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By: Annika Hesse
Almost 5 years after the Brexit referendum on June 23rd, 2016, Britain has officially broken off from the European Union (EU). While Britain formally left the EU back in January 2020, they had been in a transition period as representatives negotiated the terms of their future commercial relations. The negotiations over the next 12 months were complex and, at times, heated, but lawmakers felt the pressure to avoid a “hard Brexit” (UK leaves the EU without a trade deal) and finally came to an agreement on Christmas Eve. So what’s in this new deal and what does it mean for Britain’s commercial relations? Let’s find out.
First, let’s refresh our memory. Brexit, a portmanteau of the words Britain and Exit, is the common term used to refer to Britain’s split from the European Union, a bloc of European nations, in regards to trade, migration, and security. Membership in the EU has been a controversial issue in Britain since its first mention after World War II. Britain applied for membership twice in what was then known as the European Economic Community but was vetoed by France both times. Three years after Britain finally joined in 1973, its first referendum was held to decide whether or not to stay. While 67% voted to stay, the issue was far from resolved. With the introduction of the European migrant crisis, many conservative British citizens grew more concerned about Britain’s membership in the EU. In addition to the disapproval of how the migrant crisis was handled, many Britains thought that the hefty fees associated with the trading bloc outweighed the benefits. So in 2013, in an attempt to silence the growing Eurosceptic community, former Prime Minister David Cameron promised a referendum. He expected citizens to vote to stay; however, he grossly miscalculated, and on June 23, 2016, withdrawal from the EU emerged with support from 52% of voters. Since then, Britain had been in negotiations to break away from one of the most influential trading blocs in the world.
What’s in the Brexit deal between the European Union and the United Kingdom?
The Brexit deal which was negotiated within nine months is known as the EU-UK Trade and Cooperation Agreement. While both sides made numerous concessions to compromise, the non-negotiables of both sides were respected. The EU succeeded in avoiding a hard border on the island of Ireland and will maintain the principle of the “four freedoms”: free movement of goods, services, capital, and people. The UK ensured a goods trade free of tariffs and quotas with its main trading partner and avoided any role for the European Court of Justice in settling trade disputes. One of the major disputes was the access to fisheries. Fishing is a major part of the British economy; however, the number of British people employed by the fishing industry has declined over the past few years, and Britain blames EU rules on sharing access to fisheries. Originally, Britain wanted the EU to give up 80% of its quota, but Prime Minister Boris Johnson made a significant compromise on that front, with the EU being forced to give up only 25% of its existing quotas in UK waters. However, Brussels (which houses the headquarters of the European Commission, the executive branch of the European Union) also compromised by halving the number of years it will take for the quota to come into full effect. Another dispute was how to guarantee a level playing field in future trade relations since they can no longer be resolved by the European Court of Justice. The principle of “managed divergence” has settled this dispute. It gives both sides the right to retaliate, after a judicial review process, if they believe the other side has gained an unfair competitive advantage.
How will this impact trade between the UK and the EU?
Since the UK has formally left the EU customs union and single market, trade of goods has become much more burdensome. While there weren’t any new tariffs levied or restrictive quotas imposed, there is a whole new series of customs and regulatory checks, including rules of origin and stringent local content requirements. New regulations were introduced on January 1st, but there are still more to come with all new regulations to be in place by July 2021. These new policies have only added red tape to UK-EU trade, and supply chains will have to take some time to adjust to the slowed process. However, it is important to note that these new policies will have much worse effects on trade in services, where the UK has a comparative advantage. Since there is a no longer automatic recognition of professional qualifications and licenses, the flow of services between the EU and the UK will be significantly slowed. This is especially concerning, as services make up close to 80 percent of the UK economy. There will also be an end to freedom of movement and the reintroduction of temporary visas for work-related purposes. Some sectors, including financial services and energy, are subject to future regulatory decisions, adding to the uncertainty.
What does the deal mean for the Northern Ireland border?
In short, Northern Ireland (NI) is a huge asterisk in regards to the Brexit deal. Although NI has officially left the EU along with the rest of the UK, it remains within the EU’s single market for goods as a result of the NI Protocol. This protocol is a special deal to prevent the re-emergence of a hard border between Northern Ireland and the Republic of Ireland, a separate EU country, and means that customs checks will take place in the Irish Sea rather than on the land border between Northern Ireland and the Republic of Ireland. As a result, the trade between the mainland and NI will become increasingly complicated, with red-tape and VAT (value-added tax) being thrown at every single good exchanged between the two countries. Many companies, including Amazon, have stopped sending goods to NI, leading to grocery-store shortages across Northern Ireland and warranted