From AEO to Mode 4 – do you speak Brexit?

We’ve created a guide to those most commonly used in business, which might have had you scratching your head or reaching for your favourite search engine. It’s far from exhaustive, but it might just help make Brexit easier to follow as trade negotiations continue and we move through the transition period - now firmly set to end on 31 December.

Trade

• Association agreement – Providing so-called ‘privileged links’ to third countries, these are cooperation agreements that the EU holds with more than 20 countries, mainly its neighbours such as Morocco and Ukraine. Whilst they usually provide for elements of free trade, in addition to other modes of cooperation such as security, they typically don’t go as far as the FTAs agreed with the likes of Canada or Japan.
• Australia-style – Another trade arrangement thrown into the mix, even if an agreement doesn’t officially exist… It’s actually what the UK will have if it adopts WTO rules (see below!) for trade with the EU. In other words, tariffs would apply on imported and exported goods.
• Canada-style – Not a new dance craze, rather a type of trade that is similar to the EU’s trade agreement with Canada (the Comprehensive Economic and Trade Agreement or CETA).  CETA allows for the removal of tariffs on most trade in goods between the two sides and has been cited as a possible model, by the UK at least, for a future UK-EU deal. It does little however for trade in services, an important part of the UK’s economy.
• CET – The Common External Tariff is the EU’s tariff regime. This is basically the standard charge placed on goods that are brought into the EU from anywhere it doesn’t already have a trade deal with. These rules still apply to the UK too for now, but they’re set to be replaced once the transition period ends.
• Cumulation – This is the process by which products originating in one country can be treated as originating in another for the purposes of trade, provided it is undergoing sufficient further processing or being added to. This could allow, for instance, EU components in a UK manufactured car to be exported back to the EU, without activating additional rules of origin tariffs.
• Diagonal cumulation – Diagonal cumulation goes further than other forms of cumulation, allowing imports from ‘relevant partner countries’ such as Canada, with whom the EU holds FTAs, to be considered as originating in the UK too. It’s valuable as it enables access to trade agreements even where goods include components from third countries that may otherwise operate on different trade terms.
• EEA – The European Economic Area is an agreement which extends the EU’s Single Market to include non-members, such as Iceland, Liechtenstein and Norway. As part of the agreement, and in return for payments to the EU, it allows the free movement of people, coordination of social security and regulation of professional qualifications.
• EFTA – The European Free Trade Association consists of four members, Iceland, Lichtenstein, Norway and Switzerland. It is essentially an existing FTA that sets out the basis of trade between these countries and the EU, though on its own does not provide for trade in services or eradicate ‘non-tariff barriers’. All of these countries however have taken additional steps towards EU integration through EEA membership or, in Switzerland’s case, a series of further bilateral arrangements.
• FTA – Free Trade Agreements are deals between two or more countries to make trade between them easier. But just how “free” are FTAs? Not entirely, rather they tend to include limited or no tariffs, quotas, subsidies and relieve other trade barriers imposed by the governments on both sides.
• LPF – Level playing field considerations have proved a huge part of the talks about the future UK-EU relationship. It is Brussels’ code for ways to stop the UK undercutting the EU, in areas such as tax, labour and environmental standards. The negotiators are seeking a way to manage this concern through some form of minimum standards whilst retaining the UK’s sovereignty over law.
• MFN – Most Favoured Nation is a principle set out in WTO agreements, which ensures countries do not discriminate between trading partners. In general, it means if a nation lowers a tax on imports this must apply to all nations equally. There are however noted exceptions to this where formal FTAs are established, or where developing markets can be granted special access to promote their growth.
• Mode 4 – Not a spin cycle on your washing machine, this is a provision in trade agreements that essentially removes barriers to trade that make it harder for a person to physically perform work in another country. These provisions typically feature in EU trade deals and, among other benefits, ensure SBTVs (Short Term Business Visitors) face fewer restrictions when travelling for work.
• RoO – Rules of Origin determine where imported and exported goods are produced or manufactured and, depending on where that is, which tariffs, if any, should be applied.
• WTO rules – World Trade Organisation rules provide governance over all global trade of both goods and services between the 164 member countries. As such they provide the foundation for the UK’s relations with Europe whether an FTA is reached or not, and for its trade with much of the rest of the world too.
• WTO terms – World Trade Organisation terms holds a much narrower meaning than WTO rules. These are the specific terms that would apply to UK-EU trade in the absence of any additional FTAs between countries. Providing us with many more acronyms along the way, these terms are found in the default agreements between all WTO members that include:
  • GATT – General Agreement on Tariffs and Trade
  • GATS – General Agreement on Trade in Services
  • TRIPS – Trade-Related Aspects of Intellectual Property Rights.
• UKGT – The new UK Global Tariff provides a replacement to the Common External Tariff scheme. It is the tariff importers will need to pay on any goods brought into the UK from a country with whom there is no FTA. This new scheme will take effect from 1 January 2021 and reduces and simplifies around 6,000 tariff lines when compared to the CET.

