Brexit and the Trade and Cooperation Agreement: A Q&A with George Riddell, Director of Trade Strategy, Ernst and Young LLP
With just days between the conclusion of negotiations and implementation, the need to understand the EU-UK post-Brexit agreement and situation is vital. We sat down with EY’s Director of Trade Strategy to understand the key ramifications and the emerging situation
It’s finally happened. After years of intense negotiations, fraught political discussions and deadline extensions, the UK has finally left the European Union and both sides have struck a long-term accord: The EU-UK Trade and Cooperation Agreement (TCA).
That’s not to say all of this intervening time has made the situation crystal clear, with the ratification from the UK coming just two days before its final deadline to leave the EU on January 1st 2021.
There is then plenty to get our heads round. We spoke to a trade expert with more than a decade of experience at the top levels of international negotiations to learn more.
[This interview has been edited and condensed]
Alex Hadwick, Editor, Supply Chain, Reuters Events: What is the headline message we need to know about the TCA?
George Riddell, Director of Trade Strategy, EY: In terms of the headline message, and this has really come out in the past couple of weeks, is the TCA does achieve zero tariffs and zero quotas, with the caveat that you're able to prove the rules of origin.
Alex: Do you get the impression that there is adequate preparation from those trading in both directions, or is there still plenty to learn and implement?
George: Let’s break that down into a couple of parts.
Is there a varying level of readiness among traders across the Great Britain-EU27 border, particularly into France? Absolutely. If you're looking at a number of the delays that have been caused at the border due to trucks arriving with the wrong paperwork, not having filled in certain customs declarations in the right way, then all of these things point to a lack of readiness to complete all of the necessary procedures.
However, I think the other thing that's worth mentioning is that there are a number of easements in place at the moment, in order to try and facilitate that learning curve among traders, particularly when coming into the UK. There are the rules of origin easements, there's the customs declaration and tariff deferment that are available, and there are the delays to the requirements around the use of the UK CA conformity mark. So, even if for many it doesn't feel like a soft launch, it is, and there are a lot of measures in place to try and have those easements over the next couple of months.
In the short term, definitely the most impacted industry that we've seen is in the agri-food sector
Alex: Where will friction be highest initially and then later on?
George: I think, in the short term, definitely the most impacted industry that we've seen is in the agri-food sector.
Trade in food does attract higher levels of regulation, mostly down to safety, which is why you have the checks.
That said the level of alignment in the trading cooperation agreement between the UK and the EU is coming in comparatively lower than I think perhaps many were expecting, even understanding the movement from the single market to a free trade agreement.
Then in the medium term, I think certain business models potentially will have to shift, particularly if they've used the UK as a distribution hub for Europe. I think a number of companies are reassessing whether or not that will continue to be profitable and logistically viable.
Suddenly you've got issues around needing to fill in customs declarations, proving origin, all of the types of things you need to do in order to secure the preferential tariff under the agreement
Alex: What kind of costs centres make the UK less attractive in the new environment and to what extent?
George: I think in terms of those additional requirements, you've got the border measures and the behind-the-border measures. It really depends on the sector specific and products, but, generally speaking, when it comes to border measures, suddenly you've got issues around needing to fill in customs declarations, proving origin, all of the types of things you need to do in order to secure the preferential tariff under the agreement.
You've then got the issues with products that you previously might have been bringing in from the rest of the world. Whereas before, under the generalised system of preferences, you could have brought a product in from China or Bangladesh, you would have paid the tariff or satisfied the necessary customs requirements for that product and then just transported it to wherever it needs to go.
Now, unless you're bringing it into something like a bonded warehouse, where it doesn't actually cross that customs border, you're going to be, in effect, paying double tariffs on that product. You'll pass it into the UK and then you'll export it into the EU, which for many operations does make that process unviable.
Alex: That could have major implications for a country like Ireland, where a lot of trade transitions through the UK before it arrives in the Republic. What will be the implications for that kind of trade partner?
George: I think Ireland is a particular case. Throughout the negotiations, particularly with the Northern Ireland protocol, it's been incredibly sensitive.
One of the things that Irish Revenue have announced in the last couple of days has been those easements in how a lot of those measures are being implemented, out of recognition of how much disruption it was causing, particularly from Holyhead, Dublin, and then up into Northern Ireland.
New ferry routes from the Republic into mainland Europe bypassing the landbridge have proved incredibly popular. I think that is a reflection of companies not wanting to deal with those additional disruptions
However, there is going to be an extended period of time while those new measures are phased in, in order to try and limit that amount of disruption.
