The UK is a member of the World Trade Organization (WTO). It is party to the plurilateral Agreement on Trade in Civil Aircraft (TCA) in its original form. The UK confirmed its ongoing acceptance of the revised Government Procurement Agreement (GPA), the Trade Facilitation Agreement, subsequent agreements amending the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the TCA, and ministerial declarations constituting the Information Technology Agreements. The UK was bound by these until 31 January 2020 by membership of the EU and subsequently until 31 December 2020 (the “end of the transition period”), but has now confirmed its acceptance of these agreements following its exit from the EU.
At the time of writing, the UK has concluded 36 free trade agreements (FTAs) covering 67 countries and territories to replace existing EU FTAs. Many of these FTAs, which are very similar to the existing EU FTAs, have now come into force while several others have been provisionally applied or put into effect via bridging mechanisms. The most significant of these, on the basis of total UK trade, are with Canada, Norway, Switzerland, South Korea and Turkey.
The two most important differences between the EU and UK FTAs with these third countries are that tariff rate quotas have been reduced and rules of origin have been amended.
The UK and Japan have also signed an FTA based on the EU–Japan FTA but with some further changes (eg, there is a digital trade chapter). The UK has also agreed in principle FTAs with Australia and New Zealand.
European Union (EU)
The UK and EU agreed an FTA in December 2020, the Trade and Cooperation Agreement (the “UK–EU TCA”), which has now entered into force.
The UK–EU TCA provides for free trade in goods and limited mutual market access in services, but otherwise represents a marked reduction in integration in comparison with EU membership (however, see 1.3 Other Trade Agreements on Northern Ireland). For example, the UK no longer shares technical regulations and sanitary and phytosanitary measures with the EU (raising the possibility of future divergence) and there would no longer be automatic recognition of conformity assessments (which may increase compliance costs in certain industries). Similarly, provisions concerning trade in services set, at best, a minimum level of access, falling short of the free movement of persons, services and capital provided for in the EU.
Such changes reflect the UK’s objectives of maximising policy space and protecting its legal and regulatory autonomy.
The UK generalised system of preferences programme has been in force since expiry of the transition period. Broadly speaking, this seeks to replicate market access provided by the EU generalised system of preferences.
The terms of withdrawal from the EU impose certain obligations of indefinite duration on the UK in relation to Northern Ireland; note that the UK consists of Great Britain and Northern Ireland. These include:
Since the end of the transition period, the UK Internal Markets Act 2020 has entered into force and effectively grants the UK power to override certain of these obligations; the EU has, in response, commenced legal proceedings against the UK.
Replacement FTAs for EU FTAs
At the time of writing, there are three countries (Algeria, Bosnia and Herzegovina and Montenegro) for which negotiations on replacement FTAs has not concluded.
It is likely that most of these FTAs, if and when replaced, will be very similar to the EU FTAs. Changes are likely to be largely restricted to tariff rate quotas and rules of origin. In the interim, trade takes place between the UK and these countries on WTO terms or under the UK’s Generalised Scheme of Preferences (where applicable).
At the time of writing, the UK is finalising FTAs with Australia and New Zealand and is in ongoing negotiations with the USA. Negotiations with India and the Gulf Cooperation Council (GCC) are reported to be commencing shortly, and accession talks to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) have begun.
Trade has been a fast-moving area in the UK during 2021. The UK has been developing an independent trade policy, most notably by continuing to negotiate FTAs and representing itself at the WTO.
The key development domestically has been the introduction of the Trade Act 2021 which, among other things, gives the Secretary of State powers to implement the GPA and replacement FTAs in domestic law.
As noted above, at the time of writing the UK continues to pursue multiple trade negotiations. It is likely that some of these will be concluded in 2022.
Discussions with the USA will continue to be closely observed, but no agreement has been reached.
Her Majesty’s Revenue and Customs (HMRC) is the UK customs authority responsible for national customs policy.
HMRC administers and enforces customs laws and regulations. HMRC works in partnership with Border Force, a law enforcement command within the Home Office, for frontier interventions. HMRC may also work in partnership with other law enforcement organisations.
The UK has a non-statutory mechanism for reporting trade barriers to the Department for International Trade (DIT). Via a digital tool, businesses may report barriers to trade and investment overseas. Reports are assessed and prioritised by a market access team in DIT, which seeks to resolve trade barriers through informal and technical engagement with the partner country. The government publishes details of the barriers it has helped to remove.
The UK ceased to be treated as part of the EU customs union immediately after the end of the transition period, following which the UK’s own customs regime came into effect. The key legislation under the UK framework include the European Union (Withdrawal) Act 2018 and the Taxation (Cross-border Trade) Act 2018 as well as a number of statutory instruments (SIs) made under each. Although customs matters are largely governed by domestic legislation, some relevant EU legislation has been retained and modified.
In addition, the new UK Global Tariff in May 2020, which in part departs from the EU Common External Tariff came into effect from the end of the transition period.
The end of the transition period resulted in significant changes to customs processes and import measures for UK–EU trade, regardless of whether an FTA is concluded (which would only allow traders to claim zero duties provided goods meet the relevant rules of origin, rather than exempt traders from customs processes and import measures).
Trade in goods between the EU and Great Britain has, over the course of the year, come to be treated in a manner similar to trade between the UK and the rest of the world. Many traders have dealt with customs processes for the first time. Subject to revisions in the timetable to phase in full border controls for imports (as set out in 2.5 Pending Changes to Customs Measures), the following briefly summarises some of the key requirements which now apply:
To assist businesses to adapt to the new customs and import processes, the UK has two online tools in place:
These complement the pre-existing “trade tariff” tool, which can be used to classify goods as well as to look up duties, etc.
