Free movement of people is one of the four founding principles of the EU (the others being free movement of capital, goods and services). It gives EU citizens the right to work in and travel to other EU states. Many companies benefit from free movement of people by being able to recruit EU citizens to fill roles ranging from low skilled to technical specialists. Industries such as manufacturing, food production, agriculture, care and hotel & catering currently employ notably high proportions of EU citizens.
Recruiting from outside of the EU and European Economic Area (EEA) can incur additional costs and administration such as needing sponsor licenses, meeting visa requirements and in some cases, paying an immigration skills charge.
Free movement of people, and its impact on overall immigration numbers in the UK, has been a very high profile topic during the Brexit discussions. The UK Government has issued reassurances that EU citizens already in the UK will be able to stay post-Brexit. However, they also see ending free movement of people as one of their Brexit “red lines” meaning that some form of visa system is likely to be put in place for EEA citizens wanting to work in the UK post-Brexit.
The World Trade Organization (WTO) is a global international organization dealing with the rules of trade between nations. The majority of the world’s trading nations are members. WTO members agree to shared principles and approaches to trade with other WTO member nations. Members that do not have separate trade agreements with each other trade under WTO Rules.
WTO rules has become known as the “no deal” option for trade with the EU post-Brexit because under the rules each member must grant the same ‘most favoured nation’ (MFN) market access, to all other WTO members (i.e. the EU are unlikely to be able to charge higher tariffs or impose additional customs barriers). This means that, in the absence of a new trade deal, it is most likely that UK exports to the EU would be subject to the same tariffs and barriers as they are currently with other non-EU nations that do not have a trade deal with the EU – like, for instance, the USA.
You can find out more about WTO rules and the EU here.
The Customs Union is an area in which the 28 EU countries have agreed to apply a uniform set of rules for handling the import, export and transit of goods. In practice, this means that all members must conform and operate common external tariffs to goods entering from outside the EU. However, once goods have entered a member country, they are not subject to any further tariffs/checks and are able to move seamlessly across the borders of member states. In essence, the EU Customs Union is enforced by the individual 28 national customs services.
The EU also has customs arrangements with non EU countries such as Turkey. The EU and Turkey are connected by a Customs Union agreement, which covers all industrial goods but does not include agriculture, services or public procurement.
If the UK was to leave the Customs Union, this would more than likely involve customs checks at EU borders, including at the border between Northern Ireland & the Republic of Ireland. The UK would also have to renegotiate the terms of its membership with the WTO, which is currently subject to its membership of the EU Customs Union. However, the UK will only be able to negotiate its own bilateral trade deals with other countries if it leaves the Customs Union.
You can find out more about the EU Customs Union here.
The EU VAT area consists of EU member nations and certain other nations who follow the EU’s rules of Value Added Tax (VAT). Goods sold within the area are not considered to be imports. As a result, businesses importing goods from the EU have no import duty or VAT to pay.
The EU’s free trade agreements are preferential trading arrangements between the EU and third countries (i.e. non EU countries). According to a 2013 European Commission memo, the EU has preferential trading agreements with 50 partners. These agreements differ in content and are not all full free trade agreements. They are split into Association Agreements, Free Trade Agreements and Economic Partnership Agreements.
The EU has recently implemented the CETA agreement with Canada which will remove 99% of the duties European companies will have to pay at Canadian customs. The EU is also currently negotiating free trade agreements with Australia and New Zealand, as well as updating/ forming new Association Agreements with Chile and MERCOSUR (Argentina, Brazil, Paraguay and Uruguay).
The European Commission claims that if the UK were to leave the EU, it would no longer have access to these beneficial trading arrangements and would fall back on to WTO rules. This would result in UK exporters facing higher tariffs and other trade barriers in these markets.
You can find out more about current EU Trade Agreements here.
The fluctuations in the value of the pound refer to the constant change in the UK exchange rate since the Brexit referendum. This has occurred due to the political instability caused by the Brexit vote. In the weeks following the EU referendum, the pound dipped by 10.4% against the Euro from €1.3017 on 23 June to €1.1663 on 6 July 2016. Any time a country is at risk of undergoing substantial political change, it makes it less attractive to investors and as a result they may be less likely to demand its currency.
