It’s been four and half years since a narrow majority voted in favour of leaving the EU. The long-awaited Brexit deal was agreed last week on Christmas Eve, just a week away from the end of the transition period. The last nine months have been filled with on-going negotiations, with what seemed like, little progress. Yet, both parties contributed to the ‘final push’ on these talks last week which resulted in a trade agreement that will mark the beginning of a new relationship between the UK and the EU, after 40 years UK membership in the European Union.
So what exactly have the two parties agreed upon?
This has been one of the sticking points in the negotiations this year. The UK’s fight to preserve its sovereignty meant that the offers the EU made with regards to giving up some of their quotas of the British fishing waters were not satisfactory. The final deal has been agreed based on the EU agreeing to give up 25% of quotas in the UK waters over a period of five and a half years, with annual negotiations thereafter.
The final agreement required both parties to make some concessions as the initial demands and offers were significantly different. The UK initially demanded the EU to give up 80% of their current quotas and the EU offered a 18% reduction. The time periods they proposed were also different to the final agreement. The UK hoped for the phase out period to last 3 years, whereas the EU was ready to give up their quotas over 14 years.
The ‘level playing field’ & dispute resolution
To promote fair competition in the post-Brexit world, the ‘level playing field’ had to be agreed. This refers to the amount of state aid, or government subsidies that are allowed to be allocated for businesses on both sides. In the future the UK does not have to follow EU laws but their laws have to be seen as ones that protect fair competition.
There were many negotiations on the best way to regulate these rules. Finally, this important issue was resolved by the principle of “merged divergence”, meaning that both parties reserve the right to retaliate after a judicial review process if they believe the other side gained an unfair competitive advantage.
Trade and product standards
The final trade agreement allows the EU to avoid hard Brexit with Ireland and therefore preserves the ‘four freedoms’ of the single market, whereby goods, services, capital and people can enjoy free movement between Ireland and the member states.
The UK managed to secure a ‘zero tariff, zero quota’ agreement on trade of goods. This does not cover the services sector, such as the finance sector, which makes up 80% of the UK economy.
Despite the free trade agreement on goods post-Brexit, the trade process in January will be a lot more burdensome. There will be a requirement for more customs and regulatory checks including rules of origin and stringent local content requirements. All of this adds red tape and ultimately slows down the process of trade. Without an agreement on conformity assessment, from January, if you want to sell your products in the UK and the EU, your products might have to be checked twice to be certified.
Because free trade does not cover the services sector, the UK service providers, who make up 80% of the UK’s economy, will be negatively affected due to the abandonment of the automatic recognition of professional qualifications and licenses.
There will however be some measures which cut technical barriers to trade, and the mutual recognition of trusted trader schemes which will make it easier for large companies to operate across borders.