Shifting Tides: A Comprehensive Review of UK-EU Single Market Relations Post-Brexit

Introduction

This essay critically assesses the UK’s legal relationship with the EU Single Market before and after Brexit in the context of trade in goods and dispute settlement. The UK left the EU under the Withdrawal Agreement, which entered into force from 1st February 2020. The UK Parliament enacted the European Union (Withdrawal Agreement) Act 2020 to enforce the provisions of the EU Withdrawal Agreement. The EU Withdrawal Agreement contains inter alia, provisions on citizens' rights, the financial settlement and a legally operative solution to avoid a hard border on the island of Ireland, and is made for safeguarding the integrity of the EU's Single Market. The UK left the EU Single Market on 1st January 2021 and this means that it no longer has the benefits from the principle of free movement of goods and the businesses in the UK will new trade barriers in trade with the EU Member States. The Trade and Co-operation Agreement regulates the trade of goods from the UK to EU. The essay discusses the legal consequences of Brexit in the context of trade and dispute settlement. Using the EU-UK Trade and Cooperation Agreement, the EU (UK) Withdrawal Agreement, and the UK (EU) Withdrawal Act 2018 along with academic commentary, this essay discusses the ways in which the UK’s relationship with the EU is set to change in context of trade and dispute resolution. If you need assistance with your dissertation, consider seeking UK dissertation help for expert guidance and support.

Critical evaluation of the UK’s legal position in the context of trade in goods when it was a member state and current trading relationship between the UK and EU under the TCA

The UK’s membership of the EU came with two important benefits in terms of trade. First, that there are no tariffs or customs duties between member states of the EU. Second, that the EU takes measures to minimise non-tariff barriers, such as, EU-wide agreements on product standards and rules of origin so that the trading firms who import goods from outside the customs union can trade those goods across EU borders without being subject to additional checks. There are considerable changes to these benefits with Brexit taking effect. In this section of the essay, the tariff and non-tariff barriers regime both before and after Brexit is discussed to identify what changes are set to take place in the trading relationship between the UK and the EU.

Comparison between tariff barriers to trade before and after Brexit position

The TCA provides for zero tariffs and zero quotas on all goods and also limits the fees chargeable by customs for services. Article 2 provides that the UK and the EU must cooperate with each other with regard to the customs declaration. Article 5 requires simplification of customs declarations. VAT rates and distance selling thresholds are also applicable in trade of goods. UK businesses are required to register at ‘place of supply’ and charge and declare VAT at the rate set in the country to which the goods are being exported. Prior to the Brexit, goods from the UK were allowed to move freely within the EU without any additional duties or checks. For the purpose of VAT, goods sold from the UK are zero-rated and UK VAT is not chargeable at the point of sale, but the exported goods are subject to import VAT and the EU customers will have to be charged with that VAT.

Customs duties are applicable to movements of goods across the hard border between the EU and the UK, with duties being payable based on the commodity code and corresponding tariff rates that are contained within the EU and UK’s respective tariff schedules. Furthermore, while the TCA provides for zero quotas and tariff free trade, the condition is that qualify for tariff and quota free access only in the condition that the respective producer or exporter of the goods can prove that the goods “originate” from the exporting side. Because of the ‘rules of origin’ provision in the TCA, preference can only be claimed on goods meeting the relevant product-specific rules of origin. In the event the rules of origin cannot be satisfied, the full rate respective duty will apply at the time of import.

1. Trade and Cooperation Agreement Between The European Union and The United Kingdom Of Great Britain And Northern Ireland.
2. S Byrne and J Rice, The impact of non-tariff barriers on EU goods trade after Brexit, ECB Occasional Paper, No. 249 (ECB 2020).

Prior to Brexit, the membership of the EU meant that the UK benefitted from the Customs Union that has a single external tariff, without application of customs duties and quotas regardless of origin and that once the goods ae admitted into a customs union, then they can move about freely within the member states. Articles 28 of the TFEU provides that the customs union covers all trade in goods and involves the prohibition of customs duties on imports and exports and all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries. Article 30 of TFEU provides that customs duties on imports and exports and charges having equivalent effect are prohibited. The CJEU has interpreted these provisions broadly, especially with regard to charges having equivalent effect so that any pecuniary charge imposed unilaterally on domestic or foreign goods and which is not a customs duty constitutes a charge having equivalent effect, even if not imposed for the benefit of the state. Prior to Brexit, the UK got the benefit of this regime. Post Brexit, although TCA provides for zero tariffs and zero quotas, the rules of origin would mean the full rate of duty will apply at the time of import if the goods do not originate from the exporting country, which is possible for many goods because of the complex distribution system and supply chains. Finally, the quota free trade rules in TCA do not apply to the services sector.

