Since October, it has been said that the head of the European Commission, Ursula van der Leyen, and the British Prime Minister, Boris Johnson, are really talking intensely about the need to accelerate negotiations on the Brexit ending agreement. The UK exit in the “no deal” formula was a threat to flourishing trade. Failure to reach an agreement and implementation of all mechanisms used by the GB and the EU towards third countries would mean a decrease in turnover by at least EUR 1 trillion.
It is not surprising that the partners were constantly looking for a solution that would allow them to maintain the structure of trade that had been organized over the years. Finally, attention was drawn to the fact that Brexit is a significant threat to many sectors in the UK and the EU, which would require huge expenditure and time to adapt to the new regulations. It must be borne in mind that cooperation and trade is not only the transfer of finished goods and services. After all, many of them are developed by cooperating entities from the European Union and Great Britain. The reconstruction of this mechanism seems to be an extremely difficult task, and there are also opinions that it may turn out to be impossible. Rapid implementation of regulations, which in many sectors partners apply to third countries, will result in a decrease in the competitiveness of jointly implemented projects. It is therefore not surprising that the head of the European Commission and the Prime Minister of GB motivated the negotiators appointed by the parties to develop a solution that would save the aforementioned trillion EUR and allow them to earn more.
Common values and EUR 1 trillion in trade
The controversy over the internal market law pushed for months by the British prime minister made negotiators and EU and British officials increasingly divided over whether a new deal was possible at all. The specter of introducing regulations in the original scope was unacceptable to the EU side, which made it clear that it would not agree to the agreement that undermines the previous arrangements.
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The negotiating teams led by Michel Barnier (EU) and David Frost (GB) were intensively searching for a solution that would allow both sides to reach a consensus and continue their fruitful cooperation. Observers were constantly paying attention to the optimism of some EU policy leaders, including Angela Merkel. The prism of shared values and measurable trade finally resulted in the signing of a new agreement regulating some issues of the future relationship between the UK and the EU.
New cooperation agreement and some of its provisions
The agreement regulating relations between the EU and GB after Brexit was signed by the President of the European Commission and the Prime Minister of Great Britain on December 24, 2020. The agreement relates, inter alia, to to regulation of trade, transport, financial services, industry, agriculture and fisheries, state aid and cooperation in the fight against crime.
A comprehensive document covers many important points. The partners’ concessions in some of their key issues are clearly visible, which during the transition period were widely commented on on the EU forum and by the British public opinion. Importantly, the content of the document shows that the agreement initiates a process that requires monitoring of many aspects in order to determine the final shape of the agreement in the future.
The most important provisions from the point of view of the activities of British LTD companies include:
- no customs duties on goods and services in direct trade,
- introducing bureaucracy, such as in trade with third countries (zero customs declarations will be required),
- most of the regulations concerning the classification of the place of origin of goods in force so far will be maintained.
There will be no customs duties, but declarations must be submitted
The good news for all British LTD companies that import goods or services from the EU or export to the European market is that the new agreement eliminates the need to introduce customs duties that apply to partners’ trade with third countries. It is a comfortable solution that increases the chances of maintaining existing trade relations without compromising price levels and competitiveness.
The key to applying zero rates is the actual place of origin of the goods, which is determined on the basis of the relevant regulations agreed by the partners. This is good news especially for British LTD companies that supply or buy EU intermediates from their partners. The existing preferential regulations regarding the place of origin of the product allowed for the treatment of semi-finished products (materials or processing processes) as an EU contribution, which allowed for the application of zero duty rates and VAT.
Place of origin for goods, materials and processing
The new agreement allows British LTD companies to declare materials and processing (semi-finished products) as “EU input” and apply a zero duty rate to them. At the same time, intermediates exported by LTD companies to EU partners will be referred to as “UK input”. Partners from EU member states will be able to apply zero duty rates to them, as before.
Importantly, the end product manufactured by LTD using the “EU Contribution” will be recognized by the EU as originating in the UK and accordingly products manufactured in the EU using the “UK Contribution” will be recognized by the British Customs as a product of EU origin and according to the cooperation agreement, a zero rate of duty will be applied to them.
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The place of origin is declared by the importer. It is also responsible for proving the actual place of origin of goods, materials and processing. Regulations on the import of products, materials and processing from third countries, including China, will remain unchanged for at least some time.
Zero declarations and even more bureaucracy
Brexit and the new agreement will bring more formalities and documents to mutual trade relations. UK LTD companies will have to submit zero customs declarations each time the subject of import is the broadly understood “EU contribution” or goods from EU member states.
There will be many more changes, because the British do not agree with some standards of classification of various groups of goods in terms of their safety, which affects the decision to introduce them to the UK market. It may turn out that the guidelines for products placed on the GB market by British LTD companies importing toys or other goods will be significantly changed.
In this case, it may be necessary to obtain an alternative certification. Compliance of products with internal regulations can be verified at the customs border. The inspections aimed at improving the collection of output VAT on the import of goods will also have similar intentions. With this in mind, the British government plans to employ nearly 50,000 customs officials in the near future, who will carry out, inter alia, such actions. It is estimated that roughly 5% of imported goods will be under regular physical checks by UK customs officials.