Regulations

• ECHA – The European Chemicals Agency regulates the implementation of REACH (see below). UK businesses that have registered chemicals with the agency will need to ensure this registration is made from a base within the EU, or by an EU representative if they wish to continue selling their related products within the EU.
• Equivalence – This is the recognition of another country’s regulatory standards, even though they may not be exactly the same. If agreed, this would mean businesses in specific sectors, such as financial services, wouldn’t be required to adhere to two sets of regulations at once when conducting cross border activities.
• Data adequacy – In a similar vein to equivalence, data adequacy decisions are issued by the EU as to whether a country’s personal data protection grants a similar level of protection to that in the EU. Under General Data Protection Regulation (GDPR) it allows transfers of EU data with other countries without the need for further safeguards.
• Dynamic alignment – Where the UK would have to commit to change its regulatory environment to match the EU’s on an ongoing basis. There would still be two sets of regulatory standards to adhere to for companies operating in the UK and the EU, however the level of regulation would remain materially aligned.
• MRA – The EU’s Mutual Recognition Agreements with third countries are designed to avoid duplication of inspections and conformity of regulated products, in particular human and veterinary medicines. Though the end result of the negotiations remain unclear, it is expected that in the short term the UK will continue to recognise EU conformity assessments. The EU has indicated this would not be reciprocated.
• REACH – The EU’s Registration, Evaluation, Authorisation and restriction of Chemicals regulation combined a host of EU Directives and Regulations into one system. It was adopted to improve the protection of human health and the environment from potential risks posed by chemicals. These regulations have far-reaching implications for a range of industries beyond just the chemical industry in areas such as manufacturing and labelling.
• SPS - Sanitary and Phyto-sanitary measures are the regulatory actions required to maintain human, animal or plant life or health. These include a whole range of measures such as rules on food additives to quarantine requirements for the import of live animals. Most notably, these regulations impose border checks on animals entering the EU customs territory and these will now be in place for produce travelling within the UK, eg from GB into Northern Ireland.
• TBT – These do pretty much what they say on the tin. Technical barriers to trade are the regulations, standards or procedures that could make it trickier to export goods from one country to another – they’re not fully managed at EU level in FTAs, so whatever the outcome business will need to understand individual Member State rules in some areas.

Customs

• AEO – Standing for Authorised Economic Operator, this is a mark of quality for business that demonstrates their role in the supply chain is secure and that their customs controls and procedures are up to scratch. Whatever agreement the UK and EU reach, additional customs checks will be required and gaining this status can provide businesses a more streamlined customs process for future trade.
• CFSP – Customs Freight Simplified Procedures is an ongoing, optional UK scheme that allows non-EU importers to make their import procedures more straightforward. This allows for many advantages, including reduced freight forwarder fees, faster release of goods from customs and cash flow benefits for businesses.
• CHIEF – Not the head honcho, but makes a good case. The Customs Handling of Import & Export Freight system is the online platform which allows importers and exporters to record all movement of goods and freight by sea, land and air.
• EORI – The Economic Operators Registration and Identification number which is required for any business engaged in making customs declarations or receiving customs decisions from the EU.  HMRC has set about automatically enrolling businesses that only trade with the EU, though many businesses will have to apply for themselves before 31 December 2020 if they wish to continue to trade with the EU.
• Incoterms – Also known as International Commercial Terms, these are the key elements of international contracts of sale. They tell the parties what to do with respect to carriage of the goods from buyer to seller, and who is responsible for export and import clearance. Incoterms are revised every 10 years by the International Chamber of Commerce (ICC) to ensure they correspond and adopt best practices, so make sure yours are up to date.
• TSP – Transitional simplified procedures was a scheme that would have allowed import custom declarations to be submitted at a later date. Signups were suspended however following the start of the transition period. The government has since indicated this system will no longer be applied, instead relying on a phased implementation of UK border controls.

A lot to fathom, but hopefully that’s provided a bit more clarity as we wait to see what developments lie ahead in the UK-EU trade negotiations. Think we’ve missed something important? Let us know!

As we monitor the latest developments watch this space for further blog posts and check out our upcoming Brexit Update webcast on 1 July 2020. We’ll be looking at the latest in the UK-EU negotiations with a focus on the EU’s perspective this time around, and the UK’s other ongoing trade negotiations.

As always, for any further questions or support with your Brexit preparations you can email us.