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The UK-EU future relationship: the Trade and Cooperation Agreement Contents

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1The deal

Reaching agreement

1.The UK left the European Union (EU) on 31 January 2020. The Withdrawal Agreement that the Government agreed with the EU, settled the questions of the UK’s outstanding financial contributions, citizens’ rights, and established the Ireland/Northern Ireland Protocol to maintain an open border on the island of Ireland.1 It also put in place a transition period ending on 31 December 2020.

2.Having agreed the terms on which the UK’s membership of the EU would cease, attention turned to negotiating the UK-EU future relationship. This negotiation has been completed faster than many thought possible. By the end of February 2020 the Council of the European Union had adopted a negotiating mandate2 and the UK had set out its detailed negotiating position.3 Negotiations started in early March. Early negotiating rounds were affected by the measures put in place to deal with the Covid-19 global pandemic and had to be conducted in part by videoconference. Four rounds of negotiations were held before a high-level meeting on 15 June between Prime Minister Boris Johnson, the President of the European Council Charles Michel, the President of the European Commission, Ursula von der Leyen, and the President of the European Parliament, David Sassoli at which they took stock of progress and agreed actions to move negotiations on the future relationship forward. Negotiations resumed, were intensified at least twice and paused once. The UK’s and EU’s deadline for completing the deal by the end of October passed as did the point in November after which it was generally agreed that ratification before the end of the transition period became difficult.

3.Negotiations continued into the morning of Christmas Eve before agreement was finally reached. At this stage both the UK Government, and European Commission, published summary documents on the Agreement that had been concluded.4 On 26 December, over 1200 pages of the Trade and Cooperation Agreement5 were made available by the UK Government6 and the European Commission.7 The text still needs to be legally scrubbed (i.e. checked for accuracy) and, for the EU member states, translated into the official languages of the European Union; those processes could produce minor corrections to the wording and re-numbering.

4.We welcome the fact that both sides managed to reach an agreement in principle on Thursday 24 December 2020. We pay tribute to the hard work and dedication of both parties’ negotiating teams who have managed to conclude a deal in a much shorter timeframe than many expected and in the face of all the difficulties created by the global pandemic.

5.Commencing 2021 with this deal in place is significantly better than starting it without one. Securing the Trade and Cooperation Agreement means that as the UK leaves the Single Market and Customs Union, UK businesses and consumers will not have to face the economically damaging consequences of tariffs on 1 January 2021 that would have been the result of no-deal. This Agreement is important in its own right, but its significance as the basis of the UK’s future relationship with the EU should not be underestimated. The UK’s relationship with the EU will always be significant because of the interconnectedness of our markets, our geographic proximity and our longstanding cooperation in many areas.

6.The UK and the EU will embark on a long-term relationship that recognises the parties’ equality of sovereignty as much as it recognises their common interests. Having an agreed deal in place will make it much easier to build the kind of relationship the UK and the EU will need, in the coming years, as both parties explore opportunities for further cooperation on trade and security matters, while at all times continuing to respect the independence of each other’s legal orders.

What is in the deal?

7.The UK and the European Union have negotiated three draft agreements:

• The Draft EU-UK Trade and Cooperation Agreement8
• The Draft EU-UK Security of Information Agreement9
• The Draft EU-UK Civil Nuclear Agreement10

They are accompanied by 15 declarations (see paragraph 19).11 The Trade and Cooperation Agreement includes protocols on:

• Administrative cooperation and combating fraud relating to VAT and mutual assistance for the recovery of claims relating to taxes and duties;
• Administrative assistance in customs matters; and
• Social security coordination.

Several annexes to the Trade and Cooperation Agreement provide further detail on its operation. The Protocols and Annexes are an integral part of the Agreement. The Withdrawal Agreement, including the Ireland / Northern Ireland Protocol, is unaffected and remains in force.

8.In our First Report, published in advance of the June High-Level Meeting, we found that fisheries, the level playing field and governance were key areas of disagreement.12 This continued to be the case with these topics the predominant focus of the last few days of the negotiations. These issues embodied the difficult trade-offs the negotiations had to resolve around sovereignty, regulatory alignment and trust that at times seemed to threaten to derail the talks.

