Beyond Brexit: trade in goods Contents

Chapter 1: Introduction

Background

1.The EU-UK Trade and Cooperation Agreement (TCA)1 was published on 24 December 2020, four and a half years after the result of the Brexit referendum, during which a ‘no deal’ outcome was a very real possibility.2 The TCA establishes the foundation for a trading relationship between the UK and the EU, now separate economic and regulatory jurisdictions. The necessary implementing legislation, the European Union (Future Relationship) Act 2020, was passed by both Houses on 30 December 2020, and the TCA is being provisionally applied pending ratification by both Parties.3

2.The TCA is divided into seven Parts. Each Part covers different elements of the future relationship: institutional provisions; trade and other economic aspects; cooperation on law enforcement and criminal justice; “thematic” issues; participation in EU Programmes; dispute settlement; and final provisions. A Nuclear Cooperation Agreement and an agreement on Security Procedures for exchanging classified information have been agreed in parallel.4

Our inquiry

3.In January 2021, the House of Lords EU Select Committee launched a coordinated series of inquiries analysing the TCA and its implications for the future of UK-EU relations .This report is based on the inquiry undertaken by the EU Goods Sub-Committee and concerns trade in goods and connected issues.5

4.We launched our inquiry on 13 January 2021 and issued a call for evidence on 20 January (see Appendix 3). We received 25 pieces of written evidence and heard from 15 witnesses over the course of five oral evidence sessions. A full list of the evidence we received can be found in Appendix 2. We are grateful to all who contributed.

5.In late 2020, the House of Lords Liaison Committee completed its review of the House’s Committee structure, which began in January 2018 in the wake of the referendum. The Liaison Committee’s report,6 agreed by the House in January 2021, determined that the European Union Select Committee and its Sub-Committees would finish their work on 31 March 2021.7 This report will therefore be the last report of the EU Goods Sub-Committee and its final contribution to public debate.

6.We make this report for debate.

A note on our recommendations

7.The evidence on which this report is based was taken in January and February 2021. The TCA was implemented on 1 January 2021. Our evidence, and the conclusions we have come to, are therefore a preliminary view. This report cannot be exhaustive: some challenges are not yet visible, and the nature, causes and longevity of others are likely to become clearer over the coming months and years.8

8.The COVID-19 pandemic, of course, significantly complicates our conclusions. Financial implications for traders have been extensive, and travel restrictions and requirements for COVID testing have affected the flow of trade and people across and within territories. We were also told that the pandemic has meant that many businesses have “not had the headspace to get to grips with the agreement. They are consumed with Covid.”9 One trader told us: “Instead of being able to prepare for all eventualities at the beginning of 2020 we were hit by a pandemic. Business fell off a cliff and we furloughed two thirds of our staff and could only focus on simply surviving, our mind was not on Brexit.”10

9.The Railway Industry Association accurately summarised the position: “Given the exceptional impact of the Coronavirus pandemic, and the fact these are early days since leaving the Transition Period … the new rules have not yet been fully tested.”11 Since the interpretation of the TCA is dependent partly upon an international and shifting political landscape, we must also warn that the situation may change dramatically over time.12

Trade in goods and the TCA

10.In 2019 the UK exported £294 billion of goods and services to other EU Member States, equivalent to 43% of UK exports. Imports from the EU were worth £373 billion, 52% of UK imports.13 Of total trade, goods were responsible for 58.6% of exports and 72.3% of imports.14 The tables below indicate the top exports and imports for UK-EU trade in goods.