Further revisions were made to the timetable for the phased introduction of border controls on imports from the EU into Great Britain:
From 1 January 2022:
From July 2022:
There will be no change to trade in goods between Northern Ireland and the Republic of Ireland, including in respect of customs measures. At the time of writing, negotiations are still ongoing between the UK and EU over the precise measures necessary and appropriate to control movement of goods from Great Britain to Northern Ireland in order to ensure the integrity of both the UK and the EU.
The Sanctions and Anti-Money Laundering Act 2018 (SAMLA) is the main legislation governing the imposition of sanctions by the UK. It gives the government power to create specific sanctions regimes by regulations. The potential scope is wide: sanctions can be imposed to meet international obligations, to prevent terrorism, to protect national security or international peace and security, to further UK foreign policy objectives, to promote resolution of armed conflicts and protect civilians in conflict zones, to support human rights and international humanitarian law, to prevent the spread and use of weapons of mass destruction, and to promote respect for democracy, the rule of law and good governance.
As a practical matter, individual SAMLA regimes are drafted thematically (eg, the Chemical Weapons (Sanctions) (EU Exit) Regulations 2020) or geographically (eg, the Syria (Sanctions) (EU Exit) Regulations 2020).
UN sanctions implemented under EU law and EU autonomous sanctions implemented before the transition period ended (and which have not been replaced by equivalent SAMLA regimes) have been retained and modified as UK sanctions. They continue to be supplemented (for example, in respect of penalties) by UK regulations.
Other primary legislation bearing on sanctions include the Counter Terrorism Act 2008 and the Anti-Terrorism, Crime and Security Act 2001.
UK sanctions include financial sanctions (eg, asset freezes and restrictions on providing financial services), trade sanctions (eg, prohibiting exports, imports, technology transfer, service provision, and land acquisition), immigration sanctions (eg, travel bans), and aircraft and shipping sanctions.
Generally speaking, in order to breach sanctions a person must know or have reasonable cause to suspect that they are dealing with a designated person and/or carrying out the prohibited activity.
Her Majesty’s Treasury (the “Treasury”), and more particularly the Office of Financial Sanctions Implementation (OFSI), implements financial sanctions. DIT implements trade sanctions. The Home Office implements immigration sanctions.
Enforcement of financial sanctions can be civil or criminal. On the civil side, breaches of financial sanctions are enforced by OFSI. Alleged criminal breaches of financial sanctions are generally investigated by the National Crime Agency, while those relating to trade sanctions are investigated by HMRC (in both cases prosecuted by the Crown Prosecution Service).
The UK sanctions regime applies to all persons who are within, or undertake activities within, UK territory as well as to all UK persons wherever located.
The UK sanctions list provides details of those designated under regulations made under the SAMLA, for all types of sanctions. For sanctions regimes other than those implementing UN sanctions, the Secretary of State typically has the power to add persons to the list. For those implementing UN sanctions, the persons sanctioned by the UN are automatically made subject to the relevant SAMLA regime and will be added to the list on that basis. Retained EU sanctions regimes list the sanctioned persons in an annex.
At the time of writing, OFSI also maintains two lists of persons subject to financial sanctions. The first is the “consolidated list”, which includes all designated persons subject to financial sanctions. The second is a list of entities subject to specific restrictive measures (relating to transferable securities and money market instruments) for undermining or threatening the sovereignty, territorial integrity and independence of Ukraine.
In addition, a list of groups or organisations proscribed under the Terrorism Act 2000 is maintained by the Home Office.
The UK does not impose any comprehensive sanctions or comprehensive embargoes against countries or regions (although if the UN were to impose such sanctions or embargoes, the UK would implement them domestically).
Under the SAMLA, the government can impose sanctions on persons identified not only by name but by description.
It is also possible for the government to impose partial embargoes against countries using powers under the Export Control Order 2008.
The UK does not impose any secondary sanctions.
Criminal penalties for breaching sanctions regimes under the SAMLA are set out in the applicable regulations.
In general, the maximum penalties for breaching sanctions are set at:
In addition, OFSI may impose monetary penalties for financial sanctions breaches under the Policing and Crime Act 2017. Where the breach or failure relates to particular funds or economic resources and it is possible to estimate the value thereof, the permitted maximum penalty is the greater of GBP1 million and 50% of the estimated value. Otherwise, the permitted maximum penalty is GBP1 million. The amount will depend on the specific facts of each case, considering aggravating and mitigating factors. If a monetary penalty is payable by a corporate body, a separate penalty may also be imposed on an officer of that body under certain circumstances.
OFSI may also respond to breaches of financial sanctions in other ways, including by issuing warnings, referring regulated professionals or entities to professional bodies or regulators, or referring the case for criminal investigation and potential prosecution.
Following the submission of an application, appropriate Ministers may issue specific licences for activities otherwise prohibited where there are legal grounds to do so. A licence may only be provided in relation to certain categories of proposed actions (eg, basic needs, legal fees and disbursements, and satisfaction of prior contracts).
Not all SAMLA sanctions regimes provide for licences for all prohibited activities. Where they do provide a licensing regime, however, the Treasury (in respect of financial sanctions) or the Secretary of State (in respect of other sanctions) may issue licences on such terms as they think appropriate. The Treasury has previously given guidance in relation to other domestic sanctions regimes that it will take the stated policy objectives of the regime in question into account when considering licence requests.
OFSI may also issue general licences allowing any person to undertake specified activities otherwise prohibited by sanctions legislation, without the need for a specific licence. Each general licence includes requirements for prior notification of use, record-keeping and reporting. OFSI does not accept applications for general licences and expects such licences to be the exception rather than the rule.