The fluctuation in the value of the pound means that UK exports are cheaper and more competitive on the international market, but it also leads to imports from abroad becoming more expensive. With the political uncertainty over Brexit set to continue over the next few years, pound sterling is likely to experience more fluctuations.
The term ‘third country’ status is used in treaties to refer to a country that is not a member of the European Union. Once Britain leaves the EU, it will no longer enjoy access to the rights and privileges it enjoyed as a member of the EU. This means Britain will be given the same status as any other country outside the EU.
The European Single Market is a wide reaching trade agreement which permits the free movement of goods, people, services and capital (four freedoms), from one member to another. The purpose of the single market is to remove barriers to trade, which it achieves by developing a single set of rules, as opposed to having numerous individual national rules. By unifying rules in areas such as packaging, health & safety and food standards, this ensures a level playing field as all products within the single market must meet a minimum standard. The European Commission monitors the application of EU law and can launch infringement proceedings against EU countries that do not comply.
It is possible to be a member of the single market, without being a member of the European Union. Norway for instance, is not a member of the EU, but it does have full access to the single market. It achieves full access by contributing to the EU budget, but it has to accept free movement of people and has no say over the creation of the rules. However, it is exempt from EU rules on agriculture, fisheries, justice and home affairs.
The ‘transition deal’ also referred to as ‘implementation period’ is a period of time between when Britain leaves the EU in March 2019 at the end of the 2 year Article 50 process, and when the new trade agreement with the EU is implemented. The transition period is seen as a necessary measure which will avoid a ‘cliff edge’ scenario and give the negotiating team time to negotiate a trade deal should they require it. It will also act as an implementation phase to allow the UK and the remaining EU27 time to put the required changes in place, and give businesses more time to adapt their processes/models to the new arrangement.
On the 19th March 2018, the UK and the EU announced that they had agreed a transition deal. The transition period is due to run from the 29th March 2019 to 31st December 2020. However, there is the option to extend it if necessary for a maximum of two years. For the duration of the transition period, the UK will remain a de facto member of the single market & customs union. During the transition period, the UK will be able to ratify new trade deals that will come into force in 2021, and will still have access to existing EU Trade agreements with ‘third countries’. EU citizens in the UK and UK citizens arriving in the EU between those two dates will have the same rights and guarantees as those arriving before Brexit. The transition agreement will be conditional on the UK Parliament ratifying a withdrawal treaty.
‘Passporting’ rights allow UK businesses to provide a range of financial services throughout the EU and the wider European Economic Area (EEA), while being based in the UK and regulated by UK authorities. A business can do this in two ways, either by setting up branches in EEA countries under an ‘establishment’ passport, or by operating remotely and offering their services under a ‘services’ passport. Having access to ‘passporting’ rights is quite a cost effective way of operating as businesses no longer have to set up headquarters in every country across the EU, they don’t even need to have an office in the country.
The terms of the UK’s exit from the EU will determine whether or not UK businesses will continue to have access to ‘passporting’ rights after Brexit. If the UK decides to remain in the EEA, or re-join it then it will not face any restrictions on the rights of UK companies to operate across the EU. However, Theresa May set out in her Lancaster House speech that the UK will be leaving the Single Market, which means that businesses will most likely have restrictions imposed.
One possible model for the UK is Switzerland, which has a series of bilateral trade agreements with the EU that allows it to provide limited financial services across the EEA. However, to gain this limited access, the Swiss agreement requires establishment passports, which means Swiss businesses have to set up offices within the EU.
On the 8th of December 2017, the UK Government and the EU announced that they had reached an agreement on citizens’ rights after the UK leaves the EU. This agreement covers EU citizens who have been exercising free movement rights in the UK up until the 29th March 2019, as well as their family members who have been living in the UK.