Table 1: Top 10 UK goods exports to the EU 2019

Category of goods15

£ billions

% of total

Petroleum, petroleum products

20.0

11.8%

Road vehicles

17.3

10.2%

Other transport equipment

9.9

5.8%

Miscellaneous manufactured articles

9.4

5.5%

Medicinal & pharmaceutical products

9.2

5.4%

General industrial machinery & equipment

6.9

4.1%

Electrical machinery & appliances

6.8

4.0%

Power generating machinery

6.7

3.9%

Articles of apparel & clothing accessories

5.3

3.1%

Telecomms appliances & equipment

4.4

2.6%

Table 2: Top 10 UK goods imports from the EU 2019

Category of goods

£ billions

% of total

Road vehicles

48.5

18.2%

Medicinal & pharmaceutical products

17.7

6.7%

Electrical machinery & appliances

11.4

4.3%

Miscellaneous manufactured articles

10.5

4.1%

General industrial machinery & equipment

10.1

3.8%

Telecomms & sound recording equipment

9.9

3.7%

Office machines & automatic data processing machines

8.2

3.1%

Petroleum, petroleum products

8.0

3.0%

Power generating machinery & equipment

7.8

2.9%

Manufactures of metal not elsewhere specified

7.6

2.8%

Source: House of Commons Library, Statistics on UK-EU trade, Number 7851, 10 November 2020: https://researchbriefings.files.parliament.uk/documents/CBP-7851/CBP-7851.pdf [accessed 2 March 2021]

11.By virtue of the Withdrawal Agreement’s Protocol on Ireland/Northern Ireland, most EU Single Market goods regulations and customs legislation continue to apply to Northern Ireland. This enables goods to be moved between Northern Ireland, Ireland and the other EU Member States without tariffs or new regulatory checks.16 This report is focused on the implications of the TCA and does not examine the Protocol in detail. In some cases, where the TCA and the Protocol on Ireland/Northern Ireland substantially interact, we have explained this interaction.

12.As it relates to trade, the great success of the TCA is to remove quotas and tariffs on goods. There are important qualifications to this, which the following chapters examine. One of these is the sheer volume and complexity of the new requirements for businesses. These have led to increased costs and complexities and, for many businesses, have been overwhelming. Figure 1 was sent to us in evidence by Alvis Brothers Ltd—a farming and cheesemaking business based near the Somerset village of Cheddar—and outlines the requirements governing the export of just one specific type of product to the EU. Although the details will vary from product to product, it demonstrates the volume and complexity of requirements facing British businesses.

13.These requirements are only part of the overall picture. Given the lack of time between text and implementation, teething problems were inevitable. Some system issues arising from implementation will improve with time, while some will require focused Government intervention to develop solutions domestically. Other implementation issues could be addressed with cooperation between the two Parties. Corrections and mitigations to implementation issues will not, however, be enough to rectify many of the trade difficulties which have resulted from leaving the EU Single Market and customs union.

14.Time has not allowed us exhaustively to cover the TCA, which runs to 1,246 pages, so we have focused our report on the crucial issues affecting trade in goods between the UK and the EU. Our findings show that, while most trade is tariff-free, it is not simple.

Figure 1: Pre- and post- Brexit order process for organic products of animal origin with some products from a third party

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Source: Written evidence from Alvis Brothers Ltd (FUU0005)

The TCA: a living document?

15.Almost all the evidence from businesses or industry representatives called for the TCA to be viewed as a living document, to which substantial changes could be made. While some witnesses called for a full-scale overhaul of the TCA, most advocated a series of smaller but meaningful changes. The Road Haulage Association’s view is typical:

“We recognise that wholesale change to the TCA is an unrealistic aspiration, but that should not prevent us all seeking improvements. An evolution of the TCA should be possible. The TCA, and indeed the Northern Ireland Protocol, should be viewed as living documents, adapting rules and regulations over time to deal with the practical problems we face for the benefit of all parties.”17

Routes for change

16.The TCA establishes mechanisms by which it can be amended. The Partnership Council, a joint UK-EU oversight body, can “adopt, by decision, amendments to this Agreement”.18 Several committees and working groups are also established, the powers of which vary. The Partnership Council may, by agreement, delegate decisions to them. Some committees have the power to make decisions in specific areas set out in the TCA itself; others are empowered just to coordinate and ensure smooth implementation of the TCA. The TCA states that Specialised Committees will comprise representatives of each Party and that each Party should ensure its representatives have the appropriate expertise.19