OFSI does not mandate measures to ensure sanctions compliance. However, the extent of a company’s compliance programme is taken into account by OFSI and other relevant agencies when making enforcement decisions. Businesses are expected to take a risk-based approach to compliance, including policies which recognise different risks across different jurisdictions and mitigate them appropriately. OFSI’s Monetary Penalties Guidance makes clear that, when considering what action to take, OFSI considers the level of actual and expected knowledge of financial sanctions held by an individual or company, the kind of work they do and their exposure to financial sanctions risk.
The SAMLA regimes create reporting obligations for financial sanctions. In general, “relevant firms” (as defined in regulations) must inform the Treasury if, in the course of business, they come to know or have reasonable cause to suspect that someone is subject to financial sanctions or has committed an offence under financial sanctions regulations. These businesses include (among others) financial service providers, statutory auditors, accountants, lawyers, tax advisers, estate agents and casino operators.
Where SAMLA regimes include trade sanctions, and general licences are available for use, a person must give notice to the Treasury within 14 days of first doing anything authorised by the licence.
Since the end of the transition period, government policy has been to retain the Council Regulation (EC) No 2271/96, commonly known as the EU Blocking Regulation, as part of domestic law by virtue of the European Union (Withdrawal) Act 2018. The so-called UK Blocking Regulation (UKBR) prohibits UK persons from complying with specified sanctions legislation of other countries (broadly speaking, US secondary sanctions relating to Cuba and Iran) and allows for the recovery of damages resulting from the application of those sanctions. The Secretary of State may change the list of sanctions with which compliance is prohibited.
Breach of the UKBR is a criminal offence punishable by an unlimited fine.
In April 2021, OFSI updated its Monetary Penalties Guidance, the first update to this guidance since May 2018. Although the changes may appear minor at first glance, they may indicate a stricter approach to sanctions enforcement. For example, the revised guidance no longer refers to OFSI responding to a breach of financial sanctions by requiring details of how a party proposes to improve their compliance practices. Instead, OFSI will now seek either to issue a fine, refer the case to a criminal law enforcement agency or to a professional body/regulator, or issue a warning.
OFSI imposed its fifth monetary penalty for sanctions breaches in June 2021, in this case on TransferGo Limited for making funds available to a designated person without a licence. The penalty amount was GBP50,000 in relation to a total transaction value under GBP8,000, again re-enforcing that even small payments in breach of sanctions can lead to enforcement action by OFSI.
There are no significant pending changes to UK sanctions regulations at the time of writing.
Following the transition period, export controls in the UK are primarily governed by the following pieces of legislation:
The Regulation puts into effect the UK’s international commitments concerning export controls.
The Act gives the Secretary of State powers to conduct an independent export controls policy, to be made by order. The Export Control Order 2008 (the “Order”), made under the Act, implements most of the UK’s unilateral export controls policy and supplements the Regulation. Other orders made under the Act provide for the enforcement of export control aspects of retained EU sanctions and export controls on objects of cultural interest.
In addition to the export control regimes under the Regulation and the Act, two other UK regimes were retained from the EU, not otherwise covered in this chapter. These regimes:
Alongside export control, the UK operates controls on technology transfer, technical assistance, transit through the UK, and certain trade between third countries involving UK nationals. These regimes are not further covered in this note.
Legal powers are vested in the Secretary of State for International Trade. The unit within the DIT responsible for export controls is the Export Control Joint Unit.
The Customs Enforcement Policy Team at HMRC is responsible for enforcing export controls, although compliance audits are conducted by the Export Control Joint Unit.
Export controls under the Regulation apply to “exporters”. Depending on the circumstances, this may mean the following natural or legal persons, or partnerships, resident or established in the UK:
Export controls under the Order apply to all persons; the Order prohibits any person from exporting the relevant products
The UK does not maintain any list of restricted persons for export control purposes (although exports to specific individuals may be separately prohibited under the UK sanctions regime).
The Regulation lists goods that it controls in Annex I. The list sets out those goods covered by the Australia Group, the Chemical Weapons Convention, the Missile Technology Control Regime, the Nuclear Suppliers’ Group and the Wassenaar Arrangement. The Secretary of State may update Annex I to reflect changes to UK international obligations and commitments.
The Order sets out other goods that are subject to export controls in Schedule 2 (military goods) and Schedule 3 (dual-use goods). (The body of the Order also sets out two ad hoc export controls, not considered further here.)
Control of exports of military goods extends worldwide, whereas control of exports of specific dual-use goods targets “prohibited destinations”. The Secretary of State may modify goods subject to export controls by further order, but can only impose export controls on:
There are five kinds of “relevant consequence”, under the following headings:
As well as controls based on the lists referred to at 4.6 Sensitive Exports, the UK operates catch-all controls.
Under the Regulation and the Order, unauthorised export of items that are not listed are prohibited in certain circumstances. These include where:
The Order sets out penalties for breach of export controls (including in respect of breaches of the Regulation). Maximum penalties for offences range from a GBP1,000 fine to an unlimited fine and ten years’ imprisonment.
The exporter (and any agent of the exporter concerned in the exportation) may also suffer penalties under the Customs and Excise Management Act 1979. These include fines, imprisonment and forfeiture of the goods.
Authorisations are available in respect of prohibitions under the Regulation. There are several different kinds, as outlined below.
Licences are also available from the Secretary of State in respect of prohibitions under the Order. Unlike the Regulation, the Order does not prescribe particular forms of authorisation/licence.
As a general rule, any breach of an export control or of requirements relating to the application for or use of an authorisation or licence is a strict liability offence, meaning that compliance regimes must be rigorous. However, there are exceptions – for example, export of goods controlled by the Order to destinations other than a prohibited destination is an offence if the exporter knows that the final destination of the goods is a prohibited destination and that, before reaching that destination, no processing or working is to be performed on them.
The Order provides for separate offences with higher maximum penalties, where a person has been “knowingly concerned” in activities prohibited or restricted by export controls “with intent to evade” the relevant prohibition or restriction.
