The EU & UK Free Trade Agreement: impact on commercial contracts

As part of our Brexit conference in November 2020, my colleagues and I held a conversation on what impact Brexit might have on commercial contracts, and how we could best prepare for the known unknowns in an uncertain world. At that time, there was a lot of uncertainty and we made some suggestions and predictions. Well, we’re back again now, to share some initial thoughts on what happened next.

Many businesses were relieved (I know we were) when the UK and EU managed to agree a Free Trade Agreement (FTA) in the final days of 2020. Now that we have some answers to previous uncertainties, what impact does the FTA have on commercial contracts?

Trade of Goods - customs procedures

Prior to the FTA being agreed, the UK Government had provided information to businesses about the transition period post 31 December 2020, and much of this remains the same. This includes the need for a GB EORI number, and an EU EORI number (if you are conducting any EU customs processes). Businesses will need to check if their goods are categorised as ‘controlled goods’, as full customs declarations will be needed for these from 1 January 2021. If the goods include animals, plants, or animal-origin or plant products, extra documentation will need to be prepared and arrangements made to comply with the relevant checks. Full declarations for goods that are not on the controlled list can be delayed until July 2021, and this is another decision businesses will need to take at this stage.

In contrast to the Government’s previous plans for customs, the FTA included an agreement to zero tariff and zero quota trade on goods. However, to qualify for tariff-free access, businesses will need to ensure that their goods meet the requirements of the ‘Rules of Origin’ set out in the FTA. Businesses will have to identify the full origin of their goods as well as provide additional paperwork in order to qualify. Guidance on how to ensure goods qualify for zero tariff can be found here.

The FTA does provide for mutual recognition of Authorised Economic Operator Trusted Trader Schemes, which means that businesses that are already registered can benefit for more streamlined customs procedures than those set out above. If you are a business which trades frequently between the UK and the EU then you are probably already registered under the UK TTS, as this has been trailed since 2018. More information is available here.

Businesses should also check the terms of any supply agreements and logistics and warehousing agreements in relation to who will be responsible for making these newly required customs declarations, as clarity on this point is crucial for the smooth running of UK-EU trade. So this continues to be a key provision for your commercial contracts.

GB trade with Northern Ireland

Separate trade arrangements have been agreed for GB-NI trade under the Norther Ireland Protocol. No declarations or checks on goods moving from NI to GB by Northern Irish businesses will be required, however declarations will be required on goods moving from GB to NI through a new Trader Support Service (TSS). This TSS will also cover goods imported into NI from the rest of the world.

Goods moving from GB into NI which are deemed to be at risk of moving to the EU will be subject to EU tariffs (where applicable). To declare goods not ‘at risk’ from 1 January 2021, businesses must have applied for UK Trader Scheme authorisation by 31 December 2020.

Again, businesses should check the terms of any supply agreements and logistics and warehousing agreements in relation to who will be responsible for making relevant declarations.

Price adjustment clauses in contracts

Prior to the FTA being agreed, we raised concerns about whether businesses’ commercial contracts provided a mechanism for price adjustment, something we thought could be necessary due to new costs as a result of Brexit. The good news from the FTA is that tariffs are not likely to be an extra cost for businesses, but the burden of ensuring trade is compliant with the new customs procedure may still be a good reason to consider price adjustment, which may allow you to pass some of your increased costs onto your counterparty.

Trade of Services

UK service suppliers no longer benefit from the ‘country-of-origin’ approach or ‘passporting’ concept (e.g. for financial services), which enable automatic access to the EU Single Market. Businesses that trade in these services are right to be concerned, particularly given that the UK is a large exporter of such services. The FTA does outline plans to set up a dialogue between the UK and EU to discuss future financial services arrangements, with March set as a rough deadline, however this is a loose commitment and what we’d regard in technical speak as a ‘cop out’. Affected businesses should keep an eye on these discussions and lobby to make their views known.

UK operators are also no longer permitted to supply audiovisual services in the EU with a UK licence. Instead, the European Convention on Transfrontier Television (ECTT) framework applies and media businesses will need to consider how the ECTT is implemented in each of the 20 EU countries which have signed up to it. Sounds like more bureaucracy!

Data privacy

Data adequacy (a status awarded by the EU which means data can pass freely without further safeguards being required) was not included in the FTA, which was a matter we were all concerned about pre-Brexit. However, a joint declaration was published alongside the deal making it clear that the EU will undertake an adequacy assessment, which is positive for UK businesses.

Until that decision is made, a temporary arrangement to allow data to continue being transferred from the EU to the UK from the 1 January 2021 has been agreed. This period may last 30 June 2021 as long as the UK makes no changes to its own data protection laws (the UK has currently adopted the EU’s GDPR into its own national law, which is known as the UK GDPR). This means businesses transferring data to and from the UK and the EU will not need to put in place alternative contractual measures for data protection just yet, however preparations should be made in readiness for a future adequacy decision by the EU, and any changes to both the EU and UK GDPR laws. See our comments on this here.