Brexit focus: A new mode of working – the new Trade and Cooperation Agreement

Today, we focus on a new mode of working with the new Trade and Cooperation Agreement.

The entry into force of the Agreement

The Islands passed extensive legislation which had the effect of discontinuing the direct effect of EU law at the start of the Transition Period (to the extent to which Protocol 3 made EU law directly effective), preserved such EU law as was applicable at the time (so as to protect the status quo ante) and provided appropriate mechanisms for the modification of such preserved EU laws and the adoption of any withdrawal agreement ultimately negotiated by the UK (i.e. the TCA).

Considerable work was also undertaken by the Islands with the UK to ensure that their interests were fully represented during the negotiation of the TCA, so as best to ensure that the TCA met the needs of the Islands.

The TCA came into effect in the Islands at the end of the Transition Period.

The Islands participate in the TCA in two principle areas:

• the trade in goods (including customs and rules of origin matters); and
• fisheries.

Trade in goods

As regards the trade in goods, the Islands participate in the TCA only to the extent necessary to facilitate the trade in goods, and on a ‘chapter-by-chapter’ basis. This enables the Islands to benefit from reciprocal market access with EU markets on a ‘zero tariffs, zero quotas’ basis, and will reduce the potential disruption for the trade in goods between the Islands and the EU.

Under the TCA, the provisions thereof[1] relating to: (i) Chapter 1: the national treatment and market access for goods (including trade remedies), (ii) Chapter 2: rules of origin, (iii) Chapter 3: sanitary and phytosanitary measures, (iv) Chapter 4: technical barriers to trade and (v) Chapter 5: customs and trade facilitation, apply to the Islands in the same way as they apply to the UK, the Islands being considered as part of the customs territory of the UK for such purposes[2].

The TCA contains its own mechanisms for monitoring and developing trade policy and practices between the UK and the EU through Trade Committees, as well as enforcement mechanisms. As only the UK and the EU will have direct access, the Islands will continue to depend on the UK to protect their interests in such matters, and assurances have been sought from the UK that the constitutional positions will be respected. Discussions remain on-going with the UK on the final form and timing of new border checks for the movement of goods.

Whilst the long-term impact of the TCA remains to be seen, what can be said is that TCA broadly reproduces the extent of the Protocol 3 arrangements relating to the trade in goods, so the end of the Transition Period should have no material immediate consequences in that area.

Fisheries

Protocol 3 covered trade in fisheries products, but not wider EU fisheries competencies. Prior to the entry into force of the TCA, fisheries were managed through a 2012 Fisheries Management Agreement with the UK. This gave the islands the power to licence British vessels fishing in the Islands’ waters (on a non-discriminatory basis).

Those vessels had to demonstrate a track record to obtain such licence. French vessels were, for example, permitted to fish Guernsey waters (in a specified 6-12 nautical mile outer belt off the west coast of Guernsey for crab and demersal (seabed dwelling) fish only) under the London Fisheries Convention (LFC) which ceased to apply from 31st January 2020. This access was extended by the Islands during the Transition Period. Guernsey extended its territorial waters from 3 to 12 nautical miles with effect from 23rd July 2019, enabling it to manage these waters following the LFC ceasing to apply and with the objective that it would be able to do so in any trade agreement ultimately struck.

Fisheries was, throughout the negotiation phase of the TCA, one of the most contentious issues, certainly of more totemic than economic importance. The UK and the EU starting positions were very different, with the UK position being that any agreement on fisheries should reflect the fact that the UK will be an independent coastal state, whilst the EU wished to maintain existing reciprocal access to waters as well as stable quota shares.

The Islands were prepared to provide fishing vessels of certain EU Member States (principally France) access to their territorial waters through bespoke arrangements that ensure no greater effort (i.e. catch size) in the Islands’ waters, while retaining local management and licensing of French vessels. In exchange the Islands sought access to EU waters (in particular the Exclusive Economic Zone (EEZ) of France) and access to neighbouring ports, including designation for the purposes of the Convention on Future Multilateral Cooperation in Northeast Atlantic Fisheries (NEAFC) and Council Regulation (EC) No 1005/2008 (the Illegal, Unreported and Unregulated fishing Regulation (IUU)).

In its negotiating mandate, the EU expressly excluded local vessels from EU waters while seeking EU access to the Islands’ waters, seeking to grandfather the LFC rights described above.

The outcome of the TCA is closer to the Islands’ proposals than those of the EU.