A person who wishes to use a general authorisation or licence must register with the Secretary of State within 30 days of their first use of it.
An export declaration must be made for all exports. An export authorisation or licence under which an export is made must be indicated on the export declaration.
The key recent development regarding export controls is the retention and modification of EU export control law. Export controls are now generally applicable to trade between the UK and the EU.
There are no significant pending changes to export controls in the UK.
The regime governing AD/CV duties and safeguard measures has changed significantly due to the UK’s departure from the EU and the end of the transition period.
The current regime is set out in the Taxation (Cross-border Trade) Act 2018 and the Trade Act 2021.
Under the Trade Act 2021, two authorities determine the imposition of AD/CV duties and safeguard measures.
First, the Trade Act 2021 established the Trade Remedies Authority (TRA): an independent body which conducts trade remedies investigations and recommends trade remedies measure. Upon requests by particular industries or (exceptionally) the Secretary of State, the TRA opens investigations into whether it should recommend trade remedies. This involves:
Second, if the TRA recommends imposing remedies, the Secretary of State decides whether to accept the recommendation. The Secretary of State may only reject the TRA’s recommendation if satisfied that:
Measures are administered by HMRC. Physical customs inspections are conducted by the Home Office’s Border Force.
The TRA can initiate reviews when applications are made by interested parties, or on its own initiative. “Interested parties” include trade associations, UK producers, importers, exporters and foreign governments. Reviews of measures already in place are addressed at 5.9 Frequency of Reviews and 5.10 Review Process.
As set out above at 5.3 Petitioning for a Review, UK producers can apply for investigations at any time.
All “interested parties” may participate in a review. Interested parties include producers of goods in the UK, importers, exporters and foreign governments. Moreover, anyone who makes themselves known to the TRA may participate as “contributors” in a review, whether or not they are an “interested party”. These “contributors” have fewer rights than interested parties but can nonetheless make submissions during the investigation.
The two-stage process for imposing duties and safeguards is set out at 5.1 Authorities Governing Anti-dumping and Countervailing (AD/CVD).
The TRA aims to:
These timelines are broadly in line with WTO requirements and existing EU practice. However, they are not contained in the regulations themselves, only in guidance.
At various stages in the investigation (initiation, provisional determinations, final determinations, and the Secretary of State accepting or rejecting the recommendation) the authorities publish notices summarising their findings and the reasons for their decision. Non-confidential versions of documents submitted by review participants are available on the TRA’s website.
UK law does not prohibit the imposition of AD/CV duties or safeguards on goods from any specific countries. However, at the time of writing, the UK continues to negotiate and implement various FTAs (many of which have now entered into force) which may soon affect this. It is likely that the UK will not be permitted to impose AD/CV duties or safeguards on a small number of jurisdictions, reflecting agreements reached to “roll over” existing EU trade agreements with certain countries (notably Switzerland, although the UK–Swiss FTA states that this will be reviewed). However, these arrangements are the exception – most EU FTAs allow bilateral trade remedies, and the UK’s new FTAs reflect this starting point.
Duties are typically in place for five years, unless the TRA recommends (and the Secretary of State accepts) that a lesser period suffices. Measures may be reviewed in two main ways. First, interim reviews can take place during the life of the measure to determine whether the measure should be varied or revoked during its five-year lifespan. These reviews generally cannot happen until at least one year after the measure commenced (unless the TRA decides to initiate its own review sooner). Secondly, expiry reviews may take place to determine whether to extend measures beyond five years.
These reviews can only be initiated between three and 12 months before expiry of the measure. Other types of review – absorption reviews (to determine whether duties have been absorbed by exporters or importers), new exporter reviews (to determine appropriate rates for exporters who did not export the goods during the initial investigation), circumvention reviews (see 5.2 Government Agencies Enforcing AD/CVD Measures) and scope reviews (to determine whether certain goods should be removed from the measures’ scope) – can take place at any point.
As set out at 5.3 Petitioning for a Review, a review may be initiated by the TRA or interested parties.
In conducting the review, the TRA broadly has the same investigative powers as it has in ordinary investigations. It can adopt these procedures to the extent that it considers them relevant. The two-stage procedure set out in 5.1 Authorities Governing Anti-dumping and Countervailing (AD/CVD) also applies. First, the TRA determines whether the legal conditions for imposing the duty are met, calculates the amount of duty that may be imposed, and confirms that the remedy is not against the UK’s economic interest (an exception to this is absorption reviews, in which the TRA is not permitted to reassess the economic interest test). Secondly, the Secretary of State determines whether to accept this determination in the public interest.
The UK has a two-stage appeal process. First, interested parties may ask the TRA to reconsider its decision. Reconsideration will usually be processed by a different team within the TRA. Where the reconsideration relates to a point of law, the TRA may immediately refer the matter to the Upper Tribunal before concluding the reconsideration. The Upper Tribunal is independent of the government and comprises judges and experts (such as economists).
If interested parties are not satisfied with reconsideration by the TRA or by decisions of the Secretary of State, they may appeal to the Upper Tribunal. In determining these appeals, the Upper Tribunal must apply the principles of judicial review. This means that it will not remake substantive decisions on the merits, but will only consider whether they have been made in accordance with the legislation.
The most notable recent development concerned the UK maintaining EU steel safeguards. This included the first application of the economic interest test and prompted amendments to legislation to allow the Secretary of State to maintain all such safeguards. This is addressed in the UK Trends & Developments chapter of this guide.
As set out at 5.12 Key Developments Regarding AD/CVD Measures, the TRA is developing entirely new practices, and practitioners are watching closely.
