UK-EU Trade Agreement: a remedy or a band-aid to a gun wound?
Partner Contribution - RPS Legal
United Kingdom's exit from the EU, the world's largest trading market, landed a severe blow to UK businesses wishing to continue their operations within the single market. While the new Trade and Customs Agreement aims to soften that blow, it is becoming clear that its effects are severely limited.
The biggest hallmark of the Agreement is that it has, on the part of the EU, achieved the unimaginable by omitting tariffs and quotas. While on its face a great success, this provision comes with an important caveat, namely the re-balancing mechanism which allows both parties to reintroduce tariffs in the form of countermeasures if they believe that the other party's subsidy policy is detrimental to them. This creates great uncertainty for businesses as they are left at the mercy of country leaders which often act on a whim.
Additionally, the deal has not managed to ease the difficulties which will be brought in the areas of customs and rules of origins, which will prove to be highly difficult for businesses to navigate for the future. As the UK has ceased to oblige by the EU rules concerning the standards of imported products, UK businesses will face a mountain of paperwork to prove that their goods meet the high requirements set by the deal. In addition, businesses dealing with the export of animal products will face severe challenges and a restriction on the import of certain products due to the EU's stringent laws. Consequentially, businesses will undoubtedly experience delays and additional costs due to border checks and the incumbent paperwork. The new requirement of export licences will stall trade and dealing without a licence will result in criminal liability.
Furthermore, UK businesses dealing within the financial services market are faced with the hurdle of regaining access to the EU market. The Agreement has been unsuccessful in dealing with this matter which resulted in a lot of uncertainty for the financial services businesses as they must await the individual decisions from the EU, as well as the prospect of having the licence revoked at any moment.
Importantly, COVID-19 has significantly impacted the businesses possibility to prepare for the UK's formal exit from the EU. The pandemic has weighed heavily on the financial means of the businesses who are now faced with high costs of obtaining licences and filing paperwork.
In light of the situation, London, as the largest financial and marketing hub of the EU, is being replaced by Amsterdam, with many businesses choosing to incorporate a branch in the Netherlands due to the low capital requirements and favourable tax legislation. Many of the world's largest names, including JPMorgan Chase, have opened branches in the EU.5
While the Agreement is a welcome aide to the future trade relationship between the EU and the UK, it can scarcely be said that it allows for what is deemed to be, in the purest form, free trade. Businesses are advised to, if they wish to benefit from the EU single market, consider establishing a presence within the EU.