12 January 2021
We take a high level look at some of the key commercial aspects of the Trade and Cooperation Agreement (TCA), the foundation of the UK's future relationship with the EU.
The TCA was finally agreed on 24 December 2020 and came into effect a few days later, when the Brexit transition period ended on 31 December.
After years of planning, many businesses still face challenges adapting to the new environment. We consider what the TCA didn't say as well as what it did, to outline what has emerged and how you might be affected by it.
Key points include:
The headline goal of zero tariff and quota free trade in goods between the EU and the UK has been achieved. There will be customs controls and businesses will need to look carefully at their supply chains, processing/ assembly and distribution to ensure complex 'rules of origin' requirements are met, to benefit from the zero tariff regime.
The position is different for services, where much of the no-deal Brexit planning businesses have been doing will still be needed. UK service providers (including providers of digital services) will no longer benefit from the country-of-origin principle when accessing the EU market. They will have to comply with the (varying) rules of each EU member state in which they operate, or set up in the EU, if they want to continue operating as previously. There is an agreement to review the legal framework relating to trade in services and investment, although financial services are expressly excluded from that.
Helpfully, the EU had already taken the decision, outside the TCA, to allow UK nationals short-term visa-free visits of up to 90 days within any 180-day period, as of 1 January 2021. The UK had also decided to allow visa-free short-term visits for EU citizens. The EU decision is conditional on the UK continuing to provide for equal visa-free travel for short-term visits for EU citizens.
However, for business travel there is considerable detail in the TCA about what activities individuals can and cannot carry out when travelling between the UK and EU with or without a visa. Visa-free travel must be viewed in the context of restrictions on the provision of services which, as noted above, will be subject to a patchwork of local regulation which varies in each EU member state. In general, short-term business visitors without a visa will be permitted to undertake normal business activities including attending meetings or conferences, engaging in consultations with business associates and attending a trade fair. Intra-corporate transfers for 'managers' and 'specialists' are in principle permitted with a prior granted visa. However, the rules are complex and will vary from country to country. Local advice should be taken in advance.
There is little on mutual recognition of professional qualifications, leaving that to be worked on in the future. As for services generally, recognition of qualifications is subject to (varying) local EU member state regulation.
As expected, the TCA does not deal with immigration into the UK. The UK's revised general immigration rules also apply to EU citizens (except Irish citizens) moving to the UK from 1 January 2021. Those seeking to work or study in the UK will need prior approval to do so. This remains subject to the settled and pre-settled status regime announced previously for people who have established residence in the UK by 31 December 2020.
There is some limited good news on data protection, in that personal data can continue to be transferred from the EU to the UK, as if the UK were still a member state, for at least four months from 1 January 2021 and potentially for a further two months, provided neither party objects. This also assumes that the UK does not amend its current data protection regime during that period. The purpose of the data bridge is to allow the EU to complete its adequacy assessment of the UK. The response from the UK's regulator (ICO) was to urge businesses reliant on EEA data imports to put transfer mechanisms in place to avoid future disruption, which suggests adequacy is far from assured.
The UK has of course already recognised the EU, EEA and EFTA countries as well as countries with existing EU adequacy decisions, as providing adequate protection to personal data transferred to them from the UK.
UK-based controllers and processors without an EEA presence offering EEA individuals goods or services or monitoring their behaviour may have to appoint a representative in the EEA. Similarly, controllers and processors with no UK presence offering goods or services to UK individuals or monitoring their behaviour, may have to appoint a UK representative, even where they already have an EEA presence.
As expected, audio-visual services are out of scope (specifically excluded from key parts of the TCA). The TCA makes no provision to continue the country of origin copyright licensing regime for satellite broadcasting, so local law in the EU member state of reception will need to be checked to determine if free reception of UK broadcasts can continue. Likewise, as expected, the TCA doesn't preserve UK customers' rights under the EU's portability regulation when travelling in the EU and or EU customers' when travelling in the UK. More broadly, we anticipate increasing divergence on regulation of digital content and services, with the UK not adopting key EU legislation such as the Copyright in in the Digital Single Market Directive, the Digital Content and Digital Services Directive and the Omnibus Consumer Law Directive, all of which are to be implemented in the EU within the next 18 months.
