The EU-UK trade deal reached on Christmas eve has generated reactions from around the world, as British government leaders hail the tariff and quota-free agreement. But there are many questions begging for answers as to whether the deal fully represents the interest of the British people.
After months of disagreements over business rules, the European Union and the United Kingdom finally struck a historic trade deal on Christmas eve. The biggest point of the agreement was the tariff and quota deal, which was among the topmost priorities of the Boris Johnson-led government since the beginning of Brexit negotiations.
As agreed in the new deal, there will be no tariffs on goods traded between the two partners. This means a big relief for certain businesses as without the no-tariff deal, a 10% charge would have applied for car manufacturers, for instance. The no-quota deal also means there would be no limitation on the number of items that can be exported. This is the first time EU has agreed a zero tariff quota deal with any other trading partner, a statement from the UK government explained.
Other key issues covered in the cooperation agreement include border security, services and investment, fisheries management practices, and the European Court of Justice. The UK was able to get a fair deal for fishing which was one of the major points of argument during the negotiation. The deal will ensure the transfer of 25% of EU boats fishing rights in UK waters to the UK fishing fleet, over a period of five and a half years.
In general, the British negotiators successfully repudiate EU demands to stick to its subsidy terms, have European court of justice involved in trade disputes, and follow specific environmental and labour laws.
Shortly after the agreement was reached, Prime Minister Boris Johnson hailed the deal, saying “we have taken back control of our laws and our destiny.” He also maintained that not only would the £668bn a year deal protect jobs across the country but it would also “enable UK goods to be sold without tariffs, without quotas in the EU market”.
Leader of the House of Commons, Jacob Rees-Mogg also shared PM’s views of the agreement. In a statement, the MP for North East Somerset while reacting to the tariff and quota-free trade said: “Now we will have what the British people really wanted.”
While the agreement and the freedom that comes with it appear to be a good deal for the UK, this freedom didn’t come without a cost.
Firstly, as the deal takes effect in January, services and trading between the two partners would become more difficult, and the effects could be more on the UK. Starting from border checks, the post-Brexit era would be a challenging process on UK businesses. This is because the UK negotiators failed to convince the EU to reduce the rate of border checks on UK food products entering the EU.
While the no-quota trade means businesses like auto manufacturers can exports as many products as they wish to EU countries, they will have to start filing customs and forms before they could do so. In addition, there would also be different regulations on product labelling and sanitary checks on agricultural products. The new red tape will have both downtime and financial implications. For example, the rigours would mean firms spending more time securing papers needed to transport their goods. It is also estimated that this will lead to an extra 215 million customs declarations yearly, resulting in an annual cost of about £7 billion.
Secondly, the UK did not get a deal that would ensure its professional qualifications would be recognized across the EU. This signals an end to automatic recognitions for health practitioners, architects, engineers, and other UK professionals. They will have to seek authorization from the EU member state they wish to ply their trade. The British negotiators also failed to secure a part that would ensure UK-based testing centres continue to certify products for the EU market.
While the agreement appears to be a good deal for the UK, this freedom didn’t come without a cost.
In addition, UK online shoppers will have to start paying customs duties on items bought from the EU that cost more than £390. There could also be VAT and handling fees, and their parcels might be held in post offices until all fees and duties have been paid.
Financial services equivalence is of many unresolved issues not broadly addressed in the deal. Financial services equivalence simply means Nation A agreeing that Nation B’s rules are as strict as its own and allowing firms from Nation B conduct certain businesses in its territory. The brief coverage of this aspect will mean business will continue as usual for financial operators from the EU and UK.
The worrisome aspect, however, is that the EU can make a unilateral decision to withdraw equivalence and stop some UK businesses to continue dealing directly with EU-based clients. This is because the EU Commission has the prerogative to determine whether a non-member country has equivalent rules to its own in a given area. British financial operators are also worried about the impact that such a withdrawal could have on their businesses, especially if it is done at short notice.
Reacting to this, executive chairman of finance consultancy Z/Yen, Michael Maineli said Brexit was an unnecessary distraction. “Four years ago a nation decided to shoot itself in the foot and see if it could run a race.” The financial mogul also questioned the economic benefit of the whole process, saying “nobody has shown me a single advantage economically in any shape or form.”
Of course, the UK negotiators deserve some credit for securing the historic deal, as it proves to be much better than having a no-deal exit. It will go a long way in helping the British economy recover from the COVID-19 downturn, which is expected to have reduced the UK economy output by around 12% in 2020.
However, it is worth noting that this remains a partial success, which may not represent the true interest of the public. Most forecasters believe the UK economy will become a few percentage points smaller over the coming years. The implication of this is that living standards would be lower than otherwise would have been the case. According to experts at Berenberg, “exiting the EU single market and customs union will lower UK potential growth by harming its export prospects and reducing inflows of foreign direct investment and qualified labour from the EU.”
From all indications, UK businesses and professionals should prepare to start bearing the brunt of the new deal from January 1 2021. The good news, however, is that successive UK governments might have the chance to revisit the deal in the future with a view to renegotiating some aspects of it for the best interest of the British people and economy.