UK & EU Sign Trade Deal for Post-Brexit Relations
The United Kingdom and European Union have finally come to a trade agreement. Now, the United Kingdom will be the first former member of the European Union. Still, uncertainty remains over the economic future of the UK. (Source: REUTERS)
In the final week of the Brexit transition period, which was set to end on December 31st, the United Kingdom and the European Union finally struck a trade deal. Negotiations between the two parties had dragged on for months. Now, over four years after the Brexit referendum, the UK will be entering the new year as the first ever ex-member state of the European Union.
Even a week ago, a ‘no-deal’ Brexit was likely. Striking this late deal helps the UK in avoiding the worst case scenario of an overnight shift into World Trade Organization trading terms that would a new UK global tariff on EU imports while the EU would impose a common external tariff on UK imports. This was expected to hinder trade, raise prices for British consumers, and disrupt supply chains. According to Britain’s Office for Budget Responsibility, it was estimated that a no-deal scenario could take 2% off British economic output in 2021 and cause inflation, unemployment, and public borrowing to rise. On the other hand, financial company Allianz’s research estimated that a no-deal Brexit would have cost the European Union up to 33 billion euros in annual exports.
The recently-signed trade deal maintains “zero tariff, zero quota” trade between the two bodies. Goods will now be subject to customs and regulatory checks - as well as rules of origin - but the dreaded tariffs will be avoided. Nonetheless, a large number of businesses will have to adjust to following new red tape in January, and it is anticipated that certain “just-in-time” supply chains will suffer as they adapt.
One of the industries that pushed most for Brexit - fisheries - will not be receiving the deal they wanted. The trade deal lays out a transition period from now until June 2026 to switch from current quota shares in U.K. waters to new quota shares. The UK wanted to see a 60 percent cut in fish caught by European fishers in British waters, but have now compromised with a 25 percent cut. After the 2026 transition period, there may be more negotiations.
The Irish question was settled with custom checks happening in the Irish Sea, instead of the land border between Northern Ireland and the Republic of Ireland. As such, Northern Ireland will largely be operating with EU rules. This conforms to the Good Friday Agreement that requires free movement between the NI and the Republic, but some anticipate that following these guidelines will mean that Northern Ireland will move closer to the Republic of Ireland, possibly leading to reunification. An example: the Republic of Ireland will finance the Erasmus exchange program - a program that helps students study abroad in other EU member countries - for Northern Irish students after the United Kingdom leaves the program on January 1.
Although the deal has been signed and all 1,246 pages of it will come into effect on Jan 1, 2021, not all facets of the trade relationship are cemented yet. Both sides reserve the right to retaliate, if they believe the other side has gained an unfair competitive trade advantage in any area. An EU guidance document details, "Both parties can engage in cross-sector retaliation in case of violations of the agreement. This … applies to all areas of the economic partnership,” Additionally, some industries such as fisheries, financial services, and energy will be subject to further agreements and negotiations, leaving a still-uncertain future.
Leaving the European Union was never going to be easy, and the Conservative government is still looking at years of grappling with the fallout of Brexit. However, striking this deal may have helped to avoid the most catastrophic consequences of a no-deal Brexit.