For digital services, the TCA does not continue the cross-border elements of the eCommerce Directive. As a result, UK established services will have to comply with the laws on topics like online information, advertising, shopping and contracting, in each EU country in which their services are received, rather than simply relying on their compliance with UK law to give them 'passported' access into the EU. Conversely, the UK has, for now, unilaterally preserved the freedom of EU established services to operate in the UK without needing to comply with additional UK requirements. However, the UK government has said it intends to fully remove the Directive’s country of origin principle from UK legislation, to bring EU online service providers in scope of UK laws.
On digital intermediary liability, the TCA contains no requirements on either the UK or EU on what protections, immunities or responsibilities their regimes can provide. This provides the UK with flexibility should it decided to provide more or less safe harbour protection for, or impose additional obligations on, hosts and other digital intermediaries.
For copyright there is a relatively orthodox restatement of the international copyright treaties, with a few adjustments for the current state of EU law (which is almost entirely already implemented in the UK). While the UK is afforded some flexibility in its future copyright regime, for example in relation to the term of protection for musical works with lyrics, exceptions and collecting society regulation, no change is immediately expected. The TCA requires the UK to retain artist's resale right. Very little will change in practice as a result of the TCA but it gives some clear indications on what policy initiatives the UK may wish to explore. See also our more detailed commentary here.
We already knew that Brexit would have a significant impact on EU Trade Marks and Registered and Unregistered Community Design rights and the TCA does not change that. These rights no longer cover the UK. Whilst the holders of EU rights that were registered as at the end of the transition period have been granted a 'comparable' UK registration automatically and for free, those with EU applications pending on that date must refile in the UK if UK protection is required. If the UK application is filed by 31 September 2021, it can claim the same priority/filing dates as the corresponding EU right. The significant implications of this for brand owners are dealt with in more detail in our checklist here. There is little of additional significance for trade marks in the TCA, as the parties' commitments on their respective regimes are already reflected in their laws.
As expected, there is nothing in the TCA on the territorial disclosure requirements for Unregistered Community Design and UK Supplementary Unregistered Design rights to arise. This leaves considerable uncertainty for designers who rely on such rights (see our discussion of this here).
No agreement was reached on the protection and enforcement of geographical indications (GIs) which come into existence after the end of the transition period. (The UK had already agreed in the Withdrawal Agreement to protect and enforce GIs in existence in the EU as at the end of the transition period.) This means the UK government retains what it sees as a potential bargaining chip with the EU.
On exhaustion of IP rights, the UK has obtained the ability to set its own permanent regime and the IPO will be consulting in early 2021 on that regime. In its proposed draft of the TCA, the EU had appeared to want to restrict the UK's future regime to national or regional exhaustion (excluding international exhaustion) but that restriction has been removed so the UK would be free, if it wishes, to introduce international exhaustion.
Brexit does not change the grant of UK European patents, because the system by which they are granted by the European Patent Office is governed by the European Patent Convention – which is an international treaty, not EU law. The essentials of the European patent system – central prosecution, grant, registration as the UK part of a European patent, and opposition – will continue as before. Enforcement is a matter of UK law and will again remain unchanged except that the English rules on cross-border relief will now apply in those rare cases where this is relevant.
See our detailed commentary here.
The TCA has something for pharma and medical devices businesses but not wholesale mutual recognition of regulatory regimes, as some might have hoped. For the time being these products will be regulated in the UK separately from the EU (with the EU and the UK keeping each other informed of changes to their regimes and using international standards as a starting point for new regulation). Also, the UK is allowing a transitional period for compliance with its own medical device regulatory regime until 30 June 2023 and, similarly, there are certain transitional arrangements for medicinal products being placed on the market in the UK. The EU continues to require full compliance with its requirements. The TCA does require mutual recognition of good manufacturing practice (GMP) inspections of manufacturing facilities for medicinal products and GMP documents issued. See also our more detailed commentary here.
There is nothing on choice of courts or enforcement of judgments for business contracts. It remains to be seen if the EU (with Denmark) will agree to the UK acceding to the Lugano Convention, which would to a large extent replicate the position under EU law. In the absence of that, the current position is that the UK has acceded to The Hague Convention on Choice of Court Agreements 2005 (HCCCA), in its own right, from 1 January 2021. As a result, with certain exceptions, courts of EU countries will be required to recognise and enforce exclusive jurisdiction clauses, at least for agreements entered into from 1 January 2021 onwards. The position for choice of governing law has not changed, as it is sufficient that the UK has applied the EU's Rome 1 and Rome 2 provisions in UK law.
