- The U.K. and the EU conclude the EU-UK Trade and Cooperation Agreement, which entered into force on December 31, 2020.
- The Agreement provides guidance on origin rules that must be met for products to benefit from duty-free movement between the U.K. and the EU.
- Other trade topics such as export controls, product regulation, sanctions and trade remedies are not (substantially) addressed by the Agreement, but are nevertheless impacted following the end of the Transition Period between the U.K. and the EU.
On December 24, 2020, the United Kingdom (U.K.) and the EU concluded the EU-UK Trade and Cooperation Agreement (TCA). The TCA sets out preferential arrangements in a number of different areas, including the trade in goods, and became applicable on December 31, 2020, at 11 pm U.K. time, when the Transition Period between the U.K. and the EU ended.
This alert provides a high-level overview of the TCA's impact (or lack thereof) on matters involving customs, export controls, product regulation, sanctions and trade remedies.
The U.K. has now left the EU's Customs Union. This means that the trade in goods between the U.K. and the EU will be subject to customs controls (i.e., security and safety declarations, and import and export declarations).
In addition, customs duties will be payable unless the goods in question meet the relevant rules of origin contained in the TCA. The TCA contains a "rules of origin" chapter that sets out the relevant rules of origin for goods to ensure that only "originating" goods are able to benefit from the liberalised market access arrangements agreed between the U.K. and the EU under the TCA. The chapter also provides for full bilateral cumulation (i.e., cumulation of both materials and processing), allowing EU inputs and processing to be counted as U.K. input in U.K. products exported to the EU and vice versa.
The TCA also includes an Annex on Authorised Economic Operators (AEOs), which provides for the mutual recognition of AEO security and safety schemes. As a result, AEOs assessed and recognized under either the U.K. or EU scheme will face fewer controls relating to safety and security when moving their goods between the U.K. and the EU.
The TCA does not address export controls beyond both the U.K. and EU making a joint commitment to counter proliferation.
The EU Dual Use Regulation no longer applies in the U.K. with the exception of Northern Ireland. As such, businesses will require export licenses to export dual use items between the U.K. and the EU, and vice versa. Export licenses issued by the U.K. will also no longer be valid for exports of dual use items from the EU to third countries. Instead, U.K. businesses will require a license issued by the competent authority in the relevant EU Member State to export dual use items from the EU to third countries.
It is important to keep in mind that the EU Dual Use Regulation will continue to apply with respect to Northern Ireland. This means that shipments of dual use items between the EU and Northern Ireland are to be considered intra-EU transfers for the purposes of the EU Dual Use Regulation. In addition, shipments of dual use items from Northern Ireland to a third country or to the rest of the U.K. are exports for the purpose of the EU Dual Use Regulation, and thus licensable.
Note also that the current recast of the EU Dual Use Regulation, which is expected to be adopted and enter into force in the EU later this year, will not become applicable in the U.K.. It is as yet unclear whether the U.K. intends to implement any of the limited revisions introduced by the recast of the EU Dual Use Regulation (e.g., the introduction of a "human rights catch all" for cybersurveillance items), or whether the U.K. would prefer to introduce more far-reaching amendments to its dual use export controls framework.
Exports of military items between the U.K. and EU will continue to require export licenses.
Different product regulation regimes will apply in Great Britain (i.e., England, Scotland and Wales) and Northern Ireland. The process for placing goods on the market in Northern Ireland will continue to align with relevant EU rules while limited changes will apply in Great Britain (at least initially).
Products that are placed on the market in Northern Ireland, in accordance with the relevant EU rules, can be sold in the rest of the U.K. without additional approval(s). Products that were lawfully placed on the European Economic Area or U.K. market before January 1, 2021, may also continue to circulate in the U.K.
For the time being, product regulation changes in Great Britain are administrative in nature. For many changes, a grace period for compliance is in place. For example, Conformité Européenne (CE) marked products will continue to be accepted on the Great Britain market until December 31, 2021; after which a new U.K. Conformity Assessed marking (UKCA) must be used. The UKCA will follow the principles of the CE marking system, but will be valid for the U.K. only and will not be recognized in the EU.
The U.K. now operates an independent sanctions regime to the EU. While a certain level of cooperation between the U.K. and EU is expected, since the TCA does not cover sanctions or other aspects of foreign policy, there is no formal framework in place to coordinate joint decision-making on sanctions.
Without this, or the need for unanimous Member State decision-making on sanctions as in the EU, the U.K. will be able to introduce sanctions amendments much quicker than the EU, as it has already shown when it designated numerous Belarussian officials under its Global Human Rights Sanctions framework in September 2020, which designation was only replicated by the EU in November 2020 due to internal struggles to reach unanimity among its Member States. Combined with the substantive differences that exist between the U.K. and EU sanctions regimes (e.g., introduction of general licenses under U.K. sanctions, applicability of the concept of "joint arrangement" under U.K. sanctions on the basis of which rights belonging to multiple shareholders can be allocated to one shareholder, etc.), this is expected to lead to an increased level of divergence between the U.K. and EU sanctions regimes over time.
Such divergence already exists in respect of designated parties since the U.K. has removed more than 100 parties designated under EU sanctions from its U.K. designated parties lists. Companies that operate in both jurisdictions, or that employ EU and U.K. persons, must therefore ensure that they screen against both U.K. as well as EU designated parties' lists. In addition, companies should realize that the U.K. now maintains two separate designated parties lists: a consolidated list of parties subject to financial sanctions maintained by the Office of Financial Sanctions Implementation (OFSI), and a list of all designations (financial or otherwise) made under any Sanctions and Anti-Money Laundering Act 2018 regulations maintained by the Foreign, Commonwealth and Development Office. This difference in lists may also be relevant in the context of contractual clauses that to date typically only reference the OFSI list. How companies wish to approach the drafting of such contractual clauses will differ depending on if/how the two lists affect their business activities.
The U.K. now maintains its own trade remedies, including its own complaints and investigations process, which is set up pursuant to the relevant World Trade Organization (WTO) agreements. The TCA does not contain any concessions from either side with regard to the use of trade remedies against the other party and hence both parties are only bound by the relevant WTO Agreements and legal provisions with regard to trade remedies.
The U.K. has transitioned certain EU trade remedy measures (antidumping and countervailing duties as well as safeguards for certain steel products) in force at the end of the Transition Period into U.K. law. Some of these U.K. trade remedy measures are now undergoing a transition review by the Trade Remedies Investigations Directorate to determine whether the same measures should be maintained, amended or terminated altogether.
Applications for U.K. trade remedy investigations are subject to a market share requirement in that the share in the U.K. market for like products of U.K. producers must be at least 1 percent. Applications must be supported by U.K. producers whose aggregate output makes up at least 25 percent of the total production in the U.K. of like products and, for safeguards only, directly competitive products. Investigations in antidumping and antisubsidy cases are normally anticipated to run from 11 to 13 months, with the possibility of provisional measures. The period of investigation will normally be the 12-month period before the date of initiation of an investigation. The injury period will be the period of investigation and normally include the 36 months immediately before this (i.e., 48 months). Safeguard investigations may normally run from eight to 10 months, depending on the investigation. The period of investigation can be three to five years prior to the initiation of the safeguard investigation. Trade remedy decisions are subject to administrative reconsideration and (subsequent) judicial review by the Upper Tribunal (Tax and Chancery Chamber).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.