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Life after Brexit: What will change for businesses in 2021 even with the UK-EU trade deal?

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Lorries queue at the port in Dover, Friday, Dec. 11, 2020. The U.K. left the EU on Jan. 31, but remains within the EU single market and customs union until Dec. 31.
Lorries queue at the port in Dover, Friday, Dec. 11, 2020. The U.K. left the EU on Jan. 31, but remains within the EU single market and customs union until Dec. 31.   -   Copyright  AP Photo/Frank Augstein
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Major changes kick in on both sides of the English Channel from the New Year when the transformation resulting from the United Kingdom's departure from the European Union finally comes about.

The UK officially left the EU in January 2020, but a post-Brexit transition period has kept most existing arrangements in place. After its expiry on December 31, EU rules cease to apply to the UK.

The UK's departure from the EU's Single Market and Customs Union on January 1 brings major practical changes, regardless of the deal on trade and the future EU-UK relationship struck on Christmas Eve 2020 which preserved tariff-free, quota-free access to each other's markets.

Here, in the second of our two-part series, we look at the impact of rule changes on the world of business and trade between the UK and the continent.

New barriers and 'inevitable disruption'

In July 2020 the European Commission warned of new barriers affecting people and trade from 2021, whatever the result of EU-UK talks on the future relationship.

Even under "an ambitious partnership" under a deal with zero tariffs and zero quotas, relations will be very different, said its report. The UK's decision to leave the EU Single Market and Customs Union will "create barriers" to trade and other areas.

"These inevitable disruptions will occur as of 1 January 2021 and risk compounding the pressure that businesses are already under due to the COVID-19 outbreak," the paper said.

The changes have brought warnings of long traffic jams on port access roads, and efforts on both sides of the English Channel to plan ahead. UK plans mean lorries heading to Dover will need a "Kent access permit".

Trade in goods

The following changes concerning goods do not apply to trade between the EU and Northern Ireland, which is covered by separate arrangements. Northern Ireland's border with the Republic of Ireland will remain open, and the North will continue to follow EU customs rules and remain largely aligned to the EU Single Market.

Customs declarations

There are currently no customs formalities for goods traded between the EU and the UK. The European Commission says that in future, on the EU side these will lead to "increased administrative burdens" and "longer delivery times".

"EU businesses must acquaint themselves with the formalities and procedures for doing business with the United Kingdom as a third country as of 1 January 2021," it says. "This might entail significant changes to the organisation of existing supply chains."

EU and UK businesses trading with each other are told they will need identification (EORI) numbers. For imports into the EU these must be EU-issued, as UK-issued numbers and other UK authorisations will no longer be valid. The British government says traders will need a GB EORI number to move goods to and from the UK.

The UK government has issued advice on customs declarations for businesses importing and exporting goods between Britain and the EU. The UK customs authority has estimated that 270 million extra declarations will be needed each year for EU imports into the UK.

In July 2020 the UK government announced plans to phase in customs and border checks on EU goods in three stages over the first six months of 2021. In October it issued an update with more detailed information.

Rules of origin and VAT

With the UK inside the EU's Customs Union, there has been no need to demonstrate the origin of goods traded. Neither have value-added tax (VAT) or excise duties been payable.

This will change from January 1. EU "rules of origin" regulations will have to be followed for imports from the UK. This could result in customs duties being imposed even if a zero-tariff, zero-quota EU-UK trade deal is struck.

The importance for the EU was underlined by chief negotiator Michel Barnier in September, when he warned that under British proposals, the UK was looking to "develop its role as an assembly hub for the EU!"

"They would allow the UK to source goods from around the world and export them, with very little alteration, to the EU, as British goods: tariff and quota-free!" he said in a speech.

The Commission says the new rules could have a knock-on effect concerning trade with EU "preferential partners". "In practice, this entails a need for EU exporters to reassess their supply chains. They may have to relocate production or change suppliers for certain inputs," its July report says.

That same month, a joint appeal from dozens of EU and UK food and drink associations warned of a "hidden hard Brexit" over rules of origin, calling for "bespoke solutions" to avoid disruption to supply chains.

The Commission adds that VAT and excise duties will be due on goods entering the EU from the UK: "EU businesses should get acquainted with the relevant VAT procedures and prepare for their application. They should factor in increased administrative obligations and potential delays where relevant."

The UK government advice for businesses says import VAT will be payable on goods entering the UK from the EU. It also says that if there is no trade deal with the EU, import tariffs will be demanded as well, with the UK Global Tariff replacing the EU's Common External Tariff.

Regulations: Two separate frameworks

The UK's exit from the Single Market means there will no longer be a single regulatory framework, but two separate legal structures.

This means that for imports, companies on both sides will need to take steps to ensure products — which will be subject to checks and controls — comply with potentially different rules and standards. The UK is seeking to diverge in regulations covering medicines, chemicals, and industrial goods.

The deal contains several sector-specific annexes. The pharmaceutical industry benefits from mutual recognition of inspections, but not safety or quality testing — which the EU had rejected as contrary to its long-term interests.

The UK will leave the EU's REACH registration system for chemicals. It has failed to reach a data-sharing agreement with the EU, which the UK chemicals industry has warned will bring an extra £1 billion (€1.11 billion) in duplication costs.

UK exports of some raw meat and dairy products to the EU will no longer be possible. EU rules state that "third country" imports must be in frozen form.

Services: UK to lose automatic right to operate in EU

UK authorisations for services — in the financial, audiovisual and energy sectors — will no longer be valid in the EU from January. This means that UK service providers and professionals will have to demonstrate they comply with EU conditions imposed on foreign firms or individuals.

Professional qualifications will no longer automatically be recognised. This hits a range of professions, from doctors and dentists to architects and engineers. There is however recognition for lawyers, although subject to conditions.

Financial services will no longer benefit from "passports" enabling them to operate across the bloc, and their ability to do so may be subject to the relevant EU nation's rules on third countries.

The European Commission's July report warned that the UK will have to comply with EU rules on data protection in order for transfers of personal data to continue.

British government information on providing services in the UK says there may be new rules for businesses operating in the country, and advises to check UK regulations.

Aviation and travel

The deal on the future relationship brought some relief for these sectors. For air transport between the UK and the continent, flying rights continue for both passenger and cargo planes. But UK carriers can no longer fly between two points within the EU.

The haulage industry benefits from continued mutual recognition of each side's licences and permits. Transit rights will continue, but for UK drivers the number of drop-offs and pick-ups in EU countries will be limited. British hauliers have warned though of the extra costs attached to new paperwork and border checks.

See also our first article in the Life after Brexit series, on the impact on people of the impending changes in post-Brexit rules.

Every weekday at 1900 CET, Uncovering Europe brings you a European story that goes beyond the headlines. Download the Euronews app to get an alert for this and other breaking news. It's available on Apple and Android devices.

This article originally published on December 17 has been updated to take account of the post-Brexit deal agreed between the EU and the UK.