The UK Government has confirmed that they are setting up a new ‘settled status’ scheme that EU Citizens, who are currently living and working in the UK, will be able to apply for from late 2018. Achieving ‘settled status’ will prove to potential employers and public service providers that the individual has the right to continue living and working in the UK. EU Citizens who have been residing in the UK for five continuous years will be eligible to apply for settled status, while those who haven’t will be allowed to remain in the UK to build-up five years continuous residence. An individual can be absent from the UK for up to five years without losing their right to settled status. The Withdrawal Agreement also ensures that EU citizens, who have paid into the UK system, will continue to have access to pensions, healthcare and other benefits.
The Home Secretary has confirmed that EU Citizens will be asked to fulfil three requirements in their settled status application. EU Citizens will need to prove their identity, whether they have any criminal convictions and that they reside in the UK. You will be able to apply online or via a smartphone app and will have access to support over the phone or in person. The deadline for applications will be the 30th June 2021.
On Friday 23rd March, the UK and the EU announced that this agreement would also cover EU citizens who arrive in the UK during the implementation period, which will end on the 1 January 2021. Once the agreement has been signed and ratified, this would mean that there are no changes expected to employers’ ability to hire EU workers until at least the 1st January 2021.
For more information on settled status for EU Citizens and their families click here
Authorised economic operator (AEO) is a special status given to a company which confirms that a company’s customs controls and procedures are efficient and compliant. AEO status provides an organisation with quicker access to certain simplified customs procedures. It may also result in their shipments being fast-tracked through certain customs and safety and security procedures. Once a business achieves AEO status in one EU member state, that status is recognised by other customs authorities across the EU. There are two types of AEO status that a company can apply for. The first type is AEO status for customs simplification (AEOC) and the second one is AEO status for security and safety (AEOS) purposes, if their supply chain, record keeping, legal compliance and solvency meets certain standards.
In order to qualify for AEOC status, your business must fulfil the criteria of having: good tax and customs compliance history, good commercial and transport record keeping standards, financial solvency, and professional qualifications or demonstrating practical standards of competence in the activity they’re involved in. To be eligible for AEOS status you must not only fulfil the above criteria (excluding professional qualifications and practical standards of competence), but also appropriate security and safety standards including: physical integrity and access controls, logistical processes and personnel and identification of business partners.
If Britain leaves the Customs Union, it is expected that customs checks will take longer to complete at the border for companies exporting to the EU, resulting in longer border queues and delays for businesses. The UK Government is currently exploring a range of options on customs post-Brexit. Trusted Trader Schemes, such as AEO, have featured highly as being part of the solution to a new “streamlined” customs arrangement. We can expect them to remain a prominent part of the Brexit negotiations. The UK Government will need to negotiate a Mutual Recognition Agreement with the EU post-Brexit in order to ensure that UK companies continue to have their AEO status recognised by the EU.
For more information on AEO status and how to apply for it click here. The GBCC International Business Hub delivers AEO training courses. For more information on forthcoming events click here and select “International Trade Seminars & Training” from the drop down menu.
The rules of origin are used to identify the source of a product i.e. in which country the goods were manufactured in. They are divided into two categories: rules relating to preferential trade and those relating to non-preferential trade. This is important for establishing what duties and restrictions are placed on a product. There is no universal set of rules to determine country of origin, with different national governments using various different practices. In regards to EU preferential trade, there are two main categories of origin in the rules. The first is; goods wholly obtained or produced in a single country and goods whose production involved materials from more than one country. The second category is far harder to define as there are several criteria to consider including the origins of the materials, the country in which the final substantial production phase took place and the value the working and processing in each country has added. Once the origins of the goods has been defined, you can then classify your goods and determine whether they qualify for preferential trading arrangements with the country you wish to trade with.
If the UK decides to leave the Customs Union, it will no longer have to apply its common external tariff. This means that even if the UK secures a post-Brexit free trade agreement with the EU, companies will still need to prove that their goods originate from the UK to be able to access preferential trading arrangements.
This is because the EU will want to ensure that third countries are not able to gain preferential access to the single market via the UK. So for instance, if the EU places higher tariffs on imports from India than imports from the UK, they are not going to let the UK import Indian goods, change the packaging and then sell them on to the EU as if they originate in the UK.
