UK-EU Evolving Relationship Bulletin

Although the UK-EU trade agreement has been concluded, less than a month in, it has become clear that there are still many issues to resolve and many areas left for the UK and EU to discuss further. At Instinctif Partners we will continue to track the evolving UK-EU relationship and monitor major changes in regulations the UK may adopt post-Brexit on a fortnightly basis. We will also include in the bulletin other post-Brexit trade deals to keep you informed of the most important political and regulatory developments between the UK and the rest of the world going forward.

If you have any questions or requests, please contact jason.esi@instinctif.com

The UK has called for the EU to extend waivers on checks on trade between mainland Britain and Northern Ireland after the EU briefly invoked Article 16 to suspend parts of the Withdrawal Agreement

• The UK demanded that grace periods that allow lighter enforcement on EU rules over supermarket goods, pharmaceuticals, chilled meats and parcels heading from Great Britain into Northern Ireland should be extended to January 2023.
  • Some of the waivers are due to come to an end at the close of March, raising fears about further border disruption. The current checks on goods from mainland Britain to Northern Ireland has already seen empty shelves in some supermarkets and long delays for lorries at ports. The call to extend the grace periods was backed by all the major parties in Northern Ireland.
  • Cabinet Office Minister Michael Gove said permanent solutions to border issues must be found during the extended grace periods, and called for a new bilateral deal to end barriers on pet travel between Great Britain and Northern Ireland. He also said there should be solutions on issues affecting seeds and other plant products, and the mutual recognition of professional qualifications.
  • Gove suggested that if the demands are not met, the UK could trigger Article 16 of the Northern Ireland protocol — overriding the arrangement as the EU threatened to do on vaccines.
  • Previously the UK Government had resisted pressure from Northern Irish Unionists to issue the threat of Article 16, and argued that it could only be used in extreme circumstances.
  • However the fact that the EU was so quick to invoke Article 16 to try and protect its vaccine supply has substantially lowed the threshold for its use, and served to inflame tensions in Northern Ireland.
  • The talks between the EU and UK took place after staff at Northern Ireland ports were forced to suspend checks on goods coming from Great Britain after threats from loyalists. The UK believes that the only way to reduce tensions is for checks from GB to NI to be substantially reduced to ease fears from Northern Ireland Unionists.
  • After the talks, the EU and UK have vowed to “work intensively” to quell tensions over post-Brexit checks at Northern Ireland ports. Talks are set to continue next week.

The UK has announced plans for a new subsidy control system to replace the EU’s state aid regime

• The Government has launched a consultation over what form the UK’s subsidy regime should take. The consultation is seeking opinions on whether to have a minimum threshold for subsidy deals before they face scrutiny as well as the timing of disclosure of deals.
  • The Government has said the new system would do away with “prescriptive” EU rules and will be “more flexible, agile and tailored to support business growth and innovation”.
  • The proposed system will allow the devolved administrations in Edinburgh, Cardiff and Belfast, as well as local authorities across the UK, to issue taxpayer subsidies to businesses.
  • The proposals would allow various exemptions to the regime — for example to ensure low-value subsidies, those given to support natural disaster relief or in response to global economic emergencies.
  • The Government has insisted it was not seeking a return to a “1970s approach” of Ministers bailing out unsustainable companies.
  • Arguments over state aid were a major sticking point in the Brexit negotiations, with the EU initially insisting the UK’s rules should remain aligned with the EU. That position was strongly resisted by Prime Minister Boris Johnson. The issue was resolved in the EU-UK trade deal, with the UK agreeing to set up an ‘independent authority’ to monitor subsidy decisions.
  • At the heart of the process is how far the UK system should diverge from the EU’s “ex ante” system of regulation, under which member states cannot distribute subsidies until they have been considered at length by the EU. During the talks with the EU, the UK refused to agree to an “ex ante” regulator, which ministers have long seen as too slow and restrictive.
  • While the UK’s ‘independent authority’ is not expected to mimic the EU’s, legal experts have said it could still have the power to clear subsidies before they are handed out in order to provide certainty to investors.
  • Under the trade deal with the EU, companies will be able to challenge subsidies awarded to British rivals in the UK’s national courts if they believe they violate principles in the agreement.
  • Government Ministers believe that a bespoke UK system could speed up the delivery of productivity-enhancing projects and deepen research collaboration between industry and universities — as seen in the recent Oxford/AstraZeneca Covid-19 vaccine. The Government hopes is that this flexibility will turbocharge its levelling up agenda and public-private innovation.