9.On fishing, the Trade and Cooperation Agreement affirms the UK’s status as an independent coastal state, outside the EU’s Common Fisheries Policy. Over the next five and a half years, the UK’s share of fishing quotas will increase by 25% of the value of the EU catch in UK waters.13 After that, access will be decided by annual negotiation. UK fishing boats will be able to sell their catch into the EU’s Internal Market without tariffs or quotas. Provision is made for remedies if a party does not grant access to its waters and these will apply even after the end of the five-and-a-half-year adjustment period.14 We will return to the implication of the fisheries agreement in a future report.

10.The Agreement states that trade and investment between the UK and EU “require conditions that ensure a level playing field for open and fair competition, while also recognising that the purpose is “not to harmonise the standards of the Parties”. The Agreement sets out level playing field provisions for the following areas: competition; subsidy; state owned enterprises; taxation; labour and social standards; environment and climate; and trade and sustainable development.

11.In relation to subsidies, each Party must have in place a domestic subsidy regime that ensures that the grant of subsidies respects the principles set out in the Agreement. In terms of domestic enforcement, UK courts will decide whether a subsidy decision complies with the domestic law that implements the principles. The EU can be an intervening party in a UK case on subsidies (and vice versa). It is not clear whether and how the UK will meet its obligations, including establishing an independent oversight body from 1 January, and we urge the Government to clarify this.

12.If a Party to the Agreement believes that a subsidy has, or there is a serious risk it will cause, a significant negative effect on trade or investment between the UK and EU it can first seek information from, and consult with, the other Party. A complaint that a subsidy has a significant negative effect on trade or investment must be evidence-based. If consultation does not resolve the matter, the complaining Party can take remedial measures. If the other Party considers the remedial measures are excessive, it can refer the matter to an arbitration panel.

13.The UK does not have to follow the EU’s rules in level playing field areas and is not subject to the jurisdiction of the Court of Justice of the European Union under this Agreement. For provisions on labour and social protection, and the environment and climate, it is recognised that either Party may establish their own levels of protection. At the same time, a form of non-regression approach is used which requires that the Parties do not lower the level of protection afforded below the level in place at the end of the transition period if to do so would impact trade or investment between the UK and EU.

14.If material impacts on trade or investment arise as a result of significant divergences between the Parties in the areas of labour and social, environmental or climate protection, or with respect to subsidy control, , there is a rebalancing mechanism that allows the concerned Party to take unilateral measures such as imposing tariffs to restore fair competition. An arbitration panel can be established to decide if the rebalancing measures are consistent with the requirements of the Agreement.

15.A review of the Agreement can be triggered if a Party considers that the “rebalancing mechanism” has been used frequently or if a rebalancing measure which has a material impact on trade or investment has been in place for more than 12 months. The purpose of the review is to “address whether the Agreement delivers an appropriate balance of rights and obligations between the Parties”. If the Parties cannot agree on amendments to the Agreement, either Party may terminate the trade part of the Agreement which would also terminate the road transport part and, in certain circumstances, the aviation part.

16.The Agreement has a single institutional framework overseen by a Partnership Council. The work of the Partnership Council will be supported by a number of committees and working groups. There is also provision for a Parliamentary Partnership Assembly,15 and there will be a civil society forum.

17.The arrangements for dispute settlement and enforcement of the Trade and Cooperation Agreement are complex. The dispute settlement mechanism in Part Six of the Agreement applies to most but not all areas of the Agreement. For example, it does not apply to law enforcement and judicial cooperation in criminal matters, for which there is a different mechanism. Disagreements that cannot be resolved within the Partnership Council will be subject to binding independent arbitration with no role for the CJEU. If arbitration rulings are not adhered to, the complaining party can suspend its obligations in areas of the Agreement not related to the breach (e.g. by imposing tariffs). Cross-sector suspension is, however, subject to exceptions and limitations. Economic “penalties” cannot be exacted for breaches related to the security elements of the Agreement and vice versa. There are different methods of enforcement in specific areas, for example, in respect of the level playing field and fisheries, including the possibility of cross sectoral suspensions.

18.The Agreement covers many other areas that have been less contentious. We provide an overview of these below. We intend to consider the Agreement in more detail in January once we have had a chance to take evidence on it.