Comparison between non-tariff barriers to trade before and after Brexit

Non-tariff barriers are those measures that raise the costs of trade, and include but are not limited to border controls, rules of origin checks, and differences in regulations over things like product standards and safety. The UK’s membership of the EU meant that there was no “red tape” associated with non-tariff barriers for intra-EU trade and this meant that intra-EU trade could move more freely from the UK to the EU and vice versa without traders having to make import or export declarations, satisfy documentary requirements, and product standards and inspection requirements. Since the Brexit came into effect, there is now a hard border between the UK and EU and this has meant the increase in red tapism leading to more paperwork and border delays and customs clearance issues.

Non-tariff barriers have been described as those barriers that are “derived from border controls; rules of origin checks; divergence in regulations about product standards and safety, workers’ rights and environmental protection.” Prior to Brexit, the UK had the benefit of the EU single market in which the EU not only regularises customs duties and charges, but also bars non-tariff barriers like quantitative restrictions and measures in trade. The EU also harmonises treaty provisions and national legislation to promote free movement within the internal market. Quantitative restrictions are barred under Article 34 and Article 35 of the TFEU subject to Article 36, which allows justified restrictions in the interest of public morality, policy or security, etc. Thus, states have to ensure mutual recognition, unless there is a justifiable ground of public interest and the restriction is proportionate to the objective. CJEU has not allowed restrictions in many cases: in Milk Substitutes case, the Commission did not permit French prohibition related to milk substitutes; in Dassonville, the Court held that all trading rules obstructing intra EU trade must be regarded as measures equivalent to quantitative restrictions; in Cassis de Dijon, the court held that intra EU trade of products must be allowed freely. Thus, quantitative restrictions, bans and quotas, protectionism, and measures equivalent to quantitative restrictions (MEQR) are not permitted under the EU law.

1. Swati Dhingra, Gianmarco IP Ottaviano, Thomas Sampson, and John van Reenen, The consequences of Brexit for UK trade and living standards, Paper Brexit 02 (LSE 2016).
2. LW Gomley, Free movement of goods and EU legislation in the Court of Justice. The Judiciary, the Legislature and the EU Internal Market, (Cambridge: Cambridge University Press 2012).
3. Sociaal Fonds voor de Diamantarbeiders v Brachfeld & Sons [1969] ECR 211 (the Diamonds case).
4. A Swinbank, World trade rules and the policy options for British agriculture post-Brexit, Briefing paper, 7 (UKTPO 2017).
5. Aida Garcia-Lazaro, Jakub Mistak, and F. Gulcin Ozkan, ‘Supply chain networks, trade and the Brexit deal: a general equilibrium analysis’ (2021) 133 Journal of Economic Dynamics and Control 104254.
6. Ibid, p.2.
7. Laurence W. Gormley, EU law of free movement of goods and customs union (OUP Catalogue 2009).

After Brexit, rules of origin apply to goods in order to qualify for preferential trade terms. The TCA prohibits customs duties on goods originating in the UK while import and export restrictions provide that the goods being exported from the UK must originate in the UK under the Rules of Origin. Furthermore, all imports are subject to customs formalities.

Because the UK is no longer part of the EU Customs Union, all customs controls and formalities (such as under the Union Customs Code) are applicable to the UK, and these include entry and exit summary declarations. This applies to all goods entering the EU customs territory from the UK, and those entering into the UK from the EU customs territory. Non-tariff barriers like increased customs handling times and documentary compliance requirements have the tendency to exceed the arrangement of frictionless trade that earlier existed between the EU and the UK. For EU exporters this may increase costs as the EU Union Customs Code also sets out procedures required for EU exporters when exporting to a third country; since the UK will not be a third country, the procedures under EU Union Customs Code will add to the delays and procedures required to be taken including declarations at point of export, outward customs arrival, outward clearance, import, and inward customs arrival. Non-tariff barriers at this point may involve more paperwork and passing customs inspection procedures. In one study by Byrne and Rice, the researchers estimated the effect of potential increases in border delays and documentary compliance on trade between Ireland and the UK after Brexit.

