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Understanding the new scenario of EU-UK relations: keys to the Trade and Cooperation Agreement

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The webinar "New relationship between the EU and the UK: Trade and Cooperation Agreement" organised by Andersen in Spain was attended by Antonio Fernández-Martos, as well as experts from the firm, to discuss the new situation in terms of trade and cooperation between the two countries

The United Kingdom's exit from the European Union has meant a great change at the economic, political and social level that has been felt both regionally and globally, as well as implying the need to reorganise and rethink the relations that existed between the country and the rest of the EU-27. This new context has led to the negotiation of a new framework of relations to replace the one that existed prior to Brexit, which has resulted in the current Trade and Cooperation Agreement between the European Union and the United Kingdom.

To understand the details of this new legislation, Andersen in Spain presented the webinar "The new relationship between the EU and the United Kingdom: Trade and Cooperation Agreement", with the participation of Antonio Fernández-Martos, Head of Unit at the European Commission's Directorate-General for Trade, as well as José Ignacio Olleros, partner at Andersen, and Rafael Ripoll, of counsel at the firm.

In the presentation of the webinar José Ignacio Olleros highlighted Andersen's involvement in all matters of importance in Europe in order to "provide a space in which to talk about companies and what may affect them, for which it has counted on various European leaders and officials, to address first-hand different issues of their competence, as is the case of Antonio Fernández-Martos, fundamental for his role as a member of the Task Force that has negotiated both the UK's exit agreement from the European Union and the subsequent Trade and Cooperation Agreement between the two countries".

From Antonio Fernández-Martos’ perspective, due to his direct involvement in the process, to understand the current situation of relations with the United Kingdom, one must start by understanding everything that has happened, "from the referendum that took place five years ago to the definitive implementation of the Trade and Cooperation Agreement, which took place on 1st May 2021", he began by explaining.

While the signing of the withdrawal agreement with Prime Minister Boris Johnson, following Theresa May's departure, resolves the issues necessary for an orderly exit of the United Kingdom from the Union, such as the fact that the United Kingdom assumes payment of all financial commitments previously made as a member of the Union, the situation of European citizens in the United Kingdom and British citizens in the Union, or the absence of a physical border across the island of Ireland, "it cannot be denied that the problems we are currently facing are a clear manifestation of the degradation of the conditions under which we are facing a deterioration in the conditions in which we operate, or the absence of a physical border across the island of Ireland, "it cannot be denied that the problems we are currently facing are a clear manifestation that we are facing a degradation of the conditions in which companies operate and citizens live, and this was inevitable given the conditions set by the United Kingdom for its relationship with the Union after its exit", explained Fernández-Martos.

Given the EU's determination to protect the integrity of the internal market, these conditions meant that the only possible model for the future relationship between the UK and the EU was a free trade agreement, the least ambitious of the possible models of economic integration. The Trade and Cooperation Agreement therefore has as its central pillar a free trade agreement, which, as was the UK’s wish, safeguards the full regulatory, legislative, jurisdictional and commercial policy autonomy of the UK - and, of course, of the Union.

Free trade agreements imply, unlike the internal market, the existence of separate regulatory spaces, each with autonomy and, as the speaker pointed out, "while a set of general rules are negotiated so that regulatory barriers are not unnecessarily onerous, the consequence is that controls at a customs border are unavoidable to ensure that goods crossing it comply with the standards of the party applying them, and access for goods and services is much more limited and always subject to compliance with the rules of the destination country".

On how the negotiation process took place, Fernández-Martos, as part of the negotiating team, explained the key milestones of the first negotiation until the UK's exit on 1st February 2020. He also explained the negotiation of the Trade and Cooperation Agreement and how the pandemic affected the continuation of the process during 2020, without, however, preventing the conclusion of the negotiations on Christmas Eve. From the EU's perspective, the key during the TCA negotiations was to maintain parallelism in the progress of discussions on the different issues, to avoid key issues for the EU - in particular, disciplines to ensure fair competition, and the fisheries agreement - being left behind in the process. "The UK was seeking a standard Free Trade Agreement, without the fair competition chapter including state aid finally reached, analogous to what the EU has negotiated with other partners such as Canada or Korea," he explained, adding that "from an EU perspective this was not acceptable, as the UK had achieved through its membership a degree of economic integration that required more advanced fair competition obligations to be incorporated into the agreement. This was the only way to ensure a "level playing field" for operators on both sides in the future".

