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Each month, the UK imports and exports goods worth billions of pounds, meaning that the subject of trade & customs inevitably draws upon some important legal governance.
Given the chain of notable trade developments in recent years and their implications on the UK’s trade, it is crucial to sharpen your commercial awareness before the upcoming application season, especially if you are aiming to secure an entry-level role in a transnational law firm.
Trade and customs may be a broad commercial topic, but there are several key points that you need to focus on.
The UK’s membership of the EU and presence in the European single market and the customs union terminated on 31 December 2020, the final day of the country’s post-Brexit transition period. As such, from the start of 2021, the UK has been subject to new trade regulations, including more extensive bureaucracy and paperwork checks precipitating a delay of deliveries and lorry border queues.
During the UK’s 47-year European membership, the EU became the country’s closest trade ally. In 2020 42% of the UK’s exports went to the EU – but this number had been declining over time. It was previously 54% of UK exports in 2006, according to official statistics.
This decline determined the change in the UK’s major European trading partners. For example, German imports to the UK alone fell by roughly a third in the immediate aftermath of the UK’s official breakage from the EU. Overall, the agricultural, fishing and manufacturing industries were hit most severely with regards to exports, meanwhile the financial services side of trade also plummeted.
In 2020 half of the UK’s imports came from the EU. However, this has been declining: in 2002 it was 58% of imports.
The imposition of tariffs on imports usually results in overpriced foreign produce, which drives consumers’ preference to better priced local production, for instance, by smaller commercial operators.
However, small and middle-sized UK businesses were hit the most detrimentally by Brexit. Whilst larger corporations could subsidise, for example, relocation to the Republic of Ireland in a quest for trading on already set rules of commerce, smaller in size and resources enterprises dealt with obstacles, such as legal advice funding for clarifying the new trade laws. Aside from that, tariffs and administration have proven to be a further two streams of a rise in costs for smaller businesses.
The Northern Ireland Protocol (NIP), under the Brexit Withdrawal Agreement, is a vital governing authority on the facilitated continuation of trade after 31 December 2020. In simple terms, NIP strives to sustain the existing EU single market trade rules between Northern Ireland and the Republic of Ireland (an EU member), with goods entering Northern Ireland through England, Scotland and Wales being checked at the Northern Irish border with Britain and not the Republic of Ireland one.
Effectively, this still keeps the door open for the flow of UK goods into the EU on more relaxed terms, albeit the achievement of avoiding a ‘hard’ border with the Republic of Ireland coming at the cost of great negotiating barriers.
Such difficulties have arisen from the two sides’ contrasting positions on customs declarations: more thorough checks on goods; VAT flexibility; the ‘risk’ status of products and quality control; packaging, licensing & labelling; plus, legal governance. The last point is of a particular importance as Northern Ireland adopts a mixed character of a country abiding by over 310 EU laws (including regulations and directives) whilst formally integrally remaining in the UK customs union. Therefore, the Court of Justice of the European Union is still not ruled out of action, meaning that no ‘hard’ border would be erected to avert trade disputes from being referred to this institution.
Of course, should negotiations become more polarised, both parties could proceed with the option to terminate the Protocol through invoking Article 16, which allows for the secession of the enactment of the identified trade measures for the purpose of ensuring economic, social and environmental safeguards.
The primary UK trade direction has moved from a European-centred one to inviting more global commerce through its customs.
In 2021, the UK entered into a series of new trade deals with Canada, Mexico, Indonesia and Singapore, yet the re-branded partnerships with Australia and New Zealand undisputedly stood out as two of the more notable free trade agreements the UK became a signatory to in 2021. However, it’s important to be aware that “the Government’s estimates suggest that the overall effect of the agreement on the UK economy is likely to be very small, with a projected increase of between 0.01 and 0.02% of GDP. This is partly because Australia accounts for only 1.7% of UK exports and 0.7% of imports and because tariffs on most UK/Australia trade are already low,” according to this report.
The UK also seeks to accelerate transatlantic cooperation with the United States following a new trade deal between the two states, with whiskey, motorcycles and steel being major assets covered by the negotiated trade covenant. However, the US won’t enter into any deal that risks the Good Friday agreement, the Guardian reports.
The following questions are a suggestion of how this topic could come up in interviews:
What is the difference between the terms ‘single market’ and ‘customs union’?
When answering this you need to be mindful of the precise terminology involved and use it correctly. The EU single market is a cross-border mechanism, where the freedom of movement and abolition of trade barriers are an utmost priority. It features all of the EU members and over half a dozen of eastern European countries with access to specified sectors of the common market.
In comparison, the EU customs union revolves around the outlining of external tariffs on goods entering this economic bloc, alongside it serving a representative function in the World Trade Organisation. All EU countries, accompanied by Akrotiri and Dhekelia, Andorra, Monaco, San Marino and Turkey are participants or bilateral contractors with the union.
How do taxes, tariffs and quotas differ?
Taxes are imposed by the government on businesses in order to collect revenue to run the state. Tariffs are imposed by one country on the goods/services entering it from another state. Quotas are limiting proportions over certain goods imposed by the recipient country, e.g. a maximum of 500,000 tonnes of apples.
What is the significance of the Northern Ireland Protocol?
Aside from the pure economic ramifications, the significance of NIP lies in the maintenance of peace in Northern Ireland, which ultimately preserves trade as well. For example, in 2021, NIP sparked widespread riots in Northern Ireland over fears of the customs checks causing isolation from the rest of Britain.
What about trade in Gibraltar?
Gibraltar is not only a British Overseas Territory, but the tip of the Iberian Peninsula, meaning that it shares a border with Spain, an EU member. Hence, similarly to Northern Ireland, an Anglo-Spanish agreement was reached to avoid a hard border, although trade matters are yet to be fully settled in rigour.
Spain possesses special veto powers over the application of any covenants to Gibraltar per the Withdrawal Agreement.
The main transfer of goods between Spain and Gibraltar regards construction supplies, whereas duty-free shopping, offshore banking and online gambling are all services that could be gravely affected from leaving the common market, unless the two sides reach a balanced trade agreement.
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