Both sides of Brexit divide need to co-operate to thrive

Gordon Downie of Shepherd and Wedderburn’s Brexit Advisers Group says that the strategy from now on should concentrate on co-operation rather than a series of contretemps.

Gordon Downie

It is now almost two months since the end of the Brexit transition period. While the Covid-19 pandemic and the associated economic disruption continue to dominate the world of business, it is worth reflecting on how firms are managing so far to navigate the UK’s new relationship with the European Union.

The prime focus of the EU-UK Trade and Cooperation Agreement (TCA) is, of course, trade in goods such as food and drink. The early signs are that the TCA arrangements are proving as difficult for that sector as many had predicted. For exporters of fresh food and, in particular, fish and meat, the need to obtain and have verified pre-shipment certification is a significant hurdle.

Shipments of meat or fish products, even if in entire trailer loads, are being delayed as individual pallets are checked to confirm they comply with food standards. Even then – at least anecdotally – some consignments are being arbitrarily rejected by EU customs officials. Logistics costs are also rising as lorries are arriving late in Europe for their return consignments as a result of customs and paperwork.

An urgent review of these issues is essential and so initiatives such as the Scottish Seafood Exports Taskforce, established earlier this month to better understand the export process and address concerns by developing solutions to be taken forward by the UK Government, Scottish Government and EU, are to be welcomed. At present, the deal may be tariff-free but it is far from friction-free and unnecessary impediments to trade must be eliminated in each direction.

One major area of the UK economy effectively left out of the TCA – despite contributing more than 10 per cent of total tax receipts – was financial services. Despite its economic importance, the sector essentially left the EU with no deal; the TCA offers little more for financial services firms than the default World Trade Organisation rules.

In particular, the loss of “passporting”, which allowed cross-border access to the EU Single Market, forced major UK banks and insurers to relocate more than £1 trillion of assets and thousands of jobs to EU financial centres in the run-up to Brexit.

Brussels and Whitehall are now negotiating a post-Brexit memorandum of understanding to guide future regulatory co-operation, particularly on arrangements for granting limited market access based on “equivalence” decisions.

The challenge facing UK policy-makers is whether to ensure our regulatory framework for financial services remains aligned with our Continental neighbours in return for limited access to the EU’s Single Market or it diverges in order to pursue new opportunities beyond Europe.

Turning to immigration, the end of free movement on 31 December, 2020 has raised a number of immediate challenges for both businesses and individuals. The two biggest issues are the employment of EU nationals who arrived in the UK after this date, and therefore won’t qualify under the EU Settlement Scheme, and EU nationals who lived in the UK prior to 31 December, 2020 but have returned to live in the EU during the pandemic and whose status may now be affected by their absence from the UK.

The Home Office is seeking to reassure employers that they will not face compliance action if they accept an EU passport up until 30 June, 2021. However, this does not resolve the issues for employers if it transpires that an EU national has no right to live and work in the UK in terms of the EU Settlement Scheme.

As an aside, but an important one, having employees whose jobs are in the UK perform those jobs from an overseas location – even if only temporarily – raises employment, legal, tax and social security issues to which employers need to be alive.

Turning finally to data protection, in the run up to 31 December, 2020, businesses were concerned that data transfers from the European Economic Area (EEA) to the UK would be prohibited. In fact, for a short period from January to April 2021 – with a possible extension to June – the TCA provides that lawful transfers of personal data from the EEA to the UK can continue.

However, if the European Commission does not determine that the UK has an adequate level of data protection – an “adequacy decision” – then most businesses importing personal data from the EEA will need to apply additional safeguards with the EEA exporter, for example, implementing the EU’s standard contractual clauses.

In addition, since 1 January, businesses without an establishment in the EEA that offer goods or services to EEA citizens, or monitor their behaviour – for example, by online tracking through cookies – must appoint an EEA-based representative. This can be a group company based in Europe or, alternatively, organisations can appoint a third party provider.

Penalties for failure to comply are significant; fines can be levied at up to 2 per cent of worldwide turnover or €10 million, whichever figure is higher. Shepherd and Wedderburn is supporting clients with this service through its Dublin operation.

Clearly, across a range of sectors and activities, UK businesses are still facing significant challenges in adapting to the new UK/EU relationship. The hope must be that, through continued dialogue and negotiation at inter-governmental level, many of these issues will be addressed. Given the importance of UK/EU trade, there is a strong incentive on both sides to make that happen.

Gordon Downie is a partner in Shepherd and Wedderburn’s regulation and markets team and a member of the firm’s Brexit Advisers Group. Additional reporting by Joanna Boag-Thomson, Partner, Media and Technology; Jacqueline Moore, Head of Immigration; George Frier, Partner and Head of Food and Drink; and Peter Alderdice, Senior Associate, Banking and Finance.

This article first appeared in The Scotsman's 'Brexit Update' Special Report on 26th February - the full report can be read here.