Brexit: Where are we now?

Last Updated: 09:30, 25 November 2021

In this article we look at the status of the UK and the law governing it as a result of the conclusion of the Brexit process with the end of the transition period on 31 December 2020.Naturally the UK-EU Trade and Cooperation Agreement, agreed in principle on 24 December 2020, and entering into full force as of 1 May 2021 following European Parliament ratification, is a key consideration, governing many aspects of the ongoing relationship between the UK and the European Union. We also look at the other agreements entered into with the EU at the same time, as well as the status of trade deals with other countries outside the EU, and the continuing effect of European laws as “retained law” within the UK legal system. Finally, we consider the recent EU action against the UK in relation to the Northern Ireland Protocol.

The UK-EU Trade and Cooperation Agreement

Negotiations on the Brexit trade deal officially began with a first round in early March 2020, and continued through the year, latterly in increasingly urgent negotiations which went down to the wire, culminating in the announcement on 24 December that an agreement in principle had been reached in the form of the UK-EU Trade and Cooperation Agreement (the “TCA”). The full text of the agreement is available here.

What is the current status of the TCA?

The TCA was approved by the UK Government in the form of the European Union (Future Relationship) Act 2020 on 30 December, with the Prime Minister signing the TCA the same day.The European side of the approval process is considerably more involved, with the TCA applying provisionally until the European Parliament provided consent. This was voted on by the European Parliament on 27 April 2021, with an overwhelming majority in favour of ratifying the TCA. The deal therefore took full effect from 1 May 2021.The TCA will be reviewed every five years, with either the UK or the EU able to terminate at any time on 12 months' notice.

What does the TCA cover?

The TCA is a wide-ranging agreement, covering the free trade agreement aspect but also wider economic, social and environmental co-operation, as well as law enforcement and judicial co-operation.  We set out below the key aspects of each pillar of the TCA, and are in the progress of updating our various subject-specific articles to reflect the position agreed in the TCA; these will be linked to below as these are updated.

1. Free trade agreement: The headline is that there will be zero tariffs and zero quotas on all goods that comply with the rules of origin when exported and imported between the UK and the EU.  This is a significant improvement from the WTO rules position that would have applied in the absence of a deal (for instance, exports of vehicles would have been subject to 10% tariffs, and certain meat and dairy products would have incurred rates as high as 40%). The rules of origin system allows for “full cumulation”, meaning that EU inputs into UK Products can be counted as UK origin and vice versa. However, there is a complex set of provisions governing the rules of origin, with around 50 pages of the TCA dedicated to them, and businesses will need to be careful that they are correctly declaring their products. There will be some simplification of customs procedures, and there are provisions to prevent unnecessary technical barriers to trade, for example by allowing self-declaration of regulatory compliance for low-risk products, broadly in line with the WTO's Technical Barriers to Trade Agreement. However, border checks and formalities will still be required, and cross-border trade will accordingly still be more costly and potentially subject to more delays than previously. Note also that there are differing rules for movement of goods between Great Britain and Northern Ireland. The Northern Ireland Protocol prevents a hard land border between Northern Ireland and the Republic of Ireland, but it does so by introducing a new trade border between Great Britain and Northern Ireland. This means that, in particular for export of goods from Great Britain to Northern Ireland, additional border formalities and, in some circumstances, trade tariffs, will apply. However, unionist parties within Northern Ireland intend to bring a judicial review challenge to the Northern Ireland Protocol, so this may well be subject to change.”

2. Wider economic, social and environmental co-operation: This covers a range of areas that are intended to facilitate ongoing trade, as well as the level playing field provisions that are designed to enable both parties to compete on a fair basis. Some of the key aspects covered are as follows:

Level playing field: Both the UK and the EU are required to maintain high standards of competition law, as well as uphold standards in areas such as tax transparency, protection for workers, environmental and climate protection. As part of this, the EU state aid regime will no longer apply in the UK, and the UK will be able to introduce its own independent system of subsidy control, but as with the other level playing field provisions, the measures adopted must not have detrimental effects on trade between the UK and EU.  Effectively, the level playing field prevents a party from “undercutting” the other unfairly.

Service provision: Provisions have been put in place to ensure service suppliers do not face limitations on market access, for example by ensuring non-discriminatory treatment between UK and EU service suppliers, preventing nationality restrictions on board and other senior personnel, together with a “most favoured nation” requirement to ensure that any concessions granted by either the EU or the UK to a third country in the future will also apply to the UK-EU relationship.

Business travel: UK short-term business visitors will be able to travel to the EU for 90 days in any 180-day period, and various measures are included to facilitate temporary secondments of highly-skilled employees. However, as expected, UK citizens will no longer have freedom to spend longer periods in the EU, and visas will be required for long-term stays.

