The new trading relationship between the UK and the EU incorporates zero tariffs and zero quotas on goods traded between the Bloc and the UK. This agreement depends on both sides adhering to agreed high standards on climate change and environmental protection. In this report, John Barwise considers what this is likely to mean for UK businesses, going forward.
The UK’s withdrawal from membership of the EU on 31 January 2020 ends four years of difficult trade negotiations and marks the start of a new chapter in how the UK trades its goods and services with the EU bloc of 27 countries. Underpinning future trading arrangements is a commitment to “a level playing field” across a raft of environmental standards and other measures enshrined in a new Trade and Cooperation Agreement (TCA).
Trade and Cooperation Agreement (TCA)
The Trade and Cooperation Agreement (TCA) is the centre piece of the UK’s withdrawal from the European Union. The TCA covers a wide range of obligations and rights that are in the interest of both parties, going beyond traditional free trade agreements and sustaining longstanding cooperation.
TCA provides a framework for agreements and preferential arrangements where zero tariffs and quotas will apply on goods traded between the UK and the EU, provided those goods comply with appropriate rules of origin.
The TCA is underpinned by a “non-regression” clause, whereby both parties agree to maintain standards already achieved under existing EU law. The non-regression clause aims to ensure a “level playing field” by maintaining high levels of protection in areas such as environmental protection and climate change (including greenhouse gas reductions and carbon pricing), as well as current standards on social and labour rights, tax transparency and State aid.
This doesn’t mean there is a requirement for harmonisation with EU law — either party can diverge from existing EU environmental laws as long as they maintain equivalent levels of protection. A unique aspect of the agreement is a “rebalancing” mechanism, whereby both parties have the right “to take countermeasures” if they believe measures introduced by the other party fall below existing standards or likely to have a material impact on trade, competition or investment.
If, for example, the UK deviates too far from EU environmental rules in ways that member states consider unfair to EU trade, access to the European market could be restricted and tariffs may be applied. Equally, if one side raises its standards and the other does not, it can impose countermeasures such as duties or tariffs. The other party may challenge any such measures before an arbitration tribunal.
TCA and environmental regulations — key elements
The TCA safeguards the integrity of the EU Single Market (something the EU was determined not to compromise) but also recognises the UK has left the EU's system of common rules and enforcement mechanisms. The Agreement also shares many of the environmental standards that the UK has itself helped to establish over its 47-year membership of the European Union.
Chapter 7 of the TCA contains most of the main provisions on the reciprocal commitments to maintain environmental or climate protection levels, including in:
air emissions and air quality
nature and biodiversity conservation
the protection and preservation of the aquatic environment
the protection and preservation of the marine environment
the prevention, reduction and elimination of risks to human health or the environment arising from the production, use, release or disposal of chemical substances
the management of impacts on the environment from agricultural or food production, notably through the use of antibiotics and decontaminants.
Climate change, carbon pricing and ETS
The TCA contains commitments on both parties to combat climate change and the role of trade and investment in pursuing that objective, in line with the UNFCCC. It actively promotes the mutual interest in trade and climate policies and measures that contribute to the “transition to a low greenhouse gas emission, resource-efficient economy and to climate-resilient development” — including a well-functioning and competitive energy market, and increased levels of environmental protection,
The UK and EU agreed to have an effective carbon pricing system in place by 1 January 2021, and to agree to give “serious consideration" to linking the UK's emerging emissions trading scheme to the EU's established scheme (EU ETS).
The EU ETS works on the cap and trade principle and with over 11,000 eligible industrial installations, is the largest ETS in the world by volume. There are limits on the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other installations in the system.
From 1 January 2021, businesses subject to the new UK Emissions Trading Scheme (UK ETS), which is of the same scope as the EU ETS it replaces, should prepare to comply with the new scheme.
The Government has released details on how the cap-and-trade System works, how free allowances are allocated, details on complying, the inclusion of aviation in the System and the UK’s opt-out scheme for small emitters and hospitals.
Guidance on participating in the UK ETS is available here.
Energy related products: ecodesign and energy labelling
Legislation already exists to ensure that current energy labels and minimum energy performance standards (MEPS) are maintained and remain enforceable after the transition period. Details of the Ecodesign for Energy-Related Products and Energy Information (Amendment) (EU Exit) Regulations 2019) are available here.
BEIS has announced that the UK will “uphold common high product standards where appropriate, or even exceed them” if it is in the UK’s interest to do so. Which indicates that the UK is unlikely to move away from ecodesign and labelling and may even apply more stringent rules.
Many types of energy-related products are regulated to ensure they meet specific measures relating to their energy usage. This reduces their environmental impact, improves their energy efficiency, and cuts greenhouse gas emissions.
All products in scope must have supporting technical documentation to demonstrate compliance and have a Declaration of Conformity. It must also display the appropriate conformity marking for the GB and/or NI markets as appropriate. Note there are some differences in documentation in NI due to the NI Protocol.
Details covering the extent of obligations, what is covered and how to comply with ecodesign regulations are available here.
Independent British REACH
The REACH system for Great Britain operates independently from EU REACH, although both systems maintain similar principles. Businesses that sell or distribute chemicals in the UK and the EU, will need to follow both UK REACH and EU REACH rules.
the “no data, no market” principle
the “last resort” principle on animal testing
access to information for workers
the precautionary principle.
UK firms will need to follow UK REACH regulations to manufacture, import, sell or distribute chemical substances or mixtures.
To comply with UK REACH, businesses are advised to transfer their EU REACH registration into UK REACH (also known as “grandfathering”) to continue having access to the GB market. Also to:
submit a new registration for a substance
notify that you’re going to continue importing substances from the EU or European Economic Area (EEA) by submitting a Downstream User Import Notification (DUIN)
transfer your assets, such as registrations, to another legal entity.
Details on how to comply with UK REACH chemical regulations are available here.
Industrial emissions and best available techniques (BAT)
The current EU system to determine best available techniques (BAT) to control environmental impacts from industry is based on the Industrial Emissions Directive (IED) and BAT Conclusions.
The Government has said it is committed to maintaining environmental standards and will continue to apply the existing model of integrated pollution control, including the IED and BAT Conclusion Implementing Decision made under it.
Secondary legislation has been introduced to ensure the domestic legislation that implements the IED with amendments to:
correct references to EU legislation
transfer powers from EU institutions to UK institutions
ensure the UK meets its international agreement obligations.
There will likely be some changes in the future. For example, the UK Government will introduce a process for determining future UK BAT Conclusions for industrial emissions which will be developed with the devolved administrations and competent authorities across the UK. The UK’s Clean Air Strategy for England sets out actions for determining future UK Best Available Techniques for industrial emissions.
The Government says its aim to ensure that the future UK BAT regime continues to endorse the collaborative approach of the current system and industry will be a part of that approach. Future change has not been ruled out.
Further details of BAT are available here.
The above measures are just a snapshot of the myriad of environmental obligations and rights that both the EU and UK must adhere to in order to sustain the newly agreed trading partnership.
No doubt there will be a “few bumps in the road”, as Cabinet Secretary, Michael Gove, puts it, where the UK’s interpretation of “level playing field” might differ from those of the EU. But there is broad consensus that tackling climate change and improving environmental protection is in the interest of both parties and neither side wants to risk losing the frictionless zero tariff, zero quota agreement, on goods traded between the EU and the UK in the future.
Full details of the UK-EU Trade and Cooperation Agreement: summary and implementation here.