The Trade and Cooperation Agreement ("TCA"), which was finalized on December 24, 2020, resets the European Union/United Kingdom relationship following the UK's departure from the EU. In place of the UK's participation in the EU customs union and single market, the parties have agreed on tariff and quota-free trade in all goods, comprehensive market access, and rules on services and investment. As of January 1, 2021, preferential arrangements have been brokered in areas including, but not limited to, trade in goods and services, public procurement, aviation, road transport, energy, and fisheries. These new cooperation arrangements are underpinned by mutual commitments to ensure a level playing field for open and fair competition and to contribute to sustainable development.
Against this backdrop, the deal also reaffirms the EU/UK joint ambition to achieve economy-wide climate neutrality by 2050. In doing so, reciprocal commitments have been made not to reduce the level of environmental or climate protection or fail to enforce environmental laws in a manner that has an effect on trade or investment. Moreover, each party has also committed to seek to increase its levels of protection over time.
Each side has the freedom to set its own climate and environmental policies in the way most appropriate to achieve its aims. The domestic supervisory bodies of the UK and EU will cooperate to ensure effective enforcement of their respective environmental and climate laws. Disputes in this area will be governed by a bespoke Panel of Experts procedure.
The principle of non-regression in environmental and climate change protection rules extends to carbon pricing. The UK has committed to implementing a system of carbon pricing as of January 1, 2021. Both parties will ensure that their carbon-pricing systems cover greenhouse gas emissions from electricity generation, heat generation, industry, and aviation. The parties have agreed to cooperate on carbon pricing in the future and consider linking their respective systems, although they are not under any obligation to do so. They have also agreed, under the TCA aviation title, not to exempt aircraft fuel from taxation, as this would run counter to ensuring a level playing field and meeting climate-neutrality targets.
The TCA includes tools and mechanisms for the enforcement of the level playing field commitments, including the ability of either party to impose duties unilaterally, subject to review by an arbitration panel, where a change creates a significant negative effect on trade or investment between the EU and the UK. If such measures are used too frequently, either side can trigger a review of these provisions and the trade aspects of the TCA more broadly, aiming to end with a different balance of rights and obligations.
As an international treaty, the TCA does not give businesses the direct right to challenge a party's noncompliance. Equally, divergence from the commitments only becomes an issue where the impact distorts trade and investment between the parties. In the short term, it is difficult to assess the immediate impact on businesses in the context of environmental and climate change regulation, but a move by either the EU or UK away from rules designed to achieve climate neutrality by 2050 is unlikely, given the express provisions of the TCA designed to prevent this.