The UK has traditionally taken a permissive approach to inward foreign investment. The UK has been an outlier among its international peers in not having a standalone foreign investment regime. In April 2021, however, the UK National Security and Investment Act (the “NSI Act”) was passed. The NSI Act introduces a standalone foreign investment screening regime for the first time, which will take effect on 4 January 2022. It will radically overhaul the UK’s approach to investment screening and involves one of the most expansive jurisdictional scopes of any regime globally meaning, with wide territorial application to transactions well beyond the UK’s borders.
The NSI Act establishes a new agency within the Department for Business, Energy and Industrial Strategy (BEIS), the Investment and Security Unit, which will receive filings and manage the administrative processes under the NSI Act. However, the ultimate decision on whether to “call in” a transaction or ultimately to approve a transaction or require mitigation in order for a transaction to proceed, will reside with the Secretary of State for BEIS.
Unlike most foreign investment regimes internationally, the NSI Act applies equally to UK and international acquirers.
Until the NSI Act takes effect, the government has the power to review transactions on public interest grounds under the Enterprise Act 2002 (EA02). This allows the Secretary of State to issue a Public Interest Intervention Notice or European Intervention Notice (an “intervention notice(s)”) to review a transaction on specified public interest grounds. For the Secretary of State to issue an intervention notice, a transaction must be reviewable under UK merger rules (with the exception of certain “special public interest” cases involving defence contractors or media businesses).
The public interest considerations are currently: national security (including public security), financial stability, media plurality and, as of June 2020, to combat, and to mitigate the effects of, public health emergencies. When the NSI Act takes effect, an intervention notice can no longer be issued on national security grounds, but there will be a continued ability to issue that notice on the remaining specified public interest grounds under EA02.
Sectoral legislation may also apply to inward investments into the UK in regulated sectors; however, these regimes are beyond the scope of this chapter. For completeness, we also note that the Secretary of State has the power under the Industry Act 1975 to block an acquisition by an overseas entity of an "important manufacturing undertaking" although this legislation has never been used.
Under the NSI Act, the Investment and Security Unit within BEIS receives filings and manages the review process (with input from other government stakeholders). The Secretary of State is the ultimate decision-maker. The CMA has no role with respect to national security reviews but its decisions are subject to ministerial override under the NSA Act.
Under the current EA02 process, the Secretary of State is also the key decision-maker and is responsible for issuing an intervention notice and for determining the outcome of a public interest review.
Where the Secretary of State issues an intervention notice, the Competition and Markets Authority (CMA) prepares a report in relation to the public interest consideration. In preparing the report, the CMA consults other government departments, sectoral regulators, industry associations and consumer organisations. The CMA reports to the Secretary of State at Phase 1 and Phase 2 of the process.
While the Secretary of State must consider the CMA’s findings on public interest matters, it is not bound by the CMA's recommendations (other than on competition and jurisdictional matters). As noted above, the Secretary of State is the ultimate decision-maker.
The NSI Act comprises both a mandatory and voluntary notification regime (similar to, for example, the CFIUS regime).
The mandatory notification obligation applies to investments in 17 of the most sensitive sectors of the UK economy (to be specified by secondary legislation). For the purposes of the mandatory regime, there is a "trigger event" giving rise to a notification obligation where a person acquires more than 25%, 50% and 75% of votes or shares in an entity (or voting rights in the entity that enables it to secure or prevent the passage of any class of resolution governing the entity’s affairs). The mandatory regime applies to share acquisitions only.
The voluntary regime (supported by a broad power for the government to “call in” non-notified transactions) applies to all areas of the economy. For the voluntary regime, in addition to the trigger events under the mandatory regime, there is a lower threshold which applies for acquisitions involving ‘material influence’. The concept of "material influence" is familiar from a UK merger control context (and can be satisfied by acquisitions of shareholdings as low as 10%, particularly in conjunction with additional governance rights).
The voluntary regime applies to share and asset acquisitions. For assets, the threshold is met where a person acquires a right or interest and, as a result, is able either to (i) use the asset, or use it to a greater extent than prior to the acquisition, or (ii) direct or control how the asset is used, or direct or control how the asset is used to a greater extent than prior to the acquisition.
The government also has an expansive “call-in” mechanism to review non-notified transactions up to five years post-completion (reduced to six months if the government is aware of the transaction).
The NSI Act has no turnover, transaction value or market share thresholds. In addition, it captures international transactions where the target has activities in the UK and/or supplies goods or services in the UK. There is no need for a target to have a UK-incorporated subsidiary.
For a transaction to be reviewable under the current EA02 public interest regime, there must be jurisdiction under the UK merger rules (with the exception of “special public interest” situations).
First, there must be a “relevant merger situation”. The UK merger rules capture minority acquisitions where one party acquires material influence in another. This may arise at shareholdings of as low as 10%, particularly in the case where there is also board representation or specific industry knowledge or expertise held by the investor and may exceptionally be obtained by other means alone (eg, board representation or contractual rights). In addition, the UK merger thresholds must be met, namely: (i) the target’s UK annual turnover exceeds GBP70 million; or (ii) the merger results in the creation or enhancement of a 25% share of supply or purchase in the UK (or a substantial part of it).
Reduced jurisdictional thresholds were introduced in June 2018 for transactions in the military and dual-use, computer processing and quantum technology sectors. These reforms lowered the turnover test to GBP1 million and removed the requirement for an increment under the share of supply test. In July 2020, the reduced thresholds were extended to the AI, cryptography and advanced material sectors.
The NSI Act provides for mandatory notifications for transactions involving 17 sensitive sectors. The mandatory regime is suspensory, meaning the transaction cannot close until NSI Act clearance is received. There are no mandatory filings under the current EA02 regime.
No transactions or parties are exempt from review where they meet the NSI Act jurisdictional thresholds.