17.We asked a panel of external legal experts to explain how much room for manoeuvre the TCA provides for future changes to the trading relationship. They had differing views. Nadiya Nychay, Partner at Dentons LLP, stated:

“[The TCA] cements a permanent partnership and dialogue between the UK and the EU on matters that relate to the trade relationship and every other matter covered by the agreement … It also provides for multiple options and scenarios for parties to review the trade deal, to address the economic effects of the trade deal, reconsider it, rebalance it and reshape it.”20

David Thorneloe, Legal Director at Pinsent Masons LLP, was more cautious, explaining that the powers to extend the TCA’s provisions varied, and that some changes would require political will he did not believe existed: “It is only in specific areas that there is room for hope … [both sides] are not about to reopen the agreement or have massive new changes or developments that they could not agree on just a few weeks ago.” 21 While we hope that, with time and a fuller understanding of the TCA’s implications, the Government can achieve agreement on several objectives that have so far been unsuccessfully sought, the Government must be realistic about the likelihood of success and consider mitigations alongside ambitious negotiating priorities. Clearly, neither mitigations nor substantive amendment can occur without extensive cooperation.

18.In a letter to the Chair of the EU Select Committee on 23 February, the Chancellor of the Duchy of Lancaster, the Rt Hon Michael Gove MP, said, “we do not consider that the Partnership Council and other bodies established under Title III of the Agreement should begin their work formally during the period of provisional application.22 On the same day, the Government accepted the EU’s request to extend provisional application of the TCA to 30 April, pending ratification by the European Parliament.23

19.Once established, the Specialised Committees and Trade Specialised Committees set up by the TCA will be able, to a greater or lesser degree, to put in place mitigating arrangements for their specific areas. We asked the Paymaster General, the Rt Hon Penny Mordaunt MP, whether the TCA was dynamic in this way, and her answer was circumspect:

“We would, to a large degree, share that view. There are some areas that committees under the agreement could look at, and I think there is scope for improving operation. The partnership council can amend within the scope of the agreement itself, and where there can be developments and improvements we would certainly want to make those.”24

20.The Minister also spoke about the measures that the Government could take unilaterally:

“Much of this does not require formal structures under the TCA to be set up and formed. It is really about us looking very pragmatically at how things can be improved. Of course, there is already a range of improvements and easements within the UK Government’s gift that can be made.”25

21.An agreement with the EU is far better than a ‘no deal’ outcome, but the TCA does not rectify significant regulatory, logistical and administrative barriers to trade arising from the UK’s status as a third country. These barriers particularly affect smaller businesses and those unaccustomed to submitting trading paperwork. In practice, the current outcome falls far short of the ambition of frictionless trade.

22.We regret the Government’s decision to defer establishing the Partnership Council and other bodies and urge it to review this position. Given the many practical difficulties arising in the TCA’s implementation, we urge the Government to work with the European Commission to set up these governance bodies swiftly, and to ensure that they operate inclusively and with transparency.

23.The Government’s future approach to trade with the EU should be ambitious. It must implement the TCA with as little disruption as possible and utilise the bodies established by the agreement to their fullest extent to reach a smoother trading relationship with the EU. We urge both Parties to work in the spirit of cooperation and openness in service of this objective.


1 Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part (24 December 2020): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948119/EU-UK_Trade_and_Cooperation_Agreement_24.12.2020.pdf [accessed 4 March 2021]

2 A fuller account of the negotiations is available in the Select Committee’s report: European Union European Union Committee, Beyond Brexit: the institutional framework (21st Report, Session 2019–21, HL Paper 246)

3 At the time of writing, provisional application had been extended until 30 April 2021 to enable legal revisions and translations to take place before ratification by the European Parliament and the Council.

