Importers are required to adhere to additional import rules and regulations for UK products. These include: Ensuring that the exporter in question is approved by TRACES; ensuring that the haulier in question has EU authorisation; providing pre-notification of imports of live animals; and submitting copies of relevant health certificates to TRACES.
Imported plant and animal products have to pass through Border Inspection Posts (BIPs) at relevant ports and airports. Checks at BIPs include documentary checks, identity checks and physical checks. BIPs are governed by multiple EU directives including Commission Decision 2009/821/EC and Commission Regulation (EC) No 206/2009.
From a consumer perspective, additional import and export costs due to certification requirements and border disruption and delay may increase consumer costs.
UK Landbridge & the Common Transit Convention (CTC):
The UK landbridge refers to the transit route connecting Ireland to the rest of the EU via the UK’s road and port network. Providing a convenient route to continental Europe, the landbridge is essential for the transportation of goods, particularly perishable goods. A 2018 report from the Irish Maritime Development Office, found that around 40% in the value of Irish exports to the EU use the UK landbridge. Post-Brexit, Irish exporters are entitled to use the landbridge as before.
The UK’s decision to remain a member of the Common Transit Convention (CTC), which facilitates the movement of goods between EU Member States, is important. However exporters are required to adhere to the provisions of the UK’s Border Operating Model (BOM), these include the pre-notification process and the provision of export health certificates.
Value Added Tax & the EU VAT Directive:
On 1 January 2021, the UK exited the EU VAT regime becoming a third country for VAT purposes. This means that the UK is free to impose its own VAT rules and is exempt from the EU VAT Directive (Directive 2006/112/EC) which provides broad rules and regulations for VAT. An example of this is the EU’s minimum VAT rate of 15%. Since 1 January 2021, the UK has complete control over its VAT rates.
A further development is the ending of B2B (Business to Business) Intra-Community Supply (ICS) and Intra-Community Acquisition (ICA). ICS and ICA transactions apply to the transporting of goods between companies in different EU Member States. In essence, they determine which Member State’s VAT rules apply.
Under B2B Intra-Community Supply (ICS) VAT is essentially exempt in the Member State of the company supplying goods (ICS). Instead, VAT is collected in the Member State of the company acquiring goods (ICA). This prevents a company from having to register for VAT in every Member State in which it operates. If an Irish company were to export goods to a French company then VAT would be charged in France rather than in Ireland.
The ending of B2B Intra-Community Supplies means that movements of goods will be considered imports and exports subject to EU or UK import VAT.
Due to the Northern Ireland Protocol, Northern Ireland is in a special VAT relationship with the EU.
Trade in Services:
The EU-UK Trade and Cooperation Agreement (TCA) contains limited provisions on services, those that are included, notably those on financial services, are narrow in nature. Although the TCA includes market access provisions designed to discourage government policy interventions and discriminatory practices, it is less comprehensive with regards to services than previous EU agreements.
‘Passporting’, a process that enables firms to trade freely in EU Member States with limited additional authorisation, is absent from the Agreement. Instead, UK-based firms will have to obtain approval in the individual EU Member States in which they operate. Similarly, EU-based firms will have to obtain UK authorisation.
In terms of intellectual property, there remain questions with respect to European Union Trademarks (EUTMs). While EUTMs registered before 1 January 2021 were ‘cloned’ and transferred to equivalent UK trademark registrations, EUTM applications pending on 1 January 2021 will have to be applied for separately in order to obtain equivalent UK coverage.
Where We Stand
Trade is of fundamental importance for the future relationship between the EU and the UK. In an increasingly globalised world, trade represents an integral bridge between countries. While the EU-UK Trade and Cooperation Agreement (TCA) provides a robust framework for future trade relations, it has limitations.
The TCA’s tariff-free terms are contingent on regulatory compliance in the form of rules of origin standards and the introduction of customs checks and controls will complicate trade generally, creating the potential for delays and disruption. VAT rules will pose a further impediment for importers and exporters.
Equally problematic are the limited provisions on trade in services, these will have a disproportionate impact on financial services firms.