After years of intensive negotiations and wrangling, the European Union and United Kingdom have finally reached an agreement entitled the “EU-UK Trade and Cooperation Agreement” (the “Brexit Agreement” or “Agreement"). Such Agreement sets forth the terms on which the EU and the UK will carry out trade relations between them post-December 2020. 

The Brexit Agreement has since been approved by the UK Parliament and the European Council and came provisionally into effect on 1 January 2021, following its signing on December 30, 2020. This provisional implementation will take place until 28 February 2021, pending the European Parliament confirmatory vote.

One could say that the main aim behind the Agreement is to minimize barriers to trade created as a result of the UK existing the European Union single market area and to diminish disruption following the launch of customs procedures on 1 January 2021.

The Agreement does not do away with the need of each businesses to implement changes to its modus operandi. On the contrary, what it does is to create a sort of framework of changes that companies have to implement in order to be able to still carry out trade effectively between the UK and the EU from 2021 onwards.

Brexit Agreement - What has been signed?

Three distinct agreements have been signed, namely:

1) Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community and the United Kingdom of Great Britain and Northern Ireland.

2) Agreement between the European Union and the United Kingdom of Great Britain and Northern Ireland concerning Security Procedures for Exchanging And Protecting Classified Information.

3) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the European Atomic Energy Community for Cooperation on the Safe and Peaceful Uses of Nuclear Energy.

The Positives of the Brexit Agreement

The most notable, agreeable highlights the Agreement are summarised below:

Zero Tariffs, Zero Quotas

No tariff barriers will be applied for products traded between the UK and the EU, including Malta, and there will be quota-free access for such products. The British High Commissioner to Malta, Cathy Ward, has emphasized that the free trade agreement implies that UK products will be accessible at no extra tariffs.

Rules of Origin

Linked to the above positive news, new ‘rules of origin’ requirements have been imposed and are necessitated in order to qualify for the tariff-free, quota-free treatment. Such new ‘rules of origin’ recognise both UK and EU content as “originating” (known as full bilateral cumulation), with a six year phase-in period for electric cars, allowing the UK time to build up qualifying components. Beneficial measures have also been introduced whereby businesses can self-certify as having met origin requirements and to furnish a single statement of origin for multiple shipments over the course of a year.

Technical Barriers to Trade

Specific rules were agreed upon to reduce the non-tariff barriers for products such as medicinals, automotive, chemical, organic products and wine.

Government Procurement

It was expected that these procedures would not be included and catered for in the Brexit Agreement, however the UK and EU agreed to continue to permit access for their respective businesses to bid for each other’s government procurement contracts. This goes way beyond the obligations set out in the WTO Government Procurement Agreement.

Road Transportation

Haulage will continue to operate between the UK and EU, and haulers will continue to be permitted to transit through UK or EU territory, with UK hauliers not necessitating European Conference of Ministers of Transport (ECMT) permits.

Air Transport

Air carriage of passengers and cargo can remain without quantitative limits on size or frequency, even though UK airlines will no longer be able to fly internal flights within the EU. Passengers flying from the UK continue to transfer to onward flights at EU airports without extra security screening. This is also the case at airports in Switzerland, Norway and Iceland. Regarding aviation safety, both sides will acknowledge the legality of each other’s safety certificates and licenses.

EU Programmes

The UK will maintain its access to numerous EU programmes, including: Horizon Europe, the Euratom Research and Training Programme, the fusion test facility ITER, Copernicus, and access to the EU’s Satellite Surveillance & Tracking (SST) services. The Erasmus student programme is however excluded.

The Negatives of the Brexit Agreement

Post 31 December 2020, UK is now deemed to be a third country for the EU, i.e., the UK is no longer part of the EU internal market and customs union. Having been concluded in a somewhat hasty manner, it is felt that some aspects of the Agreement don’t cater for smooth transitioning and implementation of new rules in various areas.