It is also noteworthy that the CJEU has formulated jurisprudence that seeks to ensure free trade between member states by removing barriers that can amount to non-tariff barriers. In Cassis de Dijon, the CJEU held that products manufactured and marketed in member states must be allowed move freely within the EU. The EU itself has passed Regulation EC No. 764/2008 to discourage and prevent member states from hindering trade except on grounds listed in Article 36 of the TFEU or because of Cassis mandatory requirements, and provided that the member state must give written notice to the importer. Special conditions of trade are to be avoided and states are required to provide information via Directives 98/34 to the Commission before adoption of any such regulation; failure to notify by the state would mean that the state cannot enforce it.

1. Paul Craig and Gráinne De Búrca, EU law: text, cases, and materials (Oxford: Oxford University Press 2011).
2. C. Barnard, The Substantive Law of the EU: The four Freedoms (2nd ed., Oxford: Oxford University Press 2007).
3. Commission v France (Milk Substitutes case) Case 216/84 [1998] ECR 793.
4. Procureur du Roi v Dassonville Case 8/74 [1974] ECR 837.
5. Rewe-Zentral Ag v Bundesmonopolverwaltung Fur Branntwein Case 120/78 [1979]
6. Ibid
7. S Byrne and J Rice, The impact of non-tariff barriers on EU goods trade after Brexit, ECB Occasional Paper, No. 249 (ECB 2020).
8. Cassis de Dijon, Case 120/78 [1979].

Prior to Brexit, the UK’s membership of the EU meant that the above discussed regime would have allowed its exporters access to EU market and its importers of EU products without barriers that could be in the nature of divergence in regulations about product standards and safety, environmental protection, and border controls. However, after Brexit, the UK does not have the protection of the EU law, regulations and directives that ensure that trade is not made more costly due to non-tariff barriers.

Critical evaluation of the UK’s legal position in the context of dispute settlement under the terms of the TCA, in comparison to EU membership

The impact of Brexit can be reasonably expected in the area of dispute resolutions between the UK and the EU, where disputes may arise with relation to the interpretation of the TCA provisions as well as related to applicable law, jurisdiction, and enforcement of judgments. This is more relevant to disputes that have a European dimension, where Brexit may impact the law applicable to the disputes and the courts of jurisdiction. In this section, the essay discusses how centralised and decentralised dispute settlement is set to change with Brexit. The Withdrawal Agreement provides that the pre-Brexit rules continue to apply to contracts agreed, or harmful events occurring, before the end of the implementation period. Similarly, with regard to jurisdiction, the Withdrawal Agreement allows the continuance of the Brussels I Recast Regulation rules, on jurisdiction as between EU member states in respect of the UK to proceedings which began before the end of the implementation period.

Centralised dispute settlement

With Brexit, the European Communities Act 1972 stands repealed by the EU (Withdrawal) Act 2018. However, provisions in the TCA have ensured that there is some continuity of existing EU jurisprudence in the UK. Thus, Section 4 retains parts of the Treaties and general principles that currently can be relied upon directly before UK domestic courts. Section 3 continues to directly apply regulations, decisions, and delegated or implementing acts but as a matter of domestic law. Section 6 allows application of pre-Brexit CJEU jurisprudence as ‘retained’ EU law with the condition that Supreme Court or ministerial regulation may consciously deviate from it. With respect to dispute resolution however, private parties who have been negatively impacted by a UK measure that is alleged to be in contravention of the EU-UK TCA, have no direct rights or remedies. This applies to businesses and traders in the UK as well.

It is expected that dispute resolution will be unstable after Brexit. Title XII of TCA provides for dispute settlement and it speaks about mutually agreed solutions. It has been noted that the objective of the Title XII emphasises on political dispute resolution through diplomacy, and not legal dispute resolution through adjudication and moves away from

supranational constitutionalism towards the “paradigm of intergovernmental diplomacy.” Title XIII of Part 3 specifically relates to dispute settlement and its objective states that it is aimed at establishing “a swift, effective and efficient mechanism for avoiding and settling disputes” and “with a view to reaching a mutually agreed solution, where possible.” Title XIII provides for consultations, mutually agreed solutions, and suspensions.

Prior to Brexit, centralised dispute settlement mechanisms applied to the UK. Article 258 of the TFEU provides a mode for centralised enforcement of EU law before CJEU. Article 258 allows the European Commission to sue Member States before the CJEU for the alleged violation of the EU law and is a method of public enforcement. Actions are commenced by the European Commission, which has the duty under Article 17(1) of the Treaty of European Union to oversee the application of the EU law. The Commission has to rely on the citizens to bring the breaches to its attention. The complaints are made in the standard format through the EP Committee on Petitions. Article 259 is also applicable for the central enforcement of EU law before CJEU. Actions commenced by Member States. Member States have the obligation under the TEU, Article 4(3) to comply with their Treaty obligations.