According to Fernández-Martos, "the negotiation on the free trade area for goods, services and investment, as well as intellectual property and public procurement, had an excellent result within the conditions set by the UK and taking into account what a free trade agreement can offer".

Some key points in relation to goods are that the absence of tariffs and quotas for all products is maintained, and provisions are also included to avoid other barriers such as import or export monopolies or undue customs duties. He also pointed out the peculiarity of having enshrined the sharing between the EU and the UK of the EU's agricultural quotas in the World Trade Organisation. An ambitious agreement has also been reached on customs matters, including for example the mutual recognition of each other's authorised economic operator programmes, although the agreement obviously cannot avoid the introduction of a customs border with its corresponding procedures and controls. In spite of all this, in the specific case of customs controls, Antonio Fernández-Martos recalled that to date, "the United Kingdom is still not fully implementing customs controls, perhaps because they are not fully prepared, which is why we have not seen the full application of their customs regulations. Traders should therefore expect a delayed impact when the controls come into force at the end of 2021 and beginning of 2022".

Broadly speaking, the expert maintains that it is a particularly good agreement in fields such as sanitary, phytosanitary or industrial standards... by allowing a system that is as open as possible, within what a free trade area can achieve.

Along with goods, the free trade agreement on services and investment is like the one the EU has with Japan, although with improvements, which facilitates future relations, particularly the establishment and operation of investments, and guarantees the principle of non-discrimination. In terms of losses compared to the previous situation, Fernández-Martos stresses that "there is a clear worsening, especially in terms of cross-border trade - as reflected in the loss of the financial passport - or, in the case of the movement of people, by having a much more restrictive framework for the movement of people once the free movement inherent to the internal market disappears".

A particularly good result has also been achieved on intellectual property - albeit without incorporating the protection of the existing "stock" of geographical indications at the end of 2020, which are however fully guaranteed by the exit agreement. An unprecedented result has also been achieved on public procurement, substantially beyond the World Trade Organisation's public procurement agreement.

As regards the conditions for fair competition, the agreement contains several principles on subsidies inspired by the EU's state aid control system with which the parties must comply. In the environmental, social and climate areas, both parties are bound by the principle of non-regression, committing not to reduce existing levels of protection by the end of 2021 in a way that affects trade and investment between the parties. If the parties do not comply, there is the possibility of imposing unilateral corrective measures and countervailing sanctions. In addition, a novel rebalancing mechanism has been created to maintain over time the relevance of the rules guaranteeing fair competition, allowing for rebalancing measures and even the revision of the agreement itself.

On how to approach the agreement and what it entails, Antonio Fernández-Martos indicated that "within the framework of the conditions set, we have the best possible, it is an excellent agreement that covers almost all areas, it is a stable framework that is not going to change significantly beyond the development foreseen in the agreement itself, although there are some areas of uncertainty, such as the issue of Ireland and the United Kingdom's compliance with the obligations it has assumed to protect the Union's internal market; the application of the fair competition chapter once the regulatory divergence between the UK and the EU begins; or the impact of UK customs controls when they start to apply".

For his part, Rafael Ripoll, Of Counsel at Andersen in Spain, he emphasised the extraordinary perspective that Fernández-Martos could offer on a subject that is, moreover, "complex due to the trajectory of Brexit, and the current regulatory framework, from pre-Brexit issues to customs issues, including many others", and he predicted that it is key "to be able to see from our perspective how this historic agreement is going to happen which, although it has drawbacks, will be a milestone, as it implies that a State of the Union will cease to be one, and the same applies to the possibility of being able to observe how the Trade and Cooperation Agreement will develop".

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