Fisheries: This was a particularly contentious area throughout negotiations, and the 5 ½ year transition period being put in place for the provisions relating to fisheries reflects that. The deal allows for the UK to take a greater share of the fish from UK waters, but the EU will still be permitted to fish in UK waters until at least 2026.

Healthcare: Reciprocal healthcare arrangements equivalent to the EHIC card scheme will continue.

Aviation: UK airlines will be able to operate between points in the EU and points in the UK, but will no longer have access to EU aviation markets more generally, and the agreement of European countries will be required for onward carriage, and various measures are included in respect of cooperation on safety, security, air traffic management, and mutual recognition of aeronautical products and designs.

Road transport: Similarly, UK hauliers will be able to carry to a point in the EU, and carry out two additional pick-ups or drop-offs within the EU, subject to compliance with a set of standards on safety and working conditions such as restrictions on driver hours.

Energy: New trading arrangements are put in place to ensure continued flows of energy between the UK and the EU, together with a framework for continued cooperation on climate change (including an ongoing commitment to the Paris Agreement).

Telecommunications: The TCA provides for standardisation on telecommunications authorisation, meaning that UK businesses will not need to wait to obtain authorisation before providing services in the EU, and vice versa. It also includes obligations in relation to net neutrality.

Mutual recognition of certification: In a number of areas, including medicines, motor vehicles and parts, organic products and chemicals, mutual recognition will apply in respect of inspections and certificates, meaning that there will not be a requirement for UK producers to have a separate EU inspection or certificate in order to sell into the EU.

Professional qualifications: The TCA includes a framework for mutual recognition of professional qualifications, but no such qualifications are recognised immediately as of 1 January.

3. Citizens' security: The TCA includes provisions around law enforcement and judicial cooperation in criminal matters, together with continued adherence to the European Convention on Human Rights.

Data protection: Of particular interest to businesses will be the commitments to uphold high levels of data protection standards (which of course are currently enshrined in UK law under the Data Protection Act 2018). There has been much discussion over the past year of the likelihood of obtaining an adequacy decision for the UK, which would permit personal data to be lawfully transferred from the EU to the UK with no additional safeguards. Although the TCA does not implement an adequacy decision, it does allows for data flows to continue for an interim period of four months, to be automatically extended to six months unless either the UK or the EU object. It is hoped that this allows sufficient time to reach an adequacy decision.

Interestingly, both parties are subject to an obligation of good faith in carrying out the agreement. Europe has already shown its willingness to enforce such an obligation, when it commenced infringement proceedings against the UK alleging breach of the Withdrawal Agreement obligation of good faith, in relation to the inclusion of clauses (since removed) in the original draft Internal Market Bill that would permit the Government to disapply or modify the effect of trade and state aid provisions in the Northern Ireland Protocol.

What doesn't the TCA cover?

Issues of foreign policy, external security and defence cooperation were expressly excluded from negotiations at the UK's request (although the deal does include continued cooperation with EUROPOL, for example), and in addition the agreement does not extend to Gibraltar. Certain areas have been flagged by the EU as matters that are subject to the EU's unilateral decision, and are therefore not covered in the TCA:

• As mentioned above, the TCA does not cover an adequacy decision for data flows to the UK, although it implements a six month interim period during which such a decision is hoped to be obtained.
• The assessment of the UK's sanitary and phytosanitary regime in order to allow it to be listed as a third party is not covered, although the UK has been granted “national listed status” which ensures exports of live animals and products of animal origin can continue
• An equivalence decision for financial services is not included, although the TCA includes provisions that will secure continued market access. This means that UK firms will lose their passporting rights which had allowed firms to sell services into the EU without additional regulatory approval. Although the UK has implemented a temporary permission for EU-based firms operating in the UK, currently operation of UK firms in Member States is reliant on temporary permissions granted on a state-by-state basis.

In addition, as mentioned in relation to the free trade deal aspects, the deal does not do away with non-tariff barriers, such as conformity assessments (for example, CE marking), although to a degree there will be mutual recognition arrangements.

How is the TCA governed and enforced?

The TCA incorporates a governance framework, including a joint partnership council which will be responsible for ensuring the correct application and interpretation of the agreement, and which will be a first port of call for any disputes. The document includes dispute settlement mechanisms that ultimately rely on independent arbitration, rather than the European courts. There is also a variety of specialised committees and working parties being set up to enable the parties to work together to implement the agreement, and with various expiry dates being set for different sections of the agreement (for example 2026 for the fisheries and energy provisions) we would expect there to be ongoing discussions for many years to come.

