Moving goods, services, data, and staff internationally has never been easy. Trade wars, Brexit, a global pandemic, sanctions, and Russia’s invasion of Ukraine made doing so all the more difficult.
Beyond reacting to external pressures, companies and investors should be gearing up to adapt to, and take advantage of, imminent UK and EU regulatory changes that will create new market access opportunities and challenges.
In the UK, the evolving post-Brexit regulatory environment will create new hurdles for firms, and fresh opportunity for those able to steer the direction of travel.
The new government wants to differentiate itself from the EU and will review and, in some instances, overhaul inherited EU law. Companies must ensure any change made delivers tangible commercial benefit, and divergence from Europe-wide rules does not happen without due consideration of the potential consequences. Commercial arguments for continued convergence, or the maintenance of EU-era rules in the UK, must be crafted carefully - and with a clear economic case - to avoid falling foul of political dividing lines.
A lack of domestic capacity means the UK still relies on EU certification and approval processes for key sectors including industrial goods, chemicals, and medicines. At the time of writing, the UK will require products placed on its market to display the new UKCA mark from 1 January 2023 (1 July for medical devices), companies to transition the data underpinning their EU chemical authorisations to a UK system by 27 October 2025 and will recognise EU medicine batch testing and release until at least December 2022, with a two-year notice period given ahead of changes. Yet deadlines for UK divergence have been pushed back before and could be again.
That the UK plans to introduce a ‘modern trade border’ that can equally accommodate long-distance freight and roll-on/roll-off trade from Europe means further upheaval, as does the eventual imposition of some UK customs and inspection requirements for imports that have been postponed repeatedly since January 2021. The government is fast-designing a new single trade window that could reduce the compliance burden for firms and hopes to apply a new import-health regime for animals, food, and plant products by the end of 2023.
New rules governing the sharing and transmission of personal and commercial data will create new opportunities internationally but could also call into question the UK’s data adequacy decision from the EU, which allows for the personal data of EU citizens to be stored and processed on servers located in the UK without additional legal assurances.
The UK-EU trade relationship will remain unstable. Continued disagreement over the implementation of the Northern Ireland Protocol could lead to further EU measures against the UK such as the reimposition of tariffs on some exports or, in the worst-case scenario, to the unravelling of the Trade and Co-operation Agreement (TCA). Additionally, unless the UK and EU agree to tweak the timetable, it will become more difficult for electric vehicles and batteries to qualify for tariff-free trade between the two markets under the TCA.
The EU is close to finalising several new defensive trade measures. These include the proposed carbon-border adjustment mechanism (CBAM), new rules penalising firms and investors in receipt of distortive subsidies from foreign governments and new supply chain due diligence requirements.
CBAM will see imports of carbon-intensive products such as steel and cement subject to an additional carbon charge. This will require importers of CBAM goods to register with a relevant authority, account for their carbon intensity, purchase so-called CBAM certificates (one certificate per tonne of CO2) and surrender them at the end of every year. Carbon prices paid abroad may be taken into account.
While CBAM will probably happen, the exact design is not yet finalised. The European Commission, Council and Parliament disagree on issues such as sectoral coverage. The Parliament wants to extend the scope beyond steel, iron, aluminium, cement, fertiliser and electricity to hydrogen and potentially organic chemicals and polymers. Other areas of contention include whether to account for indirect emissions. The Commission and Council are content to focus on direct emissions in the first instance, while the Parliament wants indirect emissions – those created while producing the electricity used in production – accounted for from the beginning. A third issue remains around whether to allow export rebates. Discussions between the three institutions will continue through the autumn and could be wrapped up by year’s end.
With a final text agreed, the European Parliament will vote on the new foreign subsidies regulation in November 2022. These rules have cost implications for all companies investing, or operating, in the EU. New notification requirements will apply to all large mergers (valued at over €500m) and procurement (valued at over €250m), no matter the ultimate investor/bidder country-of-origin, and will require firms to account for all non-EU government funding, going back up to five years prior to the regulation’s entry into force.
On corporate due diligence, companies should expect further proposals before the end of 2022. These follow on the tail of the Commission’s supply chain due diligence proposals in February, and a June resolution from Parliament calling for an import ban on products produced with forced labour. The new supply chain due diligence rules – as currently drafted – would apply to all large firms (EU and non-EU) operating or generating significant revenues in the EU. Covered firms would be required to integrate due diligence policies throughout their supply chain and act to identify and address adverse human rights or environmental impacts.
Flint’s Trade and Market Access practice has exceptional people in London, Amsterdam, Brussels, Paris and across Europe, able to help clients navigate this increasingly complex global trading environment, steer government policy, overcome regulatory and political barriers to trade, enter new markets and achieve their commercial objectives.
To find out more about how Flint can help you navigate the risks and opportunities of these developments, get in touch.