Trade, transport and aviation

19.The TCA covers a wide range of issues around trade, transport and aviation. The Agreement:

Trade

• Provides for zero tariffs and zero quotas on all goods. In order to qualify goods will have to meet Rules of Origin requirements (which define the proportion of the good that is locally produced), with some limited exemptions.16The Agreement also makes provisions on bilateral cumulation, allowing manufacturers to count both UK and EU parts when calculating the proportion of a good sourced locally when determining its origin, but makes no provision for diagonal cumulation, whereby component parts from countries with which the EU already has a trade deal would also have been defined as originating in the UK/EU.
• Addresses some non-tariff barriers on goods, and is broadly in line with the WTO Technical Barriers to Trade Agreement, but does not remove all those that are a consequence of leaving the EU Single Market and Customs Union. There will be new customs requirements and costs for businesses as well as the provisions on rules of origin. Mutual recognition of conformity assessment will broadly fall away, although there will be specific, limited, facilitations for medicinal products, motor vehicles, organics, wine, and chemicals.17 Although trade in live animals and products of animal origin and plants will be allowed to continue, it will be subject to sanitary and phytosanitary (SPS) border checks, with paperwork and physical inspections. The Agreement has provisions on customs and trade facilitation, including allowing for the mutual recognition of trusted trader schemes (authorised economic operator schemes) to reduce friction at the border; cooperation and exchange of information relating to VAT (including on combating fraud); as well as an institutional framework of committees providing for future discussions on facilitations across the areas identified.
• Includes some provision on cross border trade in services and investment, including provisions for temporary movement of people. The provisions are subject to a list of national exceptions listed in annexes. There are special provisions for delivery, maritime transport, telecommunication and digital services. Although the level of access is subject to unilateral equivalence assessments, both Parties have agreed in a non-binding declaration to establish a framework for regulatory cooperation on financial services. In so far as it has been carved-out of the Agreement, the sector is also exempt from cross-retaliation across the economic chapters. The Agreement does not include mutual recognition of professional qualifications but creates a framework for them to be potentially agreed in the future.
• Commits the parties to develop and implement new energy trading arrangements by April 2022. The UK can continue to access the EU internal energy market. The separate Nuclear Cooperation Agreement provides for the continued cooperation on the transfer nuclear materials and research.
• Protects the intellectual property rights of each other’s nationals no less favourably than their own. There are also mechanisms for cooperation and exchange of information on intellectual property issues of mutual interest. Existing geographical indications on foodstuffs are already protected under the Withdrawal Agreement and the Trade and Cooperation Agreement provides for a future review of them.
• Builds on the WTO’s Agreement on Government Procurement by extending coverage to sectors such as hospitality, telecoms, property and education.

Aviation

• Includes provisions for air transport and aviation safety. On transport, passenger and cargo flights will be able to continue between the UK and the EU. Ownership requirements appear to reflect the realities of existing structures, which means UK airlines will qualify. Although UK airlines will no longer be able to fly between two points in the EU, this could be mitigated in practice through the creation of subsidiaries. As regards safety, both Parties will recognise each other’s certificates and licences and a specialised committee will look at further recognition in future.

Road transport

• Provides for the continuation of road haulage and passenger transport between and through the UK and EU without additional permits and licences. However, UK hauliers will not be allowed to take as many laden journeys inside the EU as before, and they will have to keep following certain rules on safety, standards and specifications.

International maritime transport services

• Maintains unrestricted access for ships to ports, port infrastructure and customs facilities.

Social security and visas for short-term visits

20.The Agreement:

• Provides that cross-border workers will make social security contributions in one state at a time, and for contributions made in the UK, or an EU Member State, to be taken into account for the purposes of a state pension and some benefits. It also provides for continuing access to healthcare on short term visits.
• Allows for short term business visits, limited to 90 days in any 180-day period. The nature of the business activity that a UK national will be able to carry out in the EU is limited, and some professions may not qualify and may be subject to the domestic rules of each individual Member State.

