Overview
Customs
Customs and supply chain issues continued in 2022, affecting trade between the EU and the UK, but also internationally. In addition to the logistical challenges carried over from the previous years, traders in 2022 also had to deal with the impact of the war in Ukraine and the sweeping sanctions imposed against Russia; general inflation and rising energy costs; increased geopolitical tensions; China's "zero Covid" policy and resulting supply disruptions; and even disruptions caused by extreme weather conditions. Amidst these issues, companies struggled to source their goods and/or faced considerable delays throughout 2022.
As regards to trade between the EU and the UK specifically, this was further affected by the impact of Brexit, with recent evidence suggesting that Brexit resulted in both a decrease in overall trade volumes and in the number of trading relationships between UK and EU firms.[1] The impact of Brexit has so far been felt more strongly by UK companies than EU companies, as the latter have still not been made subject to full customs controls. Indeed, while the EU has been applying full customs checks to imports from the UK since the beginning of 2021, the UK has repeatedly delayed introducing its own controls on imports from the EU.
The UK government did introduce some customs controls, applicable as of 1 January 2022[2], including border controls and a requirement for customs declarations to be submitted at the point of import. However, on 28 April 2022, the UK Cabinet Office announced that the government would be delaying the introduction of further customs checks on goods imported from the EU, which had been scheduled for July 2022.[3] The UK government referred to the war in Ukraine and the rising energy costs as reasons to not further burden businesses that are still recovering from the pandemic, and which may pass-on the associated costs to consumers. The key controls that were postponed include the following:
- a requirement for Sanitary and Phytosanitary ("SPS") checks on EU imports to be carried out at Border Control Posts;
- a requirement for some SPS-related imports to the UK to be accompanied by a health certification;
- prohibitions and restrictions on the import of chilled meats from the EU;
- a requirement for safety and security declarations on EU imports
According to the UK government, the decision to defer these new controls is expected to save British importers at least £1 billion in annual costs. UK exporters, however, in the meantime continue to be subject to EU customs requirements, causing significant disruptions as compared to pre-Brexit levels.
Level Playing Field
The EU has been increasingly concerned in recent years about ensuring a level playing field between domestic and foreign companies and, to this end, it has been developing instruments enabling it to unilaterally limit or regulate foreign companies' access to its market. For example, the Foreign Subsidies Regulation (see our blog post on the regulation here), which was formally adopted in December 2022, entered into force in January 2023, and will generally start applying from mid-2023, gives the European Commission substantial new powers to take measures against companies benefiting from distortive foreign subsidies. Also, the International Procurement Instrument (see our blog post on the instrument here), which entered into force in August 2022, enables the EU to impose measures limiting foreign companies' access to the EU public procurement market if these companies' governments do not offer similar access to EU businesses.
While these instruments are not specifically directed at the UK, UK companies are of course potential targets of both of these new measures introduced in 2022. Moreover, UK business could further be impacted by forthcoming EU initiatives, such as the anti-coercion instrument (see our blog post on the instrument here), and the carbon border adjustment mechanism (CBAM), discussed below, which is meant to equalize the price of carbon between domestic products and imports.
In addition, a key issue for the UK in 2023 will be the position it takes in response to the green subsidy race that is brewing between the US and the EU. In August 2022, the Biden administration signed the Inflation Reduction Act (IRA), which envisages a $369 billion subsidy scheme that is meant to encourage US companies to switch to greener models. In response, there have been calls by several European leaders that the EU should follow a similar course. France's Finance Minister has already announced a range of measures to incentivize green industries domestically and French President Emmanuel Macron had also expressed support for a European equivalent to the IRA. Similarly, European Commissioner for the Internal Market, Thierry Breton, has called for the introduction of an EU Clean Tech Act in response to the US measures.
If the EU eventually decides to go ahead with its plans for green subsidies, this will likely create tensions also with the UK and may give rise to legal issues under the Trade and Cooperation Agreement (TCA) (given the subsidy control rules contained therein). On the other hand, the UK may choose to respond with its own domestic support measures, meaning that EU and UK companies may find themselves entangled in a competition over subsidies between the two blocs.
The Northern Ireland Protocol
Tensions between the EU and the UK over the Northern Ireland Protocol continued in 2022, while negotiations reached an impasse in the beginning of the year. On 13 June 2022, the UK introduced the Northern Ireland Protocol Bill in Parliament[4], which provided that certain aspects of the Northern Ireland Protocol would no longer be applied, specifically relating to trade in goods, regulation of goods, subsidy control, and application of EU law. Shortly after, on 15 June 2022, the EU relaunched infringement proceedings against the UK for failing to properly implement the Protocol[5], followed by additional actions against the UK in July 2022.[6]
The EU’s position continues to be that it is not prepared to renegotiate the protocol, but rather work with the UK on finding a way to apply the protocol flexibly and in a simplified manner.
Moreover, an important demand by the EU is that the UK should provide EU officials with real-time data of goods movements between Britain and Northern Ireland, as was foreseen in Article 12 of the Northern Ireland Protocol, which the EU has accused of having failed to give effect to.
It was reported that negotiations between the EU and the UK restarted in October 2022, for the first time since February, and that some progress was being made. The prime ministerial changes in the UK are also said to have changed the political atmosphere and the UK's attitude towards the negotiations. More recently, on 9 January 2023, UK Foreign Secretary James Cleverly and European Commission Vice President Maroš Šefčovič issued a joint statement announcing that they had reached an agreement on a way forward regarding the issue of the transmission of data on movements of goods. The agreement means that the EU should finally be able to access real-time data on goods moving from Britain to Northern Ireland, and is been hailed as an important step towards resolving the long-running dispute between the two sides.
Subsequently, it was also reported that the EU and the UK are close to reaching a solution on a dispute over the application of EU safeguard duties on British imports of steel into Northern Ireland. After the EU replaced the country-specific quotas for certain steel categories with a single global quota in June last year[7], British steel producers found themselves having to pay a 25% duty on products sold in Northern Ireland, given that the EU global quotas were exhausted earlier than expected. A solution on this issue would be another sign that the EU and the UK may be near to putting an end to their long-standing clashes over the status of Northern Ireland.
Despite the foregoing, there are still important issues that need to be overcome between the two sides, including the role of the Court of Justice in adjudicating disputes over the implementation of the protocol, which the EU insists it is not willing to renegotiate. It therefore remains to be seen how the negotiations will further develop in 2023 and whether an overarching agreement will finally be reached.
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[1] https://obr.uk/docs/dlm_uploads/CCS0822661240-002_CCS001_SECURE_OBR_EFO_November_2022_BOOKMARK.pdf.
[2] https://www.gov.uk/government/news/less-than-a-month-until-full-customs-controls-are-introduced.
[3] https://www.gov.uk/government/news/new-approach-to-import-controls-to-help-ease-cost-of-living.
[4] https://publications.parliament.uk/pa/bills/cbill/58-03/0012/220012.pdf.
[5] https://ec.europa.eu/commission/presscorner/detail/en/ip_22_3676.
[6] https://ec.europa.eu/commission/presscorner/detail/en/IP_22_4663.
[7] See Commission Implementing Regulation (EU) 2022/978 of 23 June 2022 amending Implementing Regulation (EU) 2019/159 imposing a definitive safeguard measure on imports of certain steel products.