In addition, many businesses import a significant volume of components for their finished products. While the UK is part of the EU, they are able to incorporate EU manufactured components without it affecting the nation of origin (as the final product is also an EU product). Post-Brexit, it is expected that what was once European value-added will have to be separated into UK and EU value-added. That will make it harder to reach the threshold to export to the EU without tariffs.
A ‘No Deal Brexit’ is a scenario in which the UK fails to reach a formal agreement with the European Union on its terms of exit before the end of the Article 50 process. If this were to happen, the UK would immediately find itself a ‘third country’ overnight. This would mean that the UK would no longer have a trade agreement in place with the EU and would have to revert to trading on World Trade Organisation Rules. Frictionless trade would no longer apply as tariffs would be imposed on goods that the UK sends to the EU and on goods the EU sends to the UK. Click here to find out more on the European Union’s Common Customs Tariff. In this scenario, businesses are likely to face disruption at ports in the form of congestion due to goods inspections. The UK Government will also have to create a number of new regulatory agencies to replace EU bodies.
To ensure that UK businesses and citizens are prepared for a ‘no deal’ scenario, the Government has published a series of technical notices which you can access here. These technical notices cover a range of issues including importing and exporting, tax and EU funded programmes. While both sides are working to reach an agreement, it is important to remember that until a deal has been ratified by both the UK Parliament and the European Parliament, a no deal scenario remains a possibility and businesses’ should prepare accordingly.
The European Union General Data Protection Regulation is directly applicable to all member states of the EU and came into force in the UK in May 2018. It aims to strengthen citizens’ fundamental right to data protection and facilitate business by updating and harmonising international data processing laws in the digital single market.
With the UK not set to leave the EU until March 2019 (at the earliest), it must therefore continue to follow EU directives up until the exit date. The UK Government has recently passed the EU Withdrawal Act which will transfer existing EU law into UK law on the 29th March 2019. This means that GDPR will continue to apply in UK law after the UK leaves the EU until such a time that the government chooses to amend the legislation.
Once the UK leaves the EU, it will be subject to Article 45 of the GDPR, which stipulates that a transfer of personal data to a third country will only be permissible if that country ensures an adequate level of protection. The EU Commission is responsible for assessing the level of adequacy and will take into account the strength of the UK’s legal framework, the effectiveness of our domestic regulator and the UK’s international commitments to data protection. As the UK is currently aligned with the EU’s data protection laws, it seems highly unlikely that the EU Commission would refuse to grant the UK adequate status ensuring the continuous free flow of data.
For more information on the General Data Protection Regulation, you can check out the GBCC briefing paper here.
The Withdrawal Agreement is a 585 page legally binding document that sets out the terms of the UK’s withdrawal from the European Union. The Withdrawal Agreement covers a number of areas including citizens’ rights, the transition period, UK financial settlement, Irish border.
The agreement also contains a legally operational backstop which is designed to ensure that there will be no hard border between Northern Ireland and the Republic of Ireland. This will only come into force if both sides fail to reach a long-term trade deal that avoids the need for a hard border. If the backstop is triggered, the UK will remain in a single customs territory with the EU. The UK will be unable to leave the backstop without agreement from the EU.
The Withdrawal Agreement was approved by EU leaders on the 25th November at a special summit. On the 15th January, the UK Parliament voted against the Withdrawal Agreement negotiated by the Prime Minister.
Click here for more information.
The draft Political Declaration is a 26-page document that accompanies the Withdrawal Agreement. The purpose of the draft Political Declaration is to set out the frame work for the future relationship between the United Kingdom and the EU. Unlike the Withdrawal Agreement, the draft Political Declaration is not a legally binding document. The document set out the parameters for the future economic partnership, security partnership and agreements on areas of shared interest. The formal negotiations on the future relationship will begin after the UK leaves the EU. In the declaration, both sides envisage that the future relationship will come into force by the end of 2020.
You can access the draft political declaration here