The UK has formally applied to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)

• The CPTPP is a free trading bloc of 11 countries covering a market of around 500 million people and 13% of global income. Its members are:  Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Negotiations on membership are expected to start later this year.
  • If the UK joined it would have greater access to the above markets, and a pledge to eliminate or reduce 95% of import charges or tariffs (though some are retained to protect sensitive domestic areas, like Japan’s rice farming and Canada’s dairy industry.)
  • In return, countries must co-operate on regulations, such as food standards. However, these standards and regulations do not have to be identical, and member countries can strike their own trade deals.
  • In addition, manufacturers that source components from multiple places can claim their products qualify for preferential treatment. That means they can tick the so-called “rules of origin” box, so long as 70% of those components come from any of the participating countries. The rules of origin provisions could help UK producers of items such as machinery and medicines – our most valuable exports to those nations – by reducing their costs and allowing them to expand their supply chains across the constituent countries.
  • Membership also ensures investors from CPTPP countries get the same treatment as domestic firms when they put money into projects happening in other member states, which could benefit UK firms. In 2017, the CPTPP nations accounted for about £1 in every £12 of foreign investment in the UK, and the same going the other way. UK trade with the group last year was worth £111bn.
  • However, the immediate impact of the UK joining is likely to be modest as the UK already has free trade deals in place with seven CPTPP members, some of which were rolled over from its EU membership. The UK is also currently negotiating deals with Australia and New Zealand.
  • In total, CPTPP nations accounted for 8.4% of UK exports in 2019, roughly the same proportion as Germany alone.
  • However, the deal would deepen some of those ties – and will loosen restrictions on services and digital trade, which matches the UK’s ambitions, and ties it in with some of the faster growing nations.
  • Membership will also offer the potential for faster and cheaper visas for business purposes.

Other post-Brexit news

• The EU has told British fishermen they are indefinitely banned from selling live mussels, oysters, clams, cockles and scallops to its member states. As the UK is now a separate country, it is not allowed to transport the animals to the EU unless they have already been treated in purification plants. However the industry says it does not have enough tanks ready and the process can slow exports, making them less viable. The Government promised to continue to “raise the issue” with the EU.
• Former UK chief Brexit negotiator, David Frost, will become the UK’s Brexit and International Policy Representative. Originally he was going to be the new National Security Adviser but that role is going to Stephen Lovegrove, permanent secretary at the Ministry of Defence.
• The contactless payment limit could rise to £100 as Britain looks to diverge from EU rules post-Brexit. Having now left the EU, the Financial Conduct Authority (FCA) said it would be consulting on increasing the limit, to ensure regulation “keeps pace” with consumer and business expectations. The current limit of £45 was set by the European Commission but the UK’s banking regulator looks set to now increase this cap.
• UK and Switzerland have begun talks on a formal post-Brexit financial services deal. The Treasury said the talks would see the two sides try to deliver “a comprehensive mutual recognition agreement that would reduce costs and barriers for UK firms accessing the Swiss market” and vice versa. Talks are expected to cover a wide range of areas, including insurance, banking, asset management and capital markets. In 2019, the EU banned trading in Swiss shares over stalled negotiations, forcing London to comply with the new rule. This is estimated to have taken more than £1bn in trades away from the City of London each day.
• Fish farming companies are being allowed to breach environmental limits and pollute lochs because of export problems caused by Brexit. The Scottish Environment Protection Agency (SEPA) has extended Covid-19 relaxations to help the farmed salmon industry cope with business losses caused by new procedures for exporting to European Union (EU) countries. SEPA is also permitting extra salmon cages to be installed without licences.
• Irish goods shipments have doubled with France and halved with Britain in the first month of post-Brexit trade. The stark shift reflects the newfound difficulty of shipping goods between the Republic of Ireland and continental Europe using Britain’s so-called land bridge.  About one of every five trucks arriving at Irish ports from Britain does not have its customs, animal health, food safety or security paperwork in order, requiring delays of hours or even days before the vehicles are cleared to proceed.