There are significant sanctions for non-compliance where a transaction is closed in contravention of the mandatory regime. The acquirer may face fines of up to 5% of worldwide turnover or GBP10 million (whichever is higher) and up to five years' imprisonment for its officers and directors.
Transactions covered by the mandatory regime which are not notified and complete without clearance are legally void (which means that there is a shared risk between the acquiring and selling entities).
If a transaction is subject only to the voluntary regime, there are no sanctions for closing ahead of NSI Act clearance. However, there is a residual risk that the transaction is investigated and that remedies are ultimately imposed by the Secretary of State.
Similarly under the EA02 regime, there is no obligation to notify a transaction. However, there is a risk that the Secretary of State issues an intervention notice and ultimately imposes remedies on a transaction.
No fees are payable for filings under the NSI Act.
The FDI Regime, enacted by the NSI Act, comes into effect on 4 January 2022. Much of the secondary legislation accompanying the NSI Act (in the form of clarificatory regulations) has been laid before the UK Parliament. This includes the draft National Security and Investment Act 2021 (Monetary Penalties) (Turnover of a Business) Regulations 2021 and the draft National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021. These will also come into force on 4 January 2022.
The strengthening of the UK foreign investment regime reflects growing political unease over the perceived national security risks posed by foreign ownership of sensitive areas of the UK economy – particularly technology sectors, and a wider concern over the perceived potential for opportunistic acquisitions of UK companies that are undervalued as a result of COVID-19 and Brexit-related currency depreciation. This has also been reflected in a marked uptick in the number of intervention notices issued under the EA02 in the last few years. As of October 2021, eight of the 16 public interest interventions issued on national security grounds since June 2003 (when the EA02 took effect) were issued since 2019 (with four in the past year alone).
The NSI Act and corresponding secondary legislation will come into force on 4 January 2022. On 2 November 2021, BEIS published a statement under Section 3 of the NSI Act, setting out how the Secretary of State expects to exercise the power to give a call-in notice (see below).
BEIS has also published government guidance on the NSI Act including the following.
Whilst the FDI Regime comes into force on 4 January 2022, the NSI Act has retroactive effect. This means that the government is able, from 4 January 2022, to retroactively “call in” all transactions that closed after 11 November 2020. This means that, if a deal was announced but did not close before 11 November 2020, once the new regime becomes operational, BEIS can call it in for review, up to six months from the date it became aware of the deal. For transactions which were signed before 4 January 2022 (and did not close by 11 November 2020), consideration should be given as to whether to informally notify BEIS of the transaction, so that they are made aware, thereby triggering the six-month “call in” period.
The COVID-19 pandemic and associated government measures restricting business activities has led to the UK, like many other countries, granting unprecedented levels of government support to businesses. These ad hoc subsidies are not expected to continue longer than it takes for the pandemic to be brought under control.
The UK has not traditionally operated extensive subsidy programmes. Until the end of the transition period, it had been bound by the strict state aid provisions of EU law. Even among EU members, the UK was notable for its comparatively low level of subsidies. Since the end of the transition period and the conclusion of the UK–EU TCA, however, the UK government has had to develop an approach to state aid which aligns with the UK–EU TCA, respects WTO law and reflects the UK’s strategic interests.
At the time of writing, the UK government has introduced the Subsidy Control Bill which, when passed, establishes a UK subsidy control regime in accordance with the UK–EU TCA. The Subsidy Control Bill (in its current form) contains substantial similarities to the EU state aid regime. Most notably, it defines “subsidy” using similar criteria to the definition of “state aid” under EU law and sets out seven "subsidy control principles" which public authorities must consider prior to granting any subsidy (six of which are required under the UK–EU TCA). Nevertheless, it is wider in some respects – for example, it also catches subsidies that only have effects domestically in the UK (ie, no impact on international trade), reflecting a broader policy aim of the regime to protect the UK’s internal market (set out as the seventh subsidy control principle).
Further guidance will be key to understanding exactly when and how public authorities will conduct subsidy control analysis; the Subsidy Control Bill provides for further statutory instruments and regulations to be made to this effect. It should be noted, however, that measures which affect trade between the EU and Northern Ireland will continue to be subject to EU state rules by virtue of the UK–EU TCA.
Agricultural subsidies are significant, at around EUR4 billion, a legacy of the EU Common Agricultural Policy (the “CAP”). At the time of writing, the Agriculture Act 2020 has entered into force and will gradually replace the former subsidies regime with a new one. Two types of subsidy will be available: those for public goods (eg, ensuring environmental outcomes) and those related to agriculture. The latter would include subsidies for starting production, improving productivity and supporting ancillary activities by producers. It is not clear at present what balance there will be between these two types of agricultural subsidy.
Another important category of subsidies concerns research and development (R&D). Public expenditure is largely channelled through UK Research and Innovation (UKRI), a non-departmental public body with an annual budget of over GBP10 billion. Of this, more than GBP1 billion is allocated to its subsidiary, Innovate UK, to support businesses directly, with businesses competing for funds made available for specific purposes. Eligibility can include such conditions as making use of the subsidies in the UK. In addition, other UKRI expenditure, while mostly focused on supporting academic research, also includes some funding which benefits businesses.
Local Enterprise Partnerships, bodies that bring local government and business together, are the usual source of regional development subsidies and traditionally rely on central government funding.
Great Britain has, by default, retained EU product-specific technical regulations as independent national product-specific regulations (Northern Ireland is directly subject to EU technical regulations under the Withdrawal Agreement). These are not aimed at reducing imports or encouraging domestic production and are not inherently discriminatory.
Great Britain has also largely retained EU conformity assessment requirements. One key change is the replacement of the CE mark by the new UKCA mark. A transitional period during which CE marks are acceptable (provided there has been no divergence in technical regulations) ends on 30 June 2023 for medical devices and 31 December 2021 for other regulated goods.
