As we all know, following long and drawn-out negotiations between the UK and the EU, a deal was finally struck on the 24 December 2020 that governs trade between the two sides worth more than £650bn. The agreement will inevitably evolve during its implementation, but it’s an important step in laying the foundations for our future relationship with our European counterparts.
The trade agreement covers technical measures including goods and services, autos, transport, data flow and fisheries, amongst others. These began to have an effect on businesses on the 1st of January as Britain was granted its status as a ‘third-country’.
The massive exception to the rule that is biting many businesses
Crucially, neither party will impose tariffs on goods being traded between the UK and EU, alongside a zero-quota agreement that prevents a limit on the quantity of traded goods.
There is a massive exception to this rule, however, which is biting many trading businesses. To benefit from the zero-tariff regime, goods must ‘originate’ within the free trade area.
Materials originating in third countries will not satisfy this rule, encouraging material sourcing within the UK and EEA. The onus is on the importer to show that the goods come within the ‘Rules of Origin’ classification with either a statement on origin or through the importer’s knowledge. It means there is no need for certificates from authorities, but has generated a significant amount of additional paperwork and stress, as companies try to decipher the rules to determine whether their goods qualify.
It will come as a relief that many EU-centric supply chains can continue to operate as normal, as EU inputs are counted as UK inputs. For example, shoes imported to the UK from Portugal can be exported to Ireland to be distributed. This is referred to as ‘bilateral cumulation’.
Twice the customs charges?
However, if your business imports goods from elsewhere in the world (e.g. China, or the USA), and then distributes them within the EU, the movement of the goods from the UK into the EU will not be tariff free. This means that you are likely to incur customs duties twice – once on importing the goods to the UK, and then again on importing them into Europe.
Regardless of the point of origin of the goods, if you’re exporting, you’ll require a statement to complete the customs paperwork to show that you can claim for the preferential tax treatment. This will include the all-important EORI number, which must be on all statements issued to EU customers.
As an importer of products into the UK from the EU, there are different ways you can claim for the preferential rate of duty depending on the system used to make your declaration. For example, if you are using Customs Handling of Import and Export Freight (CHIEF) system, there are certain codes you must include. Further information about this can be found at https://www.gov.uk/guidance/claiming-preferential-rates-of-duty-between-the-uk-and-eu.
Are your professional qualifications recognised in Europe now?
The agreement provides a framework for the recognition of qualifications between the UK and the EU. The agreements themselves, though, are to be negotiated on a profession-by-profession basis – until we hear otherwise, we are working on the basis that UK professional qualifications will be recognised in EU member states. However, if your services involve the provision of qualified or certified individuals in a particular field, it’s worth checking with your professional body to make sure their qualifications will still be accepted in EU countries.
What about the flow of data between your company and Europe?
The UK is still awaiting its ‘adequacy’ decision from the European Commission that would allow the free flow of data between the UK and the EU without the need to put additional protective measures in place.
The trade deal does however, grant an initial four-month (which can be extended by a further two months) grace period that provides for UK and EU businesses to continue transferring data as normal until this decision is made. As long as the UK continues to apply its data privacy legislation without amendments (which is largely consistent with the EU GDPR), this grant will stay in place.
It is expected that an adequacy finding will be made considering the large consistency between UK and EU data privacy rules (the Data Protection Act 2018 implemented the EU GDPR in the UK). However, this is not guaranteed, and it’s worth checking on your own data transferring activities and making contingency plans in case the adequacy decision goes against the UK.
Should you amend your contracts when it comes to data?
If there is no adequacy decision, you will need to implement ‘standard contractual clauses’ before transferring data between EU and UK entities. If your business transfers data to other parts of the world, you should already be familiar with these. The template documents on the ICO website contain lots of guidance notes – although they’re long, they’re not actually difficult to complete, and well worth taking a look at.
Working through the standard contractual clauses is a useful exercise that will benefit your understanding of how your business collects, uses and processes data. Even if we are ultimately granted an adequacy decision, time spent on this will not be wasted, and will help you improve your compliance under the Data Protection Act 2018.
Regardless of the adequacy decision, if your business receives a substantial amount of personal information from data subjects in an EU country, you should have an authorised representative in that country to respond to queries from data subjects and enforcement authorities on your behalf. For further information about how you can set this up, you can give us a call and one of our expert consultants can guide you through the process.
What should you be doing now?
The free trade deal only skims the surface for our relationship with the EU, providing some relief for the manufacturing industry. There are still many complexities to iron out for other sectors, and mutual recognition deals, such as around standards and qualifications, to be agreed later.
While undoubtedly better than a ‘no deal’ outcome, the current agreement is as full of holes as a Swiss cheese, leaving plenty of room for confusion and further negotiation over the years to come.
And if you’re importing Swiss cheese for subsequent distribution to Ireland – remember Switzerland isn’t a member of the EU, so your holey cheese may be subject to unholy tariffs!
Do get in touch with Devant for specific advice about how you can thrive in the post-Brexit market.
Junior Consultant, Devant Limited