In addition to these continuity agreements, the UK Government is also seeking new trade agreements with Australia, New Zealand and the US. It has also committed to updating and improving arrangements with several countries, opening public consultations on upgrading FTAs with Canada and Mexico, and a new trade agreement with India.
The UK’s new trading relationship with Norway, Iceland and Liechtenstein
On 4 June, the UK concluded negotiations with Norway, Iceland and Liechtenstein to upgrade the continuity agreement which had been solely focused on trade in goods. The comprehensive new EEA EFTA States - UK Free Trade Agreement covers trade in goods, services and investment, digital trade, capital movements, government procurement, intellectual property, competition, subsidies, small and medium sized enterprises, good regulatory practices and regulatory cooperation, recognition of professional qualifications, trade and sustainable development. It also encompasses legal and horizontal issues including dispute settlement. While a significant improvement on the continuity agreement which was previously in place from 1 January 2021, differences in market access remain when compared with the free movement available prior to Brexit.
The UK’s new trading relationship with Turkey
As Turkey is in a Customs Union with the EU, the UK’s ability to sign a continuity agreement with Turkey was dependent on the UK-EU Trade and Cooperation Agreement, the UK’s trade deal with the EU. The new UK-Turkey Free Trade Agreement incorporates a number of different agreements under a single agreement which includes industrial goods, coal and steel, agricultural products (tariff-rate quota based) and processed agricultural products.
Appreciating that the EU Customs Union and a Free Trade Agreement are two different concepts for assessing origin requirements is key for traders. With the Customs Union, goods could benefit from free circulation between member countries. However, with the Free Trade Agreement products are only traded free of import duty if they originate in one of the countries. In short, the UK and Turkey will only continue to benefit from tariff preferences if goods traded originate in either country.
Currently, origin requirements (the Rules of Origin Protocol) in the UK-Turkey agreement include a number of temporary provisions that will be shortly updated in line with the UK and the EU Trade Cooperation Agreement. At present, this means importers and exporters can still benefit from the preferential tariff rates for the UK/Turkey origin materials. Furthermore, applying cumulation rules and using EU materials and processing for exports to Turkey (and vice versa) will be possible once the Rules of Origin Protocol is updated accordingly.
The UK’s new trading relationship with Japan
The UK’s new trade agreement with Japan, the UK-Japan Comprehensive Economic Partnership Agreement (CEPA), goes beyond aspects of EU-Japan Economic Partnership Agreement (EPA) which previously governed UK-Japan trade. The UK and Japan were able to agree significant improvements on several areas including digital trade and financial services.
On the trade in goods, the UK-Japan CEPA provides for a similar timeframe of tariff reduction as under the EU-Japan EPA, however a small number of tariffs will be eliminated at an earlier date. On rules of origin, diagonal cumulation has been agreed for EU inputs, allowing them to count as ‘local’ to either the UK or Japan. The paperwork requirements for qualifying for preferential tariff rates has also been lowered in comparison with the EU-Japan EPA.
The UK-Japan CEPA goes considerably further than the EU-Japan agreement in the area of digital trade. These improvements include provisions ensuring cross-border data flows, the prohibition of data localisation requirements and a commitment to adopt and maintain a legal framework that provides for the protection of personal information.
To employ the preferential trading terms granted under the new agreement, businesses will need to be aware of any relevant substantive changes to the Japan-UK CEPA, as compared with the EU-Japan EPA. Businesses should also understand where additional market access has been granted under the UK-Japan CEPA compared to the EU-Japan EPA to maximise their utilisation of the new trading terms.
Our alert assesses the improvements made in more detail.
Services and digital trade will feature more heavily in future negotiations
One of the key priorities for the UK Government when negotiating continuity agreements was to maintain preferential treatment for the trade in goods between the UK and non-EU countries. Building on the UK’s experience with the UK-Japan CEPA, the UK Government has committed to negotiating increased coverage for services, digital trade and investment with several trading partners. Talks to improve the agreements with Canada, Mexico and Turkey will start in 2021. In the case of Canada, both sides have committed to finalising these negotiations by the end of 2023.
Immediate actions for business:
Businesses should:
- Identify where the loss of preferential trading arrangements has had a material impact on operations and explore opportunities to remedy this situation.
- Closely monitor future trade negotiations and determine whether they could have an impact on their international trading operations.
- Engage with industry bodies and the UK Government to ensure the issues and priorities are understood going into future trade negotiations.
For further information, please contact this article’s authors or your usual EY contact.
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Summary
The end of the Brexit transition period triggered the activation of continuity agreements or trading under World Trade Organization terms. As the UK negotiates new deals, business should monitor developments to understand the implications for their international trading operations.