The centralised dispute settlement system is rarely applied as most disputes are not pursued through the infringement proceedings. Ultimately it means that most of the EU law is not enforced centrally. However, in those cases that are subjected to infringement proceedings, the CJEU may find against the member and declare it in breach after which the Member State has the duty to take all necessary steps to comply with the court’s judgment (Article 260(1)). In the event that the Member State fails to comply with its duty under Article 260(1) the European Commission can bring it back before the CJEU, which can then impose lump sum or penalty payment (Article 260(2)). Under Article 260(3), CJEU is able to impose a lump sum or penalty payment the first time the European Commission brings the matter before it in the event that the Member State has failed to notify the European Commission of the steps needed to implement an EU Directive. The centralised dispute mechanisms remain important for resolving disputes about the correct application of EU law and therefore contribute to the success of the EU Single Market. The UK itself has been subjected to infringement proceedings. A significant case is that of Bathing Waters.

Decentralised dispute settlement

The EU legal system relies on the de-centralised enforcement of its rules. This relates to enforcement of EU law before the national courts and the use of the direct effect principle, indirect effect principle and principles of state liability to enforce the EU law in national courts. Article 288 of the TFEU provides that EU Regulations are directly applicable while EU Directives have deferred direct applicability and become applicable if Member State fails to implement the requirements within the time limit specified in the Directive. Prior to Brexit, the UK also was bound to apply the EU law directly. Under the decision of the CJEU inVan Gend en Loos v Nederlandse Administratie der Belastingen, the doctrine of direct effect was introduced to reinforce the principle of supremacy of EU law. Even British citizens could directly invoke the EU law before national courts if there was a clear EU law conferring specific rights. Indirect effect of the EU law including through directives is also provided in CJEU jurisprudence. Courts are required to do harmonious interpretation between national laws and EU Directives for ensuring the fulfilment of EU obligations. Thus, prior to Brexit, UK courts had the responsibility to provide the legal protection which individuals derive from the rules of Community law, which is not applicable anymore. Prior to Brexit, UK individuals could claim damages against the state for not applying the EU directive if there was an EU directive providing rights and there was a causal link between the breach of the UK’s obligation and the loss and damage suffered by the injured parties. These remedies are no longer available to individuals because Brexit means that the EU law and directives are no longer applicable.

1. Ibid
2. TCA, Article LAW.DS.1: Objective.
3. Simon Hix, Bjørn Høyland, The Political System of the European Union (London: Palgrave Macmillon 2011) 100.
4. France –v- United Kingdom (Lamb War), Case C-141/78.
5. European Commission –v- United Kingdom (Bathing Waters), Case C-56/90.
6. Van Gend en Loos v Nederlandse Administratie der Belastingen, C-26/ 62 (1963).

Of particular significance is Article 267 of the TFEU which provides the preliminary reference procedure. Article 267 leads to uniform application of EU law across the EU27, and allows the national courts to refer questions related to EU law when they have some doubt on the interpretation of the law. National courts do not have discretion to decide whether or not to refer the case to the CJEU and must refer whenever there is a reasonable doubt as to the meaning of the EU law or its validity. However, in the case that the issue is acte clair, the national courts do not have to refer the matter to the CJEU. At the same time, the cases when acte clair arise are rare because the circumstances when a court will be free from such doubt are rare and the national courts are also required to be confident that the issue will be equally clear to the other national courts. It is noteworthy that the cooperation between the national courts and the CJEU has been one of the hallmarks of successful EU legal order. This also relates to trade and success of the EU Single Market because the CJEU has given clarifications on regulations and directives from time to time, which are then uniformly applicable across the Single Market.

Arbitration is expected to be one of the major areas for decentralized dispute resolution in the post Brexit era. Where the other methods of dispute resolution under the EU law are no longer applicable to disputes related to European law in the UK or involving UK citizens, there is possibility that citizens and businesses would use arbitration to resolve these disputes.

Evaluation for improvements in the TCA

Article 776 of the TCA provides that the EU and the UK can jointly review the implementation of TCA and supplementing agreements five years after the entry into force of TCA and then every five years thereafter. Therefore, the provisions of the TCA can be improved upon based on the experience of the EU and the UK with the TCA in the next five years. In this section, some recommendations are made for how the agreement provisions can be improved upon in the context of trade and dispute resolution.