EU and UK reservations for services

The TCA allows either the UK, the EU or individual Member States to put in place 'reservations', meaning that a country has reserved the right not to follow the core commitments in the TCA that allow the sale of services across-borders without discrimination.  This means that, where a reservation applies, a country may be able to put in place laws that would otherwise breach those core commitments.  Given that this gives rise to a potentially complex set of trading arrangements, both the UK and EU are reviewing their Brexit-related guidance regularly, and making amendments or providing updates where the position either changes or becomes more clear.  The Department for International Trade has published a Reservations tool which covers the position for various business sectors when doing business with various European countries.  See the Government guidance on reservations for further information.

Other UK-EU agreements

The UK and the EU negotiated separate agreements in two areas: Firstly, in relation to security procedures for exchanging and protecting classified information, a Security of Information Agreement has been put in place. The EU already has in place such agreements with a number of third countries, and these agreements assist in cooperation in relation to common security threats. Secondly, the UK and Euratom have negotiated a separate nuclear co-operation agreement known as the Civil Nuclear Agreement. Again, the EU already has a number of these in place, and they typically provide a framework for cooperation in the civil nuclear sector.

The status of European law in the UK

As a result of the end of the Brexit transition period, European law no longer applies in the UK. However, the European Union (Withdrawal) Act 2018 provides for what is known as 'retained EU law' to remain part of the UK's legal system. This means that, where EU law was either implemented into UK law, or directly applicable in the UK, prior to 31 December 2020, that law will continue to apply in the UK, at least in the short term. This does not mean that all EU legislation will still apply in the UK; for example, EU directives are not directly effective in Member States, but any UK legislation that implements those directives will continue to apply. However, over the past couple of years, the UK Government has been carrying out a process of updating a large swathe of UK legislation, mostly to ensure that retained EU law would function correctly as part of UK domestic law (for example by removing references to EU regulators).  Any review of the legal position in the UK will, accordingly, need to take this into account as well. Additionally, the obligations under the TCA are imported into UK domestic law by the European Union (Future Relationship) Act 2020, which says that existing domestic law has effect with such modifications as are required for the purposes of implementing the TCA (or indeed the Security of Information Agreement). Ultimately, each provision of the TCA will be implemented into UK legislation as is appropriate. However, in the meantime this means that, as well as the UK legislation, any applicable EU legislation, and any recent UK amendments, a review of the legal position will also need to consider whether the TCA modifies the position. Another aspect of the status of EU law is how the judgments of European courts are applied in the UK. Where a judgment dates from before the end of the transition period, it will form part of retained EU law and must be followed by lower courts. However, the Court of Appeal and the Supreme Court may diverge from EU case law if they considers it to be right to do so. Two recent Court of Appeal decisions suggest that the Court views this to be used as an exception. In TuneIn v Warner Music, the Court declined to depart from EU case law, considering a number of factors including:

• Whether there had been any changes to the UK or EU legislation since the end of the Brexit transition period (that is, was the Retained EU law the same as the actual EU law)
• Whether there was sufficient weight of academic opinion supporting such a departure
• Whether departing from EU case law would create “considerable legal uncertainty”
• The fact that the area of law under consideration (copyright) was derived from international treaties
• Whether the existing EU case law restricts development of the law, or leads to results that would be unjust or contrary to public policy.

Meanwhile, in Lipton v BA City Flyer, when making a similar decision the Court also discussed the likely impact of the TCA itself on any decisions relating to domestic UK law, and emphasised the impact of the provisions of the TCA that require UK law to be read as if it implemented the requirements of the TCA.  This in particular is likely to prove a challenge in interpreting domestic UK law going forward. Looking further forward, it is of course open to the UK Government to make changes to UK legislation that diverge from EU law, and it remains to be seen how quickly this happens, and how significant the divergence is.  In June 2021 the Government published a report by the Taskforce on Innovation, Growth and Regulatory Reform which proposes, in particular, regulatory reforms in high-growth sectors.  Core to the report's proposals is the suggestion that the UK should move away from unnecessary regulation and towards a more common law approach.  The report makes specific proposals in areas such as financial services products, pension scheme regulations, and digital currency. In the second half of 2021 the UK Government's views, together with those of regulators, on the potential divergence of UK law from the EU position have become more apparent.  A number of consultations took place over the summer, including a BEIS consultation on reform of the UK's regulatory framework, the Competition and Markets Authority's consultation on reforming competition and consumer law, and the DCMS consultation on reform of the UK's data protection regime.  Each of these consultations proposes more or less significant departures from EU law; in the case of the BEIS consultation, views were sought on the adoption of a less codified common law approach to regulation, which would be a considerable divergence from European legal models which are typically much more codified.  Clearly it will be some time yet before any large-scale changes are made in UK law, but it certainly seems to be in the pipeline.