That said, the popularity of the new ferry routes from the Republic into mainland Europe bypassing the landbridge have proved incredibly popular. I think that is a reflection of companies not wanting to deal with those additional disruptions.
One of the big questions that we have, and we certainly don't have an answer to this yet, is whether or not those shifts are permanent, or if they are a temporary measure while everyone gets used to the new status quo, and then eventually we'll return to using the landbridge, as it is typically a shorter route.
Alex: What is the outlook for preferential UK trade agreements with the rest of the world that we have not already established?
George: I think in terms of where we’ve heard the greatest level of optimism is around the deals with Australia and New Zealand. The EU is looking to also strike free trade agreements with Australia and New Zealand, so there's a lot of commonality there in terms of what can be done, and we certainly would remain optimistic that that's possible in the near future.
Over the more medium term, I think it will take a while for negotiations to restart with the United States. Firstly, from a practical perspective, congressional approval of the new US Trade Representative can take a number of months typically. Then there's a huge number of burning trade issues currently around the world that they all want to get on top of before resuming negotiations, I would imagine. So, I think cautious optimism in the future that could be done, but not necessarily something for this year.
Then beyond that, looking to improve and upgrade the relationships with Canada, Turkey, Mexico, and Norway, Switzerland, etc., increasing services access and improving digital trade between the two, which does have a knock-on effect into the supply chains, is something that we're really excited about.
Alex: Where might divergence occur and in what areas will the UK really want to try and strike out further on its own in the coming years?
George: In the trade space, I think the Department of International Trade has set out a really ambitious agenda around trade and the environment, particularly linked to the COP26 climate change conference happening at the end of the year.
I think you have pull and push factors here where you have increasing legislation coming down the line. Whether it's the expansion of the modern slavery act or the deforestation law a couple of months ago, there is a huge push in legislation to improve supply chain visibility and responsibility in companies’ operations, particularly cross border, and I think that's driving a huge amount of change. That is a trend that I think will continue to happen.
Then there's also the pull factor, where companies do want to be more sustainable. They do want to reduce the impacts and the footprint that they have in environmental terms across their supply chains.
So, with that, I think there is going to be a number of initiatives that the government can take in partnership with industry that are really exciting. An initial step was taken as part of the global tariff, where the UK slashed tariffs on over 100 environmental products, and we are really now world leading in that.
If you want to continue to sell your products into both the EU and the UK, you're going to have to now comply with, potentially, two sets of regulations
I think that's one area where it's not necessarily a negative divergence but a positive divergence that you can do without jeopardising anything to do with the trading cooperation agreement.
I think other areas that aren't necessarily as positive are around the creation of dual regimes. Chemicals is a great example of that.
Companies are going to have to comply with two standards for the use of the CE mark in Europe and the ACA here in the UK.
If you want to continue to sell your products into both the EU and the UK, you're going to have to now comply with, potentially, two sets of regulations.
I think the more they diverge, companies will naturally tend towards the more rigorous of the two, in order to continue satisfying the requirements to be able to trade their products.
If we're grading the TCA against other free trade agreements around the world, then it is definitely one of higher quality, with higher levels of integrations achieved and all done at an incredibly quick pace over the course of 2020
Alex: What's your overall feeling about the structure of what has been put in place and the future for UK trade under the TCA?
George: I would say cautiously optimistic. If we're grading the TCA against other free trade agreements around the world, then it is definitely one of higher quality, with higher levels of integrations achieved and all done at an incredibly quick pace over the course of 2020.
That said, it does really set in-train a huge number of different processes, committees, working groups and additional new codifications under the various parts of the agreement - that is really only just starting.
Brexit was never an event, but it is definitely, under this agreement, a continuing process
That represents a huge amount of work, both in terms of the government organisation needed in order to service those different parts of the agreement, and also in the interaction with the private sector and businesses in order identify if something's not working right now. How can we, through those future negotiations, ameliorate that situation?
There are definite areas where one or the other side could have improved the offer that was on the table, even under a precedent-based agreement. That's not to say that the disruption caused by leaving the Customs Union and the single market and moving to a Free Trade Agreement (FTA) wasn't going to be considerable for some businesses, but it does represent a pretty high quality, ambitious, modern FTA.
Brexit was never an event, but it is definitely, under this agreement, a continuing process.
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