4 Prime Minister’s Office, ‘Summary of the UK-EU Trade and Cooperation Agreement’: https://www.gov.uk/government/publications/agreements-reached-between-the-united-kingdom-of-great-britain-and-northern-ireland-and-the-european-union/summary-explainer [accessed 4 March 2021]

5 EU Goods Sub-Committee, ‘Future UK-EU relations: trade in goods’: https://committees.parliament.uk/work/956/future-ukeu-relations-trade-in-goods/ [accessed 2 March 2021]

7 HL Deb, 13 January 2021, vol 809

8 Written evidence from the Institute for Government (FUU0019)

9 Q 25 (Jo Lappin)

10 Written evidence from Mantis World (FUU0016)

11 Written evidence from the Railway Industry Association (FUU0024)

12 As this report was written, there were two major developments. On 3 March 2021, the Vice-President of the European Commission described a unilateral UK move to extend certain grace periods for goods moving from GB to Northern Ireland as a “violation” of the Withdrawal Agreement. On 11 March, following a review of the timeline for the introduction of SPS checks on UK imports, the Government announced that some checks would be pushed back to October 2021 and January and March 2022. ‘Brussels says plan to extend Brexit grace period breaks international law’, The Guardian (3 March 2021) https://www.theguardian.com/uk-news/2021/mar/03/supermarkets-may-get-more-time-to-adapt-to-northern-ireland-trading-rules-brexit [accessed 9 March 2021] and letter from Lord Frost, Minister of State, Cabinet Office, to Sir Bill Cash, Chair of the European Scrutiny Committee, and Lord Kinnoull, Chair, European Union Committee, 11 March 2021: https://committees.parliament.uk/publications/5107/documents/50447/default/

13 House of Commons Library, Statistics on UK-EU trade, Number 7851, 10 November 2020: https://researchbriefings.files.parliament.uk/documents/CBP-7851/CBP-7851.pdf [accessed 2 March 2021]

14 Office for National Statistics, ‘UK trade in services: all countries, non-seasonally adjusted’ (5 February 2021): https://www.ons.gov.uk/businessindustryandtrade/internationaltrade/datasets/uktradeinservicesallcountriesnonseasonallyadjusted [accessed 11 March 2021] and ‘UK trade: goods and services publication tables’ (12 February 2021): https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/datasets/uktradegoodsandservicespublicationtables [accessed 11 March 2021]

15 The goods in Tables 1 and 2 are divided under the Standard International Trade Classification (SITC) into 99 SITC2 categories. Accordingly, “food and live animals” (a larger SITC1 category which in 2019 accounted for 6.5% of UK exports to the EU and 10.8% of UK imports) is divided into 10 separate categories, none of which are among the top 10 imports or exports. HM Revenue & Customs, UK Trade Info 2019: https://www.uktradeinfo.com/trade-data/ots-custom-table/ [accessed 18 March 2021]

16 Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, presented to Parliament pursuant to Section 1 of the European Union (Withdrawal) Act (No. 2) 2019 and Section 13 of the European Union (Withdrawal) Act 2018 (19 October 2019): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/840655/Agreement_on_the_withdrawal_of_the_United_Kingdom_of_Great_Britain_and_Northern_Ireland_from_the_European_Union_and_the_European_Atomic_Energy_Community.pdf [accessed 4 March 2021]

17 Written evidence from The Road Haulage Association (FUU0014)

20 Q 1 (Nadiya Nychay)

21 Q 2 (David Thorneloe)

22 Letter from the Chancellor of the Duchy of Lancaster, Rt Hon Michael Gove MP, to Lord Kinnoull, Chair, European Union Committee, 23 February 2021: https://committees.parliament.uk/publications/4775/documents/48216/default/

23 Written Ministerial Statement, HCWS791, Session 2019–21

24 Q 55 (Penny Mordaunt MP)

25 Q 56 (Penny Mordaunt MP)




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