Law enforcement and judicial cooperation in criminal matters

21.Law enforcement and judicial cooperation in criminal matters is included in the Trade and Cooperation Agreement. The Agreement:

• Allows for the UK to still be able to exchange DNA and fingerprint data using the Prüm system, and to transfer Passenger Names Records Data. It also includes provision for the exchange of criminal records data between the UK and individual EU Member States, and the sharing of information relating to wanted and missing persons. It enables cooperation on mutual legal assistance in criminal matters.
• The UK will no longer have access to the SIS II database, which allows for the sharing of data relating to wanted or missing persons or objects.
• Establishes UK law enforcement relationships with Europol and Eurojust similar to those of a third country. These arrangements may be built upon in future. The Agreement includes a commitment for the UK and EU to prevent and fight against money laundering and terrorist financing. The Agreement includes an arrangement for extradition similar to the EU Surrender Agreement with Norway and Iceland.

22.This part of the Agreement has its own arrangements for dispute settlement and a consultation mechanism through the Specialised Committee on Law Enforcement and Judicial Cooperation or in the framework of the Partnership Council. Either Party may terminate the law enforcement and judicial cooperation part of the Agreement at any time, including in the event of the UK or an EU Member State having denounced the European Convention on Human Rights. The Agreement can be suspended if there is “serious and systemic deficiencies” by one party regarding the protection of personal data or as regards the protection of fundamental rights or the principle of the rule of law.

Thematic cooperation

23.The Agreement includes provisions for some thematic cooperation.

• The Agreement provides mechanisms for the two Parties to cooperate on health security. The EU may grant the UK ad hoc access to its Early Warning and Response System and to take part in a committee on the exchange of information and coordination on serious cross-border threats. The Agreement also provides for a future memorandum of understanding between the European Centre for Disease Prevention and Control and the relevant UK body.
• The Agreement provides for dialogue and cooperation on cyber security. This includes cooperation with the EU’s Computer Emergency Response Team (CERT-EU), the EU’s Cyber Security Cooperation Group, as well as the EU’s Agency for Cybersecurity (ENISA).

Participation in Union programmes

24.The Agreement gives the UK access to Horizon Europe, the Euratom Research and Training programme, the fusion test facility ITER, Copernicus, and access to the EU’s Satellite Surveillance & Tracking (SST) services in return for a financial contribution.18 The UK decided not to participate in the Erasmus Scheme because of value for money concerns, but will establish a new global student exchange scheme.

Communicating change

25.The Agreement has secured tariff and quota free access to the EU’s internal market for goods, which make up around half of UK exports to the EU. Gaining such privileged access has required the UK to accept commitments on a level-playing field, but without having to apply EU law, as well as non-tariff barriers, which might be addressed in future. The rights and obligations of access are two-way and will also apply to businesses and traders in the EU who want to trade with the UK’s internal market. This deal is important, but businesses, traders and communities need to understand that it heralds significant change in the UK’s relationship with the EU; it does not preserve the arrangements in place before or during the transition period. It is imperative that the Government communicates the coming changes clearly so that businesses can take the steps they need to take in order to comply with the new arrangements. We urge all relevant authorities to be as flexible as possible in their enforcement of the new arrangements in the coming weeks to support people through the new procedures rather than punishing them for unintended non-compliance.

Outstanding issues

26.The EU and UK have agreed to continue discussions across several areas in 2021. Many of these are set out in a series of Declarations attached to the TCA.19 These include:

• A commitment to agree, by March 2021, a Memorandum of Understanding establishing a framework for regulatory cooperation in financial services;
• A declaration that the UK intends to pursue bilateral discussions with most-affected Member States on developing practical mechanisms for cooperation on asylum, returns, family reunion for unaccompanied minors and illegal migration;
• Plans to review certain mechanisms for exchange of criminal record information, with the possibility of extending the relevant parts of the Agreement;
• A declaration that the two parties will aim to complete negotiations on the implementation of the exchange of classified information between the UK and EU; and
• Financial settlements covering UK participation in some EU programmes, such as Horizon Europe, which were not able to be negotiated in 2020 because the UK-EU talks coincided with the EU’s Multiannual Financial Framework negotiations.

27.As a European Commission decision on the important question of data adequacy is not expected to be made in time for the end of transition period, the Agreement allows for an interim period of four months, extendable to six months, for the European Commission to complete its processes and make a decision on data adequacy. This is conditional on the UK not changing its data protection law during the interim period.

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