Enforcement is also governed (in part) by the HCCCA. As with jurisdiction, the HCCCA only applies in agreements with exclusive jurisdiction clauses. You can only rely on the HCCCA if you obtain a judgment from a court in a state designated in an exclusive jurisdiction clause. If the HCCCA applies, enforcing a judgment in an EU state should be relatively quick and straightforward. In all other circumstances, fresh proceedings applying the local rules on the judgment in the forum of enforcement will likely be needed. In most cases, this will be slower and more expensive – and sometimes challenging, even. For new contracts not covered by the HCCCA, where this potential enforcement gap in European jurisdictions is an important factor, some parties may look more favourably on arbitration to resolve their disputes, where there is no such issue. See also our more detailed commentary here.
As expected, tax is not generally covered. EU directives which can reduce or eliminate withholding taxes on payments between group companies in different EU member states have ceased to apply to the UK. Consequently, there may be withholding tax on some cross-border payments of interest, royalties and dividends involving the UK, depending on double tax treaties.
VAT is not generally covered (save for an agreement to cooperate on VAT compliance and combating VAT fraud) and UK VAT is now largely separate from the EU VAT system, although special rules apply to supplies of goods involving Northern Ireland. The UK has taken the opportunity to adjust elements of its VAT system for imports of goods from the EU and more generally. Key changes include 'postponed accounting' for UK VAT registered importers of goods, for which import VAT no longer needs to be paid on arrival but included in a subsequent VAT return. Different rules apply for imported goods up to a value of £135, with online marketplaces (OMPs) (or businesses selling goods directly to consumers in the UK) potentially responsible for collecting and paying across the VAT to the UK tax authority (HMRC). Suppliers of B2C digital services may need to adjust for the withdrawal of the UK from the VAT Mini One Stop Shop (MOSS) system, with new VAT registrations potentially being required in the UK and EU27.
There is very little on financial services. For example, the TCA does not replace 'passporting' with any new arrangements. However, alongside the TCA, there is a non-binding Joint Declaration on financial services regulatory cooperation. This contains a commitment for the UK and the EU to agree a Memorandum of Understanding by March 2021 that will establish the framework for cooperation around topics such as equivalence. In accompanying materials, the European Commission says it has taken note of the UK's equivalence decisions announced in November 2020, 'adopted in the UK's interest'. It says that, similarly, the EU will consider equivalence when in the EU's interest.
The TCA recognises the importance of competition law and the EU and the UK commit to address anti-competitive practices. The practical issues for competition law arising from the UK's exit from the EU had been addressed previously: the most obvious consequence is that the one-stop shop for mergers at the EU no longer applies and companies might have to file both with the European Commission and the UK authority. In addition, businesses could be subject to parallel proceedings in the UK and the EU for their anti-competitive conduct.
The TCA also has the much discussed 'level playing field' provisions, and in particular the issue of subsidies with state resources. The UK has committed to create a subsidy regime where many of the principles will be similar to the EU state aid regime. Some of the level playing field provisions require UK/EU resolution and others allow for action by private parties in national courts.
From 1 January the UK has a separate product conformity assessment and marking system from the EU. However, in the UK, in most cases it will be possible until 1 January 2022 to use the EU CE mark when placing products on the UK market. The new UKCA (UK Conformity Assessed) mark may also be used with approval by a UK-based approved body. After 1 January 2022, UKCA marking will be required, declaring conformity with the UK requirements. There is also a UKNI marking for products placed on the market in Northern Ireland which have undergone mandatory third-party conformity assessment by a body based in the UK. However, Northern Ireland stays aligned with all relevant EU rules relating to the placing on the market of manufactured goods, and EU conformity markings continue to be used to show goods meet EU rules.
More generally, the special treatment of Northern Ireland envisaged in the Withdrawal Agreement is retained, with the impact of border arrangements reduced by the zero tariff agreement.
The TCA sets out a basis on which greater mutual co-operation and facilitation of trade in goods and services between the UK and EU can be achieved. This has ended up very much on the 'hard Brexit' side of things even though tariffs on goods have been avoided and certainly does not offer frictionless access to the Single Market.
After the uncertainty of the last 4+ years, the TCA does, however, provide a new firm starting point for relations between the UK and the EU.
You can join our webinar on 13 January, which includes a focus on digital services, and access more in-depth sector and issue-specific materials on our dedicated Brexit page. You can also get in touch with your usual contact at Taylor Wessing or any of the listed authors.