1. Ibid
2. Marleasing SA v La Comercial Internacional de Alimentacion SA (1990) C-106/ 89.
3. Von Colson v Land Nordrhein-Westfalen, C-14/83 [1984].
4. Pfeiffer v Deutsches Rotes Kreuz, Kreisverband Waldshut eV, C-397/01- 403/01 (2005), para 111.
5. Francovich and Bonifaci v Italy [1991] ECR I – 5357.
6. Foto Frost, Case 314/85.
7. CILFIT, Case 283/81.
8. Ibid.

One of the changes that may help improve the experience of Brexit for traders both in UK and EU could be related to rules of origin provisions. At this time, although they have agreed on zero tariff and quotas, this does not prevent customs to be levied on goods that do not originate from the EU or the UK. Given the complex supply chains and distribution systems that have become global facts, it would be difficult to avoid rules of origin on a large number of goods that are being traded. Therefore, while the current TCA is showcased as a zero tariff and quota regime, the ground realities may actually be that a large number of goods are affected by rules of origin provision in the TCA which would mean that there are trade barriers between the UK and the EU which may impact both sides negatively over a period of time. Therefore, one of the areas that may be reviewed is related to the rules of origin provisions.

In the next review of the TCA, attention can also be paid to reducing tariff and non-tariff barriers to trade in services because there is an interlink between trade in goods and trade in services and the former also involves the latter. It has been argued that the current “proliferation of national reservations to the agreement” would lead to complicated rules that vary by sector and Member States for the UK service sector and that this would also impact barriers to trade in goods.

It has been recommended that in the area of dispute resolution, improvement can be made if the UK and EU decide to use an existing institution, or set of institutions, to handle their disputes. These institutions could be the existing institutions of the EU, such as, the European Commission and CJEU and these institutions could oversee aspects of the UK’s and EU’s treaties that relate to the EU law. For trade disputes, the UK and the EU could use the WTO’s dispute settlement system.

Conclusion

In conclusion, while it may appear that the TCA allows for zero tariffs and zero quotas on all goods and also limits the fees chargeable by customs for services, the complex nature of distribution systems and supply chains means that the ‘rules of origin’ provisions will apply to many goods and not allow zero tariffs for such goods. There are a number of tariff and non-tariff barriers that will be attached to such goods. Furthermore, since the UK is not part of the EU anymore, non-tariff barriers are bound to increase because of customs clearances, documentation and red tape involved in the movement of goods across hard borders between the UK and the EU. At the same time, the earlier systems of dispute resolution are no longer applicable between the EU and the UK. However, there is possibility for improvement through Article 776 of the TCA when the agreement comes up for review next. Desirable improvements could include reducing of non-tariff barriers, clarifications and changes to rules of origin and agreements on dispute resolutions.

Books

Barnard C, The Substantive Law of the EU: The four Freedoms (2nd ed., Oxford: Oxford University Press 2007).

Craig P and Gráinne De Búrca, EU law: text, cases, and materials (Oxford: Oxford University Press 2011).

Gormley LW, EU law of free movement of goods and customs union (OUP Catalogue 2009).

Gomley LW, Free movement of goods and EU legislation in the Court of Justice. The Judiciary, the Legislature and the EU Internal Market, (Cambridge: Cambridge University Press 2012).

Hix S and Bjørn Høyland, The Political System of the European Union (London: Palgrave Macmillon 2011).

Hogarth R, Dispute Resolution after Brexit (Institute for Government 2021).

Journals

Garcia-Lazaro A, Jakub Mistak, and F. Gulcin Ozkan, ‘Supply chain networks, trade and the Brexit deal: a general equilibrium analysis’ (2021) 133 Journal of Economic Dynamics and Control 104254.

Wilson TJ, ‘EU-UK criminal justice and security cooperation after Brexit: A perspective’ (2021) 3 Forensic Science International: Synergy 100144.

Reports

Byrne S and J Rice, The impact of non-tariff barriers on EU goods trade after Brexit, ECB Occasional Paper, No. 249 (ECB 2020).

Dhingra S, Gianmarco IP Ottaviano, Thomas Sampson, and John van Reenen, The consequences of Brexit for UK trade and living standards, Paper Brexit 02 (LSE 2016).

EU Services Sub-committee, Beyond Brexit: Trade in Services (House of Lords, HL Paper 248 2021).

Garner O, ‘Part Three of the EU-UK TCA–From a ‘Disrupted’ Area of Freedom, Security and Justice to ‘New Old’ Intergovernmentalism in Justice and Home Affairs?’ (Brexit Institute Working Paper Series, No 1/2021 2021).

Swinbank A, World trade rules and the policy options for British agriculture post-Brexit, Briefing paper, 7 (UKTPO 2017).

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