While Brexit is far from “done”, with key decisions still to be made on issues such as data sharing, and negotiations ongoing in some cases – such as for financial services, the agreement of a trade deal and the Covid-19 crisis mean that there will be few high-level developments to report on a weekly basis.
State of play
On 24 December 2020, the UK and EU agreed a new Trade and Cooperation Agreement to govern their future trading and security relationship, which replaces the UK’s transitional trade arrangement from 1 January 2021.
The 1,200-page text was accompanied by a number of Joint Declarations, including on co-operation for financial services, subsidy control, asylum and participation in EU programmes, as well as an agreement on the exchange of classified information.
Over the Christmas period, the European Commission and UK Parliament held extraordinary sessions to approve the deal in principle, with the European Parliament now due to ratify the agreement by a vote by MEPs later this month.
The EU (Future Relationship) Act bringing the deal into UK law was backed by the House of Commons by 521 to 73 votes after Parliament was recalled on 30 December and having also been approved in the Lords, received Royal Assent on the same day.
As outlined in a handy-explainer prepared by the Institute for Government, the agreement sets out the following:
- Trade: EU-UK negotiators agreed to automatic tariff-free access to the EU Single Market, with a zero-quota agreement meaning that there will be no limit on the quantity of any type of goods that can be traded.
- Level playing field: The level playing field oversees how the UK and EU will manage different standards on goods if the UK diverges from the regulatory alignment it currently has with EU Member States. The UK objected to the EU’s suggestion that it should be allowed to impose tariffs on UK goods if standards were to diverge. Under the terms of the agreement, both sides can impose tariffs, but they must be agreed by an independent arbitration panel.
- State aid: Under the terms of the deal, the EU and UK could be made to pay compensation if they engage in “anti-competitive” bailouts of failing firms. An independent adjudicator will oversee the resolution of any dispute that arises from one side giving excessive aid to its firms. The UK Government must demonstrate that any company it intends to give aid has a “credible restructuring plan”, but this condition will not apply to the banking sector.
- Farming: Zero tariff and quota-free access to the EU Single Market means UK farming exporters will be able to continue largely as before but will face additional paperwork and checks on their products entering the EU. More than 60% of the UK’s agricultural food and drink production are exported to the EU. The deal does not apply to seed potato crops, meaning they cannot be exported.
- Aviation Regulation: From 1 January 2021, aviation in the UK is regulated by the Civil Aviation Authority (CAA) rather than the European Aviation Safety Agency (EASA). Aerospace businesses, airlines and aviation personnel, including engineers, will need new or changed certification, licences and documentation to design, produce, maintain and operate aircraft between the UK and the EU. Personnel and organisations working in the aviation industry need to take action to ensure they continue to hold appropriate safety certificates and approvals.
- Mobility: Visa-free, short term business trips are permitted between the UK and the EU for specific purposes such as attending meetings, training seminars and trade fairs, purchasing goods or services and taking orders or negotiating the supply of services or goods. However, a number of EU member states have reservations (opt-outs), meaning the activities allowed on short-term business trips can vary between EU countries.
- Mutual recognition of professional qualifications: There is no mutual recognition of professional qualifications, although the deal provides a route for mutual recognition to be agreed in future.
- Governance: Independent arbitration panels of 25 persons will deal with potential conflict in future years over elements of the Treaty, including to oversee international agreements such as the trade deal. Members of the panel could involve senior members of the judiciary.
While a deal was eventually reached between the two sides, it does not mean that Brexit is ‘done’. The deal does little to ease new customs and regulatory checks at the GB/EU border – particularly on agri-food goods – and also lacks any comprehensive measures to phase in new formalities.
Due to the last-minute nature of the deal, the impact of the coronavirus on business preparations and a lack of customs specialists together mean that many traders will take time to adjust to the new changes and requirements, with widespread disruption likely expected, especially at the key channel ports in Kent.
Similarly, the level of disruption will also depend on the Government’s traffic management plans and its ability to speed-up the completion of the required infrastructure to handle new customs requirements.
Businesses also face a complex patchwork of deadlines to prepare for, with the UK government having already indicated it will introduce new regulatory requirements in areas like product standards, chemical and financial services for months or even years after 1 January.
Similarly, while the UK and the EU have agreed to some interim measures to mitigate disruptions, such as allowing traders to import goods without declarations from their suppliers that the goods comply with rules of origin requirements until the end of 2021, these measures only delay, rather than prevent, some of the new friction traders face.
Already, at least 50 major UK retailers, including Marks and Spencer and Tesco, are in the process of going through their product lines, to establish how many of them will be now subject to tariffs from the EU, with some having already decided to temporarily suspend deliveries to the EU.
In Northern Ireland, businesses, farm and freight organisations have already raised issues arising from the Northern Ireland Protocol with DUP MP Ian Paisley calling for the activation of Article 16 of the Protocol, which permits the UK to act where application of the Protocol “leads to serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade”.
Additionally, the new trade deal left the UK’s services sector uncertain about its future dealings with the EU, despite the sector accounting for 80% or more of the UK economic activity. While the agreement does smooth the flow of goods across British borders, it leaves financial firms without the biggest benefit of EU membership: the ability to easily offer services to clients across the region from a single base.
Similarly, on data adequacy, the Trade Agreement only includes transitionary provisions which allow EU-UK data flows to continue on pre-existing terms for a maximum of six months. While it is expected that in 2021 the Commission will likely grant the UK an ‘adequacy decision’, ensuring that the transfer of personal data continues uninterrupted, it remains to be seen whether that will happen before the end of transition period.
Finally, the great unanswered question on Brexit is the extent to which the Government will exercise its new “freedom to diverge” from the EU, bearing in mind that any divergence from the bloc’s standards will be likely to result in new tariffs.
Government insiders suggest that PM Boris Johnson has not made up his mind yet – on 6 January, in a call with 250 corporate leaders, he asked them to come up with ideas about how to change regulations in the UK to support future economic growth.
As Brexit expert Mujtaba Rahman argues in a recent article for PoliticsHome, an early symbolic – not substantive – divergence is probably more likely in the short term. In the medium/long term, however, the picture is less clear.
The future of UK-EU relationship will ultimately depend on a number of factors, including: the success of the UK in striking new trade deals to compensate for friction with the UK’s biggest market; the ability of Labour Leader Keir Starmer to unite the Party on the European issue, and disagreements over Northern Ireland.
As Rahman concludes, despite Johnson’s claims to the contrary, Brexit is far from “done” and the debate about the UK-EU relationship will continue.