After a great deal of uncertainty up until the very last minute, a compromise was ultimately found with the signature on 24 December 2020 of a “Brexit” Agreement (the "TCA") that purports to respect the red lines of both parties. The EU maintains the integrity of the single market and a robust enforcement mechanism. The UK achieves a free trade agreement for zero-tariff, zero-quota in trade in goods and avoids any role for the European Court of Justice in settling disputes (other than in Northern Ireland). On the other hand, it does not cover areas which were essential for the UK when it was part of the Union. In particular, services, which represent the vast majority of the UK economy, are by and large absent from the TCA.
FAMILIAR PROVISIONS, A BESPOKE MODEL
The TCA was inspired by trade agreements already concluded by the EU with third countries, whose terms are familiar to international trade and investment specialists. However, the level of economic integration achieved between the EU and the UK over almost 50 years makes this agreement unlike any other. Thus, while the TCA makes extensive reference to the provisions of WTO law, governing relations between the European Union and third countries, it also relies on additional provisions that reveal the proximity of the UK to the EU.
Although the TCA preserves a UK alignment with the EU in a number of respects, the UK has chosen to leave the customs union in favour of a free-trade area relationship with the EU. As a result, the degree of UK’s legal integration with the EU is substantially reduced and does not match the closer integration, at least from a trade and customs point of view, of certain agreements with other third countries in the region, namely:
Norway, Iceland and Liechtenstein, whose trade relationship with the EU is governed by the deeply integrative European Economic Area (EEA) agreement. For instance, under the EEA agreement, no anti-dumping or countervailing duties may be imposed by any party on industrial goods originating in the EEA. The same will not apply in EU-UK relationship;
Switzerland, which did not join the EEA but signed numerous wide-ranging sector-specific agreements with the EU. Even with other agreements in prospect, the TCA does not suggest a similar direction of travel to the level of market opening achieved by Switzerland; in this respect, Switzerland may also be viewed as enjoying closer links with the EU compared to post-Brexit UK.
Against this background, from a trade point of view, the UK’s relationship with the EU, although of a rather particular nature to the UK's lengthy past EU membership, may be more accurately compared to that of a non-European third country like Japan with which the EU has signed an Economic Partnership Agreement including a far-reaching trade component. This may provide the UK with more ability to diverge on trade relationships and create some regulatory arbitrage in a way that other third countries, like Switzerland or Norway, cannot.
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