Non-Tariff Obstacles to Trading

Even though zero tariff barriers have been imposed, yet non-tariff hurdles do arise including supplementary controls at import and export and further administrative requirements. As a result, this will invariably mean that the transportation of goods between the two locations will take longer and will effectively be more costly than before.

Financial Services & Data Protection

It is a fact that negotiation time was limited, and an agreement HAD to be reached. This has resulted in emphasis in the Agreement on the flow of goods between the EU and the UK but has excluded due attention on the very extensive trade in services between the locations.

The most relevant elements that seem not to have been tackled hover around financial services and data protection. The Brexit Agreement will grant 'The City' less access to the EU market than ever before. The loss of “passporting” rights means that the days of financial advisors being able to fly in and out of Europe to operate have fizzled out, prompting some of these services companies to relocate outside of the UK.

With regards to data protection, EU data exporters are provided with a solution that postpones the requirement of treating transfers from the EU to the UK as third country data transfers until an adequacy decision is granted by the EU Commission or until 1st May 2021 (whichever is earlier). If no adequacy decision is reached by 1st May 2021, then there will be a further extension applicable until 1st July 2021 and this extension will be automatically triggered unless either party to the Brexit Agreement raises an objection.

This week the UK government has begun urgent talks to seek and reach a more detailed agreement on the UK’s access to EU financial markets by March 2021. The only way the UK financial services industry can maintain its pre-Brexit access to the EU is if Brussels grants regulatory equivalence. Both the UK and the EU have committed to publishing a memorandum of understanding within twelve weeks that will clarify in detail what “Equivalence Rules” are and what they will include. Such rules are especially important for the financial industry as they enable UK-based enterprises to offer services into Europe, if the regulations don’t differ significantly from Brussel equivalent rules.

Immigration

Starting 1 January 2021, the end of free movement of people between the EU and the UK will take place. In the withdrawal agreement, several issues such as the rights of EU nationals residing in the UK (and vice versa), have already been tackled. Of utmost importance is the fact that both sides have agreed that travel will be visa-free, if the other side keeps it that way.

Yet, besides this, a new, fundamentally different immigration regime will apply to UK nationals who want to settle or work in the EU, with additional border obligations being imposed. Britons must hold passports still valid for at least six months and will be limited to EU stays of 90 days in a rolling 180-day period. They will also need to show travel insurance coverage, sufficient funds, and a return ticket on request.

Education

It is also to be noted that some foreign professional qualifications, such as doctors, nurses, and architects, will no longer automatically be recognised. It is common knowledge that there is a significant number of Maltese who choose to pursue their specialist studies at educational institutions within the UK, so this point needs further clarification and explanation in such scenarios.

Also, Britain will no longer participate in the European student program Erasmus. This is quite disappointing since Maltese students indeed benefited from such exchange. It is being said that a supposedly equivalent UK-run project will be launched, yet its details are still unknown. If Malta is permitted, when details of the UK programme are launched, the Maltase government should look into some level of membership in order for Maltese students to still be able to have the opportunity of experiencing an education in the UK.

Brexit Agreement - Concluding Remarks

When compared to a no-deal scenario, the potentially ‘thinned-out’ Brexit Agreement has provided businesses with much needed confidence and further stability in the wake of 2021. The Agreement is built on principles of cooperation and fair, level playing fields for competitors across the borders.

Crucial principles in the Agreement require both the UK and the EU to honour commitments related to environmental protection, the fight against climate change, and social and labour rights. The Agreement also promotes tax transparency, creates a dispute settlement mechanism and the possibility for both parties to take remedial measures. The leading unifying administrative body that will oversee liaising between the EU and the UK will be known as the Joint Partnership Council and its role will be to ensure the trade and cooperation agreement is appropriately construed and affected.

Having said that, a lot of detail needs to be analysed and significant logistic changes to the future trading landscape between the UK and the EU should not be underestimated. It is being hoped that in the coming weeks more work will be carried out to tackle loopholes and areas that have been either scantily tackled or else completely omitted.