A related change concerns recognition of EU conformity assessment bodies (CABs). In many cases, a manufacturer may perform conformity assessments and declare that its product meets the relevant technical regulations without third-party involvement, in which case there is no need for recognition. However, UK regulations require the manufacturer of more sensitive products to engage a third party for parts of the conformity assessment, normally a CAB accredited by the UK Accreditation Service (UKAS). Without a mutual recognition agreement between the UK and the EU, some manufacturers will need to arrange additional conformity assessment procedures (CAPs) with UKAS-accredited CABs (and, conversely, those already using UKAS-accredited CABs will need additional CAPs with CABs accredited in the EEA) to maintain access to both the UK and EEA markets following the end of the CE mark transitional period, even if the underlying technical regulations remain identical.
The UK has negotiated the continuation of mutual recognition in respect of CAPs for some products with Australia, Israel, Japan, New Zealand, Switzerland and the USA.
Great Britain has by default retained EU sanitary and phytosanitary (SPS) regulations as independent national SPS requirements (Northern Ireland is directly subject to EU SPS requirements under the Withdrawal Agreement). These are not generally aimed at reducing imports or encouraging domestic production. However, a number of EU SPS measures retained by the UK have faced criticism for being protectionist or for not being scientifically based and some have been subject to successful legal challenges at the WTO on various grounds. The most controversial retained SPS measures are the regimes for controlling genetically modified organisms, novel foods, pathogen-reduction treatments for poultry and hormone-treated beef.
The UK does not use competition policy or price controls as a means for reducing imports or encouraging domestic production.
Following extensive privatisation during the 1980s and 1990s, only a few enterprises remain publicly owned. Several warrant specific mention in relation to promotion of domestic economic activity.
The British Business Bank is a publicly owned development bank that indirectly finances British small and medium-sized enterprises.
The British Broadcasting Corporation (BBC) and Channel Four Television Corporation are publicly owned significant producers of local audio-visual content, both distributed domestically and exported.
As a result of the retention of EU procurement law as UK law, with limited exceptions and dependent on the value of the public contract meeting the relevant statutory threshold, contracting authorities in the UK must treat economic operators equally and without discrimination. They must base the award of the public contract on the most economically advantageous tender. It would therefore be unlawful, in most circumstances, for UK public bodies to prefer local goods and services.
Great Britain (but not Northern Ireland) has retained the EU framework for geographic indications (GIs). As in the EU, there are two types of GI:
The initial UK GIs were all EU GIs as at the end of the transition period and GIs specified in replacement FTAs and replacement sectoral agreements. Applications for new UK GIs may be made by producers to the Department for Environment, Food & Rural Affairs (DEFRA).
Users of the initial UK GIs will have until 1 January 2024 to change packaging and marketing materials; users of new UK GIs will need to use the new UK GI logos immediately. Use of the new UK GI logos is optional for wines and spirits.
The UK’s New Trade Policy: the Story so Far – and What to Watch out for in Future
The past year has been the first since 1972 that the UK has exercised an independent trade policy. It had been much anticipated and debated, with major developments expected in the UK’s role at the World Trade Organisation (WTO), its bilateral treaty arrangements and its domestic regime.
This chapter surveys some of the most important of these developments, namely:
The first suite of the UK’s new FTAs
The UK has continued to “roll over” FTAs it previously had by virtue of its EU membership. While these are technically new agreements, they largely mirror previous EU agreements and are designed to ensure “continuity” of those arrangements rather than create substantial changes. Agreements have now entered into force to maintain previous trade agreements with major trading partners such as Canada and Mexico. The joint committee contemplated under the UK–Switzerland FTA (which was also rolled over from EU–Switzerland agreements) has been established and issued its first decision, which sets out details on its rules of procedure and composition.
In the past year, the UK has also (i) entered into its first new FTAs with countries which did not have agreements with the EU and (ii) concluded agreements which differ from those it had via EU membership. The first of these – struck with Japan in October 2020 – entered into force at the start of 2021. While not radically different from the EU–Japan deal, it included certain advances, particularly in e-commerce (most notably, a ban on unjustified data localisation requirements and provisions relating to algorithms and encryption technology, which is said to be in line with the UK’s new National Data Strategy) and financial services (with hopes particularly high given the agenda set for the joint UK–Japan Financial Regulatory Forum). The rules of origin provisions in the Japan–UK FTA also allow for cumulation of EU-manufactured inputs into UK goods, meaning that many UK manufacturers who rely on inputs from the EU will still be able to benefit from the deal.
More recently, FTAs have been reached in principle with both Australia and New Zealand. The significance of these is partly symbolic: Australia and New Zealand have had low tariff levels on an MFN basis for decades and they are not among the UK’s largest ten or so trading partners. However, these are the first agreements struck with countries which do not already have FTAs with the EU. At the time of writing, the full detail of these agreements have not been released publicly, but initial announcements indicate that the deal with Australia would, over time, eliminate tariffs on all goods. Most notably, both deals include certain sensitive agricultural products, such as beef and lamb, albeit as part of a long phase-in period, which had been seen as one of the chief obstacles to a deal given the interest of domestic UK producers.
Aside from the liberalisation of trade in goods, the deal with Australia will also expand existing mobility arrangements (specifically through an expanded working holiday youth mobility programme for those aged 35 and under) and puts in place mechanisms for further mutual recognition of professional qualifications.
Negotiations to keep an eye on
Negotiations are ongoing with a host of other countries and regions which offer the potential of further deals in the near future. Among the most watched are negotiations with India, the Gulf Cooperation Council (GCC), the prospect of the UK joining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), and an FTA with the USA.
The UK launched a public consultation in May 2021 in anticipation of future trade negotiations with India. While little has been said publicly by either country, the obvious prizes would be even modest reductions in tariffs on certain goods – which in India exceed 100% on some automotive and alcoholic goods, such as whisky – and lifting barriers to entry for UK services firms.
