The post-Brexit trade agreement leaves little room for the United Kingdom to gain a decisive competitive advantage over EU economic operators, in particular due to the exclusion of services from the agreement, according to several experts and representatives of the European business community.
As Fabian Zuleeg, Director General and Chief Economist of the European Policy Centre think tank, reminded EUROPE, the agreement was negotiated largely on the basis of a text drafted by the European Union and not by the United Kingdom.
The text will not prevent the UK from being a competitor of the EU, “but the margin to outweigh the advantages of being outside the single market with taxation rather limited”, he said. Indeed, if there is any risk of tax competition at all, its effect will remain limited, according to the expert. “Tax is only one of the cost factors for any firm, what is much more important is having access to the market and being able to sell with a smooth process”, explained Mr Zuleeg.
He also noted that the agreement deals mainly with goods and that services are almost excluded from the agreement. Here, the British “are going to suffer a great loss of competitiveness”, in his estimation. According to the expert, services are a particularly complex sector to understand. “The only region in the world where we have free trade in services is in Europe... And the liberalisation of services in the single market has been the most difficult part.”
There is another Cornelian dilemma: the Irish question is, for the time being, temporarily clarified. “So at least in crucial aspects, the North Irish economy stays in the internal market, but there have to be some checks in the Irish Sea.”
According to Mr Zuleeg, the EU/UK trade agreement, like all the others before it, will be clarified in the future when it is implemented. According to the expert, however, it is already difficult to estimate the impact of the agreement because of the Covid-19 pandemic which to a certain extent softens the impact of Brexit. Companies had also prepared themselves by stockpiling their products. But one thing is certain, according to Mr Zuleeg: “on the EU side there will be winners and losers, while on the UK side there will be practically only losers”.
Confident European employers
For BusinessEurope—contacted by EUROPE—the agreement is a good starting point for the EU and the UK to work together and deal with potential disruptions. This includes, for example, the joint decision of the EU and the UK to grant a one-year grace period for forms relating to rules of origin, depending on the organisation.
For the employers’ organisation, the risk of fiscal, social and environmental dumping is low. There are tools, BusinessEurope brought up, to avoid such a situation when implementing the agreement, such as the control of subsidies by national authorities and courts. In addition, there are governance and dispute resolution mechanisms in place to resolve possible disputes between the EU and the UK.
Unilateral remedial action can furthermore be taken to respond to significant divergences in the areas of labour and social, environmental or climate protection or subsidy control. It is finally possible to review the trade and other economic parts of the agreement at regular intervals or if unilateral rebalancing measures need to be taken frequently or for more than 12 months, BusinessEurope stressed.
However, the employers’ organisation is awaiting equivalence decisions on financial services, data protection and the SPS list for the control of goods in sanitary and phytosanitary matters.
As for the recognition of professional qualifications, BusinessEurope notes that the approach taken in the EU-UK agreement is similar to that of the EU-Canada Comprehensive Economic and Trade Agreement. “While the continued facilitation of the mobility of skilled workers between the EU and the UK is important, we acknowledge that an FTA cannot provide the same level of alignment in this area as the Single Market”, the organisation replied in an email.
SMEs worried
Although the trade agreement contains a chapter dedicated to SMEs, they are already facing concrete difficulties, as Alban Maggiar, President of SMEunited, the European association representing the interests of small and medium enterprises, explained to us.
“Since 1993, the export activity of European SMEs has been mainly with other Member States. As a result, they were no longer confronted with so-called ‘big export’”, he explained. “So it’s a bit like the ‘Wet Finger University’”, he joked. He noted that the “smart border system is, for the time being, not very intelligent” and that, as a result, there is duplication of administrative procedures at the European and British borders.
Neither quotas nor customs duties limit trade in goods, and this new situation represents a very significant additional cost for European SMEs, he pointed out. They need to devote more time to administrative procedures and training in order to develop the necessary skills, particularly language skills.
In addition, since the waiting time at the border for truckers is paid, this generates additional costs for SMEs. Here, Mr Maggiar sees a risk of unfair competition between European SMEs. In some Member States, waiting time is indeed unpaid.
“There are still a lot of hidden expenses. It will certainly become clearer in 6 months’ time”, he said, questioning in particular the costs of certification and intellectual property protection.
The chemical, aviation and automotive industries particularly affected
According to another European expert, even if it is difficult to quantify the consequences of the agreement, the chemical industry will be particularly affected because the REACH regulation, which governs the registration, evaluation and authorisation of chemical substances, no longer applies in the United Kingdom. That country has a separate regulatory regime for chemicals, we are told, and EU and UK companies now face costly double monitoring.
A registration submitted by a registrant (manufacturer/producer, importer or sole agent) established in the UK is no longer valid in the EU. A substance not registered under REACH can no longer be imported from the UK into the EU in quantities of 1 tonne or more per year.
The aviation sector will also be strongly affected: British airlines can no longer carry passengers from one EU airport to another. In other words, cabotage is no longer possible. This applies to EU airlines flying to the UK.
The automobile industry is also expected to be particularly affected. “This agreement could represent an additional cost of 2 to 6% on the final product of our sector”, Sigrid de Vries, the General Secretary of CLEPA, the organisation that represents the European automotive suppliers, explained to EUROPE.
One of the main difficulties relates to the rules of origin for determining the percentage of a vehicle produced in Europe, the UK or another non-Member State. “Each vehicle is made up of an average of 30,000 components and each component is often an assembly of parts that are produced in different countries. Introducing this rule makes the administrative procedures particularly burdensome”, said the Secretary General.
Because of this rule of origin, another source estimated that some car manufacturers will have to change suppliers to be able to export their cars duty-free to non-Member States with which the EU or the UK have a free trade agreement.
Moreover, recalling that the automobile sector is one of the most regulated in the world, Ms de Vries is particularly concerned that in the medium term, there will be a growing regulatory and normative divergence between the EU and the United Kingdom.
The question of certification
In general, the agreement does not provide for mutual recognition of conformity assessment bodies, as is the case, for example, with the EU-Canada trade agreements (CETA) or Japan.
Prior to Brexit, detailed our source, more than 20% of conformity assessments in the Single Market were carried out by UK bodies (almost 40% of medical devices, another source told us). UK notified bodies can no longer carry out conformity assessments for the EU single market. After a transitional period of 2 years, separate conformity assessments will also be required for UK market authorisation.
See the EU-UK Trade and Cooperation Agreement: https://bit.ly/3s3wH1R (Original version in French by Pascal Hansens and Aminata Niang)