The new deal with Europe

The new deal with Europe

 Does it respect UK sovereignty? 

Yes. Theresa May’s government was prepared to sign up to a “common rule book” written in Brussels as the price of free trade with the EU’s massive single market; Boris Johnson wasn’t. The chief EU negotiator, Michel Barnier, reportedly had a “meltdown” in response to the demand that there would be no role for EU law, or the European Court of Justice, in the new treaty, but by July last year he had conceded the point. The UK-EU Trade and Cooperation Agreement (TCA), to give it its full name, is governed by international law. During the operation of the TCA, the UK remains free to make its own laws, although there may be consequences if these distort trade with the EU. If there are disputes, these will be settled not by the European Court of Justice, but by an independent arbitration panel.

And it’s a free trade deal? 

Yes: in principle it allows trade in goods entirely free of tariffs (import taxes) and quotas. However, the TCA does not, as Johnson claimed in his speech on 24 December, mean the absence of “non-tariff barriers”. Manufacturers and food producers have to comply with a range of complex and time-consuming rules on customs, VAT, safety and security. The most important are the “rules of origin”, which determine the “economic nationality” of a good: they are designed to prevent goods largely produced in a third country, but assembled in the UK, entering the single market tariff-free. At its simplest, this means Caribbean sugar refined in the UK or Indian rice milled here would not qualify. But the rules are very complex, covering 100 pages of the TCA. They will probably be enough to, for instance, allow UK car manufacturers to avoid tariffs, but many supply chains may need to be modified.

But services aren’t covered by the TCA? 

No. In 2019, the UK had a £97bn annual deficit on the trade in goods with the EU, and a surplus of £18bn on trade in services. Henceforth, UK businesses will lose the right to offer services across the EU. Service providers will mostly have to establish subsidiaries in the nations in which they wish to operate; professionals will no longer have their qualifications recognised throughout the bloc. This is not arguably the blow it might be, as the EU single market in services is limited by an array of regulatory obstacles. However, the vital question of whether UK financial services providers will be allowed access to Europe is yet to be decided, in a separate process. The EU will decide unilaterally whether to grant “equivalence” to the UK’s financial regulatory regime: i.e. whether it’s trustworthy enough to allow UK banks and financial firms into the EU.

What is the “level playing field”? 

This was one of the most contentious areas of the TCA. The UK and the EU painstakingly agreed a system that allows both sides to determine their own rules in such crucial areas as labour law, environmental standards and state subsidies to business, while ensuring that no side has an unfair advantage when it comes to trade. A “rebalancing mechanism” allows either side to appeal to the arbitration panel, which decides whether it would be proportionate for the complainant to impose sanctions. This system has proved acceptable to even the Eurosceptic MPs of the European Research Group.

What about fishing rights? 

Under the EU’s Common Fisheries Policy, the UK had only about a 50% share of fishing rights in its own waters. The EU wanted this status quo retained in return for access to the European market for UK fish; British negotiators pushed for the UK share to be increased to about 80%. The final deal was that, over five-and-a-half years from January 2021, the UK take in its own national waters will increase incrementally up to an average of 25% more, which is worth approximately £145m. This means the UK will end up with the rights to around two-thirds of the total catch in its waters. After that, access will depend on annual negotiations – so theoretically it could be increased. However, the wider trade deal carries an assumption that the increase in the UK catch share will not continue further. If there is a dispute, then either side can reduce reciprocal fishing access and place tariffs on fish imports and on other goods.

What are the other main points of the TCA? 

Free movement of EU workers into the UK has ended; UK nationals will now need a visa for stays of longer than 90 days in the EU in a 180-day period. UK pet passports will no longer be valid. The UK will no longer have automatic access to key EU security databases, but should be able to gain access upon request. It will also not be a member of the EU’s law enforcement agency, Europol, but it will have a presence at its headquarters. The TCA has not concluded negotiations about the movement of personal data between the EU and the UK, a crucial economic issue. Early this year, the EU will make a decision about whether the UK’s regulatory system is “adequate” to allow this to continue.

Overall, is this a good deal? 

It usually takes the EU five to seven years to negotiate a free trade agreement, so completing it in time was a considerable achievement. And there’s no doubt that the UK team pushed back effectively against some of the EU’s more imperious demands. However, it doesn’t change the tradeoff at the heart of Brexit, between sovereignty and market access. The TCA formalises a hard Brexit, which will increase the UK’s autonomy but diminish its economic ties to the continent. The UK Office for Budget Responsibility has forecast that the deal will mean a loss to the economy of around 4% of GDP over 15 years relative to remaining in the EU. Freedom, however, may also bring many advantages. One thing’s for sure: with a new UK-EU Partnership Council and scores of committees set up, negotiations won’t end here.