The EU-UK Trade and Cooperation Agreement (TCA) was published on 24 December 2020, a week before the end of the transition period. The TCA establishes a framework for a future trading relationship between the two Parties and follows a long period of negotiation during which a ‘no deal’ outcome was a real possibility.
The Committee had two clear aims for this inquiry. Firstly, to understand what the TCA means for trade in goods; and secondly, to identify ways this trade could be made easier. We have taken the TCA as the foundation for a future trading relationship between the two Parties and have sought to look forward rather than back.
If certain rules and procedures are followed, the TCA allows UK and EU businesses to avoid tariffs and quotas. To benefit from zero tariffs, businesses must comply with—and be able to demonstrate compliance with—complex and extensive rules of origin, which establish the economic nationality of a product. Some traders, whose products do not meet those rules, may face a fundamental shift in their supply chains. Alongside this, extensive paperwork, multiple testing requirements, changes to VAT, and transport restrictions are having a significant impact on UK traders.
Witnesses acknowledged that trader readiness on 1 January 2021 was better than many, including the Committee, had expected, and alongside some exemptions and simplified processes in the TCA itself, the Government has implemented various internal facilitations. Where they are provided for, they offer important assistance. Substantial non-tariff barriers, inherent to the UK’s status as a third country, remain unaddressed, however, and much work still remains before smooth UK-EU trade will be possible.
The rebalancing mechanism in the TCA’s level playing field section could allow either Party to impose tariffs or other countervailing measures in the future. Our report reflects the calls we heard for stability and transparency on subsidies and labour and social protections.
We also examine rules of origin. Only goods originating—or mostly originating—in the UK or EU will qualify for zero tariffs. The requirements will hit smaller businesses hardest but clarifications and mitigations, particularly on the re-export of non-processed goods, are urgently needed for all.
The lack of a mutual recognition agreement on conformity assessment has been a significant blow. Multiple testing requirements add time and cost, and we have emphasised the importance of careful consultation and transparency before any future regulatory divergence.
On sanitary and phytosanitary measures, we find that, without action, physical checks may become a permanent barrier to trade in animal and plant products. We urge the Government to identify and pursue realistic priorities within the relevant Trade Specialised Committee.
On customs, we recommend a trusted trader scheme to enable more businesses—especially smaller businesses—to benefit from simplified customs procedures. This would sit alongside the UK’s Authorised Economic Operator scheme which, if made more accessible, would have a greater reach. Increased investment in the stretched customs intermediary sector could rectify its most pressing problem: staff numbers are too low. While the transition period has ended, some import restrictions are yet to be phased in. Preparedness is critical, and much work is still needed on physical infrastructure and awareness.
The complicated and varied VAT rules in different EU jurisdictions have so far been among the most problematic non-tariff barriers to trade. The Government’s postponed accounting scheme is welcome but helps only businesses which are VAT-registered. We call for the Government to support traders in accessing the postponed accounting scheme and to strengthen the guidance, advice and support to increase understanding among traders of new VAT implications.
Problems with the transportation of goods, particularly with increased costs and groupage, are affecting all businesses, hitting smaller firms hardest. We call for increased engagement with industry, and an extension of the Groupage Export Facilitation Scheme to a wider variety of goods. We also urge the Government to seek full fifth freedom of the air rights and, failing that, to conclude bilateral aviation agreements with as many countries as possible.
A common thread throughout our report is the need, given the substantial increase in administrative complexities, to translate guidance into tailored advice and support. In the final chapter of this report we examine the need for accurate, easily understood and specific advice to be provided to businesses.
There remain substantial barriers to trade with the EU. This report examines the new landscape of UK-EU relations and makes actionable recommendations to ease trade in the future.