Good morning all,
Alex and I hope you had a peaceful Christmas and join us in looking forward to a much more settled 2021.
The really good news at the end of 2020 was of course the announcement of a UK-EU trade deal - parliamentary approval notwithstanding. The full text of the deal is in the attachment here. It’s a lengthy piece and so I’ve started to analyse some of the most relevant elements. You will know what’s most important for your business so do take a look but also consider the below summary. If you have any questions please do continue to use Alex and I as sounding boards and we will explain or research as best as we can.
In summary the Free Trade Agreement (FTA) establishes a new economic and social partnership between the two parties:
- The FTA covers not just trade in goods and services, but also a broad range of other areas including investment, competition, state aid, tax transparency, air and road transport, energy and sustainability, fisheries, data protection, and social security coordination.
- It provides for zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin.
- Both parties have committed to ensuring a robust level playing field by maintaining high levels of protection in areas such as environmental protection, the fight against climate change and carbon pricing, social and labour rights, tax transparency and state aid, with effective domestic enforcement, a binding dispute settlement mechanism and the possibility for both parties to take remedial measures.
- On transport, the agreement provides for continued and sustainable air, road, rail and maritime connectivity, though market access falls below what the Single Market offers. It includes provisions to ensure that competition between EU and UK operators takes place on a level playing field, so that passenger rights, workers' rights and transport safety are not undermined.
- On energy, the agreement provides a new model for trading and interconnectivity, with guarantees for open and fair competition, including on safety standards for offshore, and production of renewable energy.
Chemical Industry Priorities
- Zero tariffs or quotas on chemicals, provided agreed rules of origin are met
The good news on trade is that UK/EU chemicals trade will remain duty and quota free. This is a major relief for the UK chemical industry and, in particular, for those businesses focused on lower margin higher volume trade. Failure to agree on tariffs could have resulted in an annual cost of around £1bn. Rules of Origin are really important, and covered in the 40+ pages in the agreement. I believe our sector can confidently meet the requirements due to processes routinely changing tariff sub-heading which automatically confers origin in most cases.
- Simple and flexible rules of origin (see pages 27- 42)
The good news here is that, under rules of origin, the FTA provides for full bilateral cumulation (i.e. cumulation of both materials and processing) between the UK and the EU, allowing EU inputs and processing to be counted as UK input in UK products exported to the EU and vice versa. The ambitious arrangements include facilitations on average pricing, accounting segregation for certain products, as well as all materials, and tolerance by value. The rules are also supported by predictable and low cost administrative arrangements for proving origin
- Chemicals Regulation, including REACH (see pages 512-514)
The good news on regulation is that the UK Government’s proposed chemicals annex has been included within the scope of the FTA, providing for implementation of the UN Globally Harmonised System and for voluntary cooperation between authorities - including the facilitation of cooperation over non-confidential information through a specialised committee under Technical Barriers to Trade. In any other FTA this would have been a very positive outcome.
However, a key element of the proposed annex – essentially, UK regulator access to EU REACH data, referencing Article 120 of the REACH regulation - has not been included in the final text, meaning a duplication of significant cost (estimated at around £1bn) to meet the requirements of the new UK REACH regime, without any obvious health or environmental benefit. The immediate priority will be to work with the UK Government to minimising the cost implications of UK REACH compliance and also to remind UK chemical businesses to transfer their existing REACH registrations to the EU27 and ECHA, to ensure continued access to the EU marketplace.
The FTA also enables the UK's continued participation in a number of flagship EU programmes for the period 2021-2027 (subject to a financial contribution by the UK to the EU budget). This to include collaborative R&D through Horizon Europe which, historically, the UK chemical industry has been a major beneficiary of.
I hope you find this initial summary helpful for you and your businesses.
Finally, this Friday – the 1st January 2021 – will see the introduction of new trading terms between the UK and the EU. I hope that your business is ready to meet the new requirements on EU trade. Rest of the World trade will be as before.
If you have any urgent questions do please send them in and we will do our best to respond quickly based on the clarity now provided. The .Gov websites contain a wealth of information that should help you navigate through the new trading procedures. While the UK has introduced easements on imports the EU has not reciprocated so I hope your customers in the EU are ready to assume their full responsibilities.
Ian and Alex.