Fri. Jan 22nd, 2021
Britain and the European Union agree on the hardest Brexit

A trade agreement is good news, but is limited


THE POST-BREXIT deal announced on December 24th by Boris Johnson, Britain’s prime minister, and Ursula von der Leyen, the European Commission’s president, has come extremely late for Christmas. It is also painfully close to the end of the standstill transition period on December 31st. It falls short of the best-in-class, comprehensive free-trade agreement that Mr Johnson once promised. And costly disruption to today’s frictionless trade is inevitable when Britain leaves the EU’s single market and customs union on January 1st. All the same, the deal is welcome. It will at least constitute a base on which to build further agreements.

Brexit has counterposed two visions of sovereignty. Mr Johnson rejoiced over Britain gaining the unfettered ability to write its own laws. Ms von der Leyen suggested instead that sovereignty was best assured by “pooling our strength and speaking together in a world full of great powers.” Both spoke of remaining close partners and allies.

Right up to the last minute, there was no guarantee that negotiations would succeed. Arguments in Brussels between Michel Barnier, the EU’s negotiator, and David Frost, his British counterpart, dragged on through the week. Three familiar issues were at stake: a level playing field for regulation to prevent unfair competition; some continuing EU countries’ access to British fishing waters; and a dispute-settlement mechanism. In the end Mr Johnson and Ms von der Leyen were brought in to make the necessary compromises. As has been the pattern since the 2016 referendum, Britain has generally had to move the most, largely abandoning its initial position of keeping most of the benefits of the EU’s single market without the obligations. This reflects the power balance between the two, as well as the fact that no-deal would have been more damaging to Britain than to the EU.

The agreement is unusual; it does not presage a closer trading relationship but a parting of the ways. The details are yet to emerge in full, although most of what is in the deal is now known. For the level playing field, the two sides have agreed that an independent arbitrator should decide whether future regulatory divergence is sufficiently harmful to permit retaliation through tariffs. On fish, the EU will retain access for just over five years, though with its quota cut by 25%; after that, future arrangements will require negotiation. And there will be a system for settling disputes that does not include a role for the European Court of Justice except for interpreting EU law. With these three points settled, bringing home a zero-tariff, zero-quota free-trade agreement is an achievement for Mr Johnson. (On trade in goods, this is a better deal than Canada has with the EU, the model he favoured; but it comes with more stringent obligations on maintaining a level playing field.)

The immediate task will be to ratify a text that runs to some 2,000 pages in all. That is a lot for anyone to digest in less than seven days. Yet EU governments have been closely involved in the negotiations, so none is likely to object. And Mr Johnson’s big majority means that the Westminster Parliament seems certain to approve the deal next week, even though MPs will not realistically have had enough time for proper scrutiny. For its part the European Parliament has decided that it needs more time, so it will not vote on the deal until January. To the annoyance of many MEPs, EU governments are expected to apply it provisionally ahead of such a vote. Yet as a recent report from the House of Commons Brexit committee points out, most businesses will still be ill-prepared for the changes to come on January 1st. Chaotic disruption can be expected. This week’s lorry queues in Kent, caused mainly by restrictions related to the covid-19 pandemic, were a warning. The cost of Mr Johnson’s obstinate refusal to extend the transition period when he had the legal opportunity to do so in June will soon become clear.

A bigger concern is what the deal omits. Its trade provisions relate almost entirely to goods, meaning there is next to nothing for services, which constitute 80% of Britain’s economy and make up the fastest-growing sector of global exports. The EU has yet to deliver an equivalence ruling for financial-services regulation, and even when it does it can be withdrawn at only 30 days’ notice. Even more urgently needed is an EU data-adequacy decision to permit the free transfer of data, a crucial part of modern cross-border business. There is nothing in the deal on mutual recognition of professional-services qualifications.

Nor is there anything on foreign-policy co-operation, which the British government seems not to value. And although the deal has some provisions on domestic security, British access to EU security databases and the Europol system of police work will be more limited than now. Similarly Britain will lose its uninhibited right to use the European Arrest Warrant.

For most Britons, the more immediate impact will be losing the right of free movement throughout the EU, a consequence of ending EU citizens’ right to enter the UK. There will be some travel and work restrictions, and existing arrangements for health care and car insurance are likely to end. Some scientific and research co-operation should continue, but Britain has been excluded from the Galileo satellite-positioning project and there are uncertainties over the terms for its future participation in the Horizon research programme. Britain is also going to drop out of the EU’s Erasmus scheme of student exchanges. And then there is Northern Ireland, which unlike Great Britain will remain in the single market and customs union. Border and customs checks in the Irish Sea are likely to foment continuing debate over the future unity of the UK, as will continuing Scottish opposition to Brexit.

Most analysis of the consequences finds that, even with a trade deal, there will be a hit to the economy. Recently the independent Office for Budget Responsibility suggested that GDP would in the long run be reduced by some 4% compared with what it would otherwise have been. And, although Britain has successfully rolled over most of the free-trade deals that it had with other countries as a member of the EU, there is little sign of offsetting gains from new trade deals with the likes of America, China or India. In short, this will be as hard a Brexit as anything but no deal, and much harder than might have been expected after the relatively narrow referendum result of June 2016. Yet it is still good to have, if only because (to adapt a favourite slogan of Brexiteers), any deal is better than no deal.

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