In October 2021, the UK launched a further public consultation on potential trade negotiations with the GCC. That consultation is ongoing at the time of writing, and few public statements have been made in relation to it, but the UK has emphasised the potential gain for British food and beverage producers. While GCC common tariffs are typically low and the region has numerous free zones, tariffs are relatively high on beverages.
Perhaps the most interesting and potentially most consequential proposal in UK policy circles is that the UK should join the CPTPP. The UK applied to join the pact in February 2021 and, in June, existing CPTPP signatories announced that accession talks had commenced. The UK has since prepared relatively detailed materials on the rationale for the UK joining, its objectives in negotiations and how it would comply with CPTPP rules.
In regard to much-anticipated negotiations with the USA, no deal has been concluded to date, and public statements by President Biden on trade agreements in general have suggested that the current US administration is not prioritising FTAs.
The establishment and evolution of the new trade remedies regime
The UK has also now formally established a new, independent body for assessing trade remedies complaints. While the new body, the Trade Remedies Authority (TRA), has been anticipated for several years, its formal establishment as an entity independent of the UK’s Department for International Trade (DIT) required the passage of new legislation (in the form of what is now the Trade Act). Prior to that, a temporary body had been established within the DIT – the Trade Remedies Investigations Directorate (TRID) – pending the passage of the Trade Act (although its personnel were largely the same as those who are now part of the TRA).
The establishment of an independent body reflected a conscious policy choice to move away from a highly centralised and arguably less transparent trade remedies regime – in the EU, trade remedies investigations are conducted, and decisions on measures are taken, within the European Commission – to a dual system in which the investigating body is separate from those who decide whether a trade defence measure should be implemented. The investigative, technocratic part of the system lies with the TRA: it receives applications, determines whether to commence an investigation, conducts the investigation, and makes recommendations as to the trade defence measures which should or should not be taken. However, it does not have the power to implement those recommendations: that decision is taken by a government minister, the Secretary of State for International Trade, who decides whether the measure should be implemented or not. In this way, the political element of trade remedies decisions is in plain sight (unlike in some other systems), and the Secretary of State must explain to the UK Parliament why a recommendation of the TRA has not been followed.
For now, much of the TRA’s work concerns trade remedies measures which the UK had maintained following its exit from the EU. These investigations are known as "transition reviews", as their aim is to determine whether these (originally EU) measures can be maintained in the UK in a manner compatible with WTO rules. To date, the TRA has concluded reviews on, among others, welded tubes and pipes, PSC wire and rainbow trout. At the time of writing, it has recently started a fresh investigation, on the application of UK industry, into allegedly dumped aluminium extrusions from China.
The most high-profile investigation it has conducted so far concerned the question of whether to maintain the EU’s steel safeguards, which had been introduced in response to the Trump Administration’s own steel safeguards. Those safeguards – which had been maintained in the UK following its exit from the EU – applied to 19 different steel products. The TRA, having conducted an investigation in line with regulations based on WTO rules, concluded that safeguard measures should be maintained in relation to only ten products. In relation to the other nine products, it found that the measures could not be justified, either because there had been no significant increase in imports or because the imports had not caused serious injury to domestic industry. In respect of one product, it found that the safeguard measure should not be maintained because it failed the “economic interest test” – a part of the UK regime which allows the TRA to recommend that a measure should not be implemented because of wider harm it might cause the UK, which had not been used previously.
Having made that recommendation, it fell to the Secretary of State to decide whether to adopt it. Under the regulations governing that decision, the Secretary of State had to accept the recommendation in whole, or reject it. It was not possible to accept only parts of the TRA’s recommendation. Faced with this constraint, the Secretary of State instead decided to amend the regulations, allowing her to maintain those safeguards which the TRA had recommended be removed.
The decision led some commentators to suggest that the TRA’s independence had been undermined. However, at least in one sense, it demonstrated the system’s effectiveness in ensuring that trade remedies decision are made transparently: it was clear that an elected politician had decided that certain safeguard measures should be maintained. Whatever the merits of that decision, it was not hidden behind an administrative process.
Relations with the EU
The most discussed element of the UK’s new trade policy concerns the trading bloc it formed part of for almost 50 years – the EU. The UK avoided what had been described as a “hard Brexit” (whereby it would revert to trading with the EU on WTO terms) when it reached an FTA with the EU – the EU–UK Trade and Cooperation Agreement (TCA). The TCA provides for tariff-free trade in goods and a limited degree of mutual market access in services, without membership of the EU single market or the EU customs union (with the exception of Northern Ireland).
As with the negotiation of the TCA, the most publicly contentious element of its implementation concerns Northern Ireland. The TCA contains special provisions for Northern Ireland under which it remains subject to certain EU rules (including certain EU single market rules). While this avoids the need for customs checks between the Republic of Ireland and Northern Ireland, it requires customs checks between Northern Ireland and the remainder of the UK – the so-called “Irish Sea border”.
The UK alleges that the existing system is not working, having led to undue checks on goods moving between Northern Ireland and the rest of the UK and increasing hostility within the unionist community in Northern Ireland. At the time of writing, there has been several months of negotiations seeking to resolve this, including EU proposals to reduce the number of checks, but no agreement has been reached.
This has led to suggestions that the UK might invoke Article 16 of the Northern Ireland Protocol, a provision which allows for unilateral safeguard measures to be taken where applying the Protocol “leads to serious economic, societal or environmental difficulties that are liable to persist”. Where those measures are taken, the other party may take “such proportionate rebalancing measures as are strictly necessary to remedy the imbalance”. Precisely what those countermeasures might look like has been the subject of speculation, although the EU has warned that they would be “serious”.