Trade Deal with EU is Far from Enough to Tackle UK’s Post-Brexit Challenges

Although the UK officially left the EU on January 31, 2020, it was until December 31 of the year when the “transition period” was set to expire.

Being pressured by time and prism of a “no-deal” scenario that Britain’s Office for Budget Responsibility had warned would reduce the country’s economic output by 40 billion pounds ($54.1 billion) in 2021 and cost over 300,000 jobs, the British establishment came to its senses and decided to give itself (and exhausted observers on both sides of the English Channel) a gift by reaching long-awaited trade consensus with the EU on Christmas Eve.

First signed by European Commission officials on December 30, 2020, in Brussels, then spectacularly transported on an Royal Air Force plane to London to be signed by Prime Minister Boris Johnson, the EU (Future Relationship) Bill was backed in the House of Commons by 521 to 73 votes and passed the House of Lords at its third reading in an unusually rapid procedure the same day. The Queen subsequently gave her final approval, known as the Royal Assent, on December 31, 2020, turning bill into law.

Although the new trade arrangement between the EU and the UK, which guarantees tariff- and quota-free access for the latter to a trade worth over 660 billion pounds ($893 billion) a year, was portrayed by Downing Street as a great success for Britain, it is worth noting that it was, in fact, the EU that had the upper hand during negotiations.

“As we knew, in any case, had there been a hard Brexit, that would not have been a good thing for either side, yet it would have hit the United Kingdom harder than the European Union with all its might of 450 million citizens. And therefore, from a position of strength we were able to come forward with the most comprehensive agreement we’ve ever had,” European Commission President Ursula von der Leyen said at a press conference on December 24, 2020.

New limits

Despite the benefits associated with the deal, both parties will face an additional barrier to their trade in goods and services from January 1 onward—an added burden which previously did not exist.

Regulatory red-tape and border controls will impact the more than $590 billion in the annual trade in goods between the EU and the UK, and these other non-tariff barriers are expected to increase costs for British businesses by approximately 17 billion pounds ($23 billion) and for EU industries by about 14 billion pounds ($19 billion) every year. Moreover, businesses will have more paperwork on their plates.

In consequence, this may very well be the first deal in history to install more impediments to free trade—as opposed to facilitating it.

Though Britain is now free to set its own standards in areas such as environmental protection and employment rights, the country will face tariffs if Brussels, after successful application to a neutral arbitration committee, believes London’s actions prove detrimental to the bloc—and vice versa. The same goes for Britain’s capabilities to set its own rules in terms of state aid.

In other words, access to the European market can be restricted if Britain deviates too far from its regulations—something which has already been voiced as a grave topic of concern by the Institute for Public Policy Research, a London-based think tank.

“We’ve taken back control of our laws and our destiny… From January 1 onward, we are outside the customs union and outside the single market; British laws will be made solely by the British Parliament, interpreted by the UK judges sitting in UK courts; and the jurisdiction of the European Court of Justice will come to an end,” Johnson said in a televised speech, referring to the fact the trade and cooperation agreement (TCA)—the so-called “level playing field”—is based on international law and not EU law (successfully leaving the European Court of Justice out of the EU-UK legal equation).

With Parliament considering the implementation of the TCA less than 48 hours before its application, it seems that Johnson overlooked the minor point that the new arrangement is equipped with the powers to make legally binding decisions vis-à-vis London. The Partnership Council (PC), assisted by numerous committees, is responsible for any decision-making on the matter.

Furthermore, the PC also holds the power, under specific circumstances, to amend the agreement itself.

Finance, fishing and Ireland

Interestingly, the TCA does not cover the service sector, which accounts for more than 80 percent of the UK’s GDP. This means that professional service providers will not be able to operate freely between EU states and Britain given the new deal does not require each jurisdiction to recognize the other one’s professional qualifications.

Whilst it has been announced by Chancellor of the Exchequer Rishi Sunak on December 27, 2020, that the Treasury aims to negotiate with the EU a memorandum of understanding to be signed by March 2021 regarding the very subject at hand, it is difficult not to agree with former Prime Minister Theresa May who came to the conclusion that “we have a deal in trade which benefits the EU, but not a deal in services which would have benefited the UK.”

To top it all off, on fishing rights—which appear to have been the most contentious issue during the Brexit talks—Downing Street agreed to receive 25 percent (not 80 percent, as the original demands stated) of the value of fish caught by EU boats (able to operate as close as six miles from the coast) in UK waters over a period of five and a half years, after which there will be annual consultations on the EU catch.

As for the case of Ireland, with the Good Friday Agreement, a 1998 deal that ended the Northern Ireland conflict, being protected and Northern Ireland remaining as part of the EU, in combination with the mounting support for an independent Scotland, the issue of the UK’s unity will be extremely difficult to manage in the forthcoming years.

While the lack of clarity in the trade bill and the methods of conflict resolution will most definitely produce a new set of truculence for the UK in the near future, the EU has already managed to kill two birds with one stone by successfully negotiating the Comprehensive Agreement on Investment with China—the bloc’s largest trading partner in the first three quarters of 2020, with two-way goods commerce valued at more than 1 billion euros ($1.23 billion) a day.

The deal will open up the Chinese market to European investment in manufacturing, including electric vehicles, telecoms and private hospitals.

“What we call the beginning, is often the end, and to make an end, is to make a beginning,” von der Leyen quoted T.S. Eliot’s famed poem entitled Little Gidding in her parting remarks.

Only time will tell what the newly regained “sovereignty” holds for Britain.

The author is a London-based foreign affairs analyst and commentator, and founder of AK Consultancy.