What about the rest of the world?

Although the headlines have been about the UK-EU trade deal, there are various discussions ongoing on other free trade agreements with countries outside the EU. In June 2021, the UK signed a full trade deal with Australia, described as “the first major trade deal negotiated from scratch by the Government since we left the EU.”  The Australia trade deal covers aspects such as lower or removed import/export tariffs, and wider rights for UK citizens under the age of 35 to travel and work in Australia, as well as laying the groundwork for the UK's bid to join the Trans-Pacific Partnership.  In addition, in July the UK signed a free trade deal with Norway, Iceland and Liechtenstein, again providing tariff-free trade as well as reducing import/export administration. The discussions on a new free trade agreement with the US were delayed from their original March start, and the UK and US governments started negotiations in early May, continuing through the year, and covering a number of areas such as customs and trade facilitation, competition, market access, rules of origin, industrial subsidies, state owned enterprises and financial services. However, with the presidential election having taken place in November, and statements made by president-elect Joe Biden that the US will not rush into trade deals, the outgoing Trump administration was in late December 2020 reported to be in talks with the UK to reach a “mini-deal” on trade tariffs, but it seems that a broader deal will be delayed. It is possible that, instead, the UK could enter the existing trade agreement between the US, Canada and Mexico. In addition, in late October the UK and Japan signed a post-Brexit trade agreement, known as the Comprehensive Economic Partnership Agreement, having negotiated the terms via video link between June and September. The Government estimates that this will provide a boost to trade between the UK and Japan of over £15 billion, as well as including a strong commitment from Japan to support the UK joining the Trans-Pacific Partnership, one of the world's largest free trade areas. The agreement will enable UK businesses to benefit from tariff-free trade on 99% of exports to Japan, provisions enabling free flow of data, improved market access for UK financial services, improved mobility for business people, and support for UK car and rail manufacturing.  For more detail see the Government's statement on the agreement. In addition, an agreement in principle was signed with Australia in 2021, with a New Zealand Deal following in October 2021.The UK has also put in place trading agreements with a variety of other countries, often on a continuity basis which effectively lets the UK trade on the same basis that it currently does as part of the EU, pending negotiation of a full replacement trading agreement. This includes the UK-Canada Trade Continuity Agreement, the UK-Mexico Trade Continuity Agreement, and the UK-Singapore Free Trade Agreement, all of which were agreed in early- to mid-December. December 2020 also saw the agreement of the UK-Switzerland Services Mobility Agreement, which will allow UK service suppliers effective access to the Swiss market and vice versa, with provisions for visa-free travel.

Recent EU legal action against the UK

In October 2020 the EU launched legal proceedings against the UK in relation to the proposed implementation, via the Internal Market Act, of domestic laws that would enable the Government to overrule some of the provisions of the Northern Ireland Protocol. The Protocol is part of the Withdrawal Agreement, entered into between the EU and the UK in late 2019.Whilst the controversial provisions of the Internal Market Act were subsequently dropped, the EU is now taking action against the UK in respect of a separate issue relating to the Northern Ireland Protocol. The Protocol aims to eliminate border controls between Northern Ireland and the Republic of Ireland. A consequence of this is the need to put in place new border controls between Northern Ireland and the UK. In order to allow food industries to adapt to the new trade barriers, the Protocol includes a three month grace period during which food imports to Northern Ireland will not be subject to the new controls. In early March 2021, the UK announced that it would continue that grace period through to 1 October. The EU considers this to be a breach of the Withdrawal Agreement, and has sent formal notification to the UK alleging such a breach. This could lead to the matter being taken to arbitration, and ultimately financial sanctions and even suspension of the Withdrawal Agreement. The UK in turn denies breaching the Protocol, calling the extension of the grace period “temporary, operational steps” intended to minimise disruption. In October 2021 the European Commission published its own proposals to change how the Protocol operates, following UK criticisms and extensive discussions over recent months.  The proposals are split into those regarding sanitary and phytosanitary issues, customs, medicines, and engagement with Northern Ireland stakeholders and authorities.  The proposals would involve simplification of how the flow of goods between Great Britain and Northern Ireland takes place; for example, by simplifying the certification process and official checks for a wide range of retail products for consumption in Northern Ireland, although this is accompanied by various safeguards to protect the integrity of the EU market, such as labelling products as “for sale only in the UK”.  The EU and UK are expected to continue discussions over the proposals, and the hope is that the parties can reach a jointly agreed permanent solution sooner rather than later.

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