The TCA covers the Islands’ fisheries interests in terms of access to waters, landing in ports, management and licensing, providing for:

• access for the Islands’ vessels to fish in the EEZ of EU Member States on the same terms as UK vessels;
• access to the Islands’ territorial waters (based on the 12 nautical mile belt in the case of Guernsey) for EU vessels to be based on a ‘static pool’ of a fixed level of effort, which EU vessels could seek a licence to fish within. The level of effort is defined using a ‘track record’ (volume of fish being landed) period of 10 days in any of the three 12 month periods ending on 31st January on or between 1st February 2017 and 31st January 2020. This pool of effort is managed by licenses issued by the Islands;
• notification periods for landing fresh fishery products caught in the Islands’ territorial waters;
• recognition of the Islands’ responsibility for the management of their territorial waters and for authorising vessels to fish in its waters by way of licence or otherwise; and
• governance, dispute resolution mechanism and termination provisions.

Access to ports cannot be provided under the TCA because it is not an EU competence. In order for the Islands’ vessels to access the ports without compulsory inspections, the UK Government extended the UK’s Participant Country status of the NEAFC to include the Islands. France requested that the EU Commission designate the ports of Cherbourg, Carteret and Granville as customs ports suitable for landings (and not Diélette, where the Islands’ vessels predominantly land their catches). Dialogue continues to seek designation of Diélette in order to return to a similar position in terms of port access as that enjoyed before the UK exited from the EU.

Side declarations

The TCA includes a political commitment entitled: ‘A declaration in respect of the Bailiwick of Guernsey and the Bailiwick of Jersey on cooperation with the European Union on the recovery of claims related to VAT, customs duties and excise duties’.

This seeks to create a relationship with the EU about tax information exchange and administrative assistance regarding certain indirect taxes and ensures that this arrangement is consistent with the Islands’ fiscal autonomy.

The UK and the EU have agreed a ‘Joint Political Declaration on the Countering of Harmful Tax Regimes’, which includes a commitment that the parties to the TCA ‘will encourage the application of its principles in the territories for which they have special responsibilities or taxation prerogatives’.

This declaration is a non-legally binding political commitment for the UK. The Islands already meet the OECD and EU Code of Conduct standards on fair taxation and tax cooperation which are referred to or inferred in the declaration.

The practical implications

The export of goods to the EU represents a relatively modest part of the economies of the Islands.

Most of the Islands’ agricultural products are exported to the UK rather than the EU. Tariff-free reciprocal trade in goods between the UK and the Islands arises out of long standing customary practices and under rights and arrangements set in Royal Charters (now set out on a formal basis in the CTA). This is therefore unaffected by the UK leaving the EU.

In order to mitigate any impact on the flow of goods arriving into the Islands by freight from the EU through UK borders, agreements have been reached with UK port authorities that trucks carrying goods destined for the Islands will be prioritised, with specific traffic management in place around the main land routes, in order to manage any delays which may result at UK ports.

As regards fisheries, the overall impact is that the TCA should provide a stable and predictable fisheries relationship with France, and in particular the neighbouring region. It is expected to result in a negligible economic impact following the end of the Transition Period, while protecting the Islands’ waters from over-fishing (which is particularly important in light of reduced French catch from other fishing areas as a result of the TCA). The Islands retain control of the management and licensing of EU vessels, which powers can be exercised as the Islands consider appropriate. Whilst this must be based on scientific evidence and exercised in line with the general objectives of the fisheries parts of the TCA, and must be applied in a non-discriminatory manner, these powers should ensure the rational and sustainable management of the fisheries stock (and, it is to be hoped, no further blockades by French vessels).

Join us tomorrow for the next part in this Brexit series, focusing on the impact on financial services and data protection.

[1] As set out in Chapters 1 to 5 respectively of Title I (Trade in goods) of Heading One (Trade) of Part Two (Trade, Transport, Fisheries and other Arrangements) of the EU–UK Trade and Cooperation Agreement

[2] Per Article OTH.9 (Geographical application) of the EU–UK Trade and Cooperation Agreement

Our thanks to the Carey Olsen teams in Guernsey and Jersey for sharing their expertise and advice.

• Guernsey: Christopher Anderson (Partner), Elaine Gray (Partner), Matthew Brehaut (Senior Associate), Julia Schaefer (Senior Associate)
• Jersey authors: Robert Milner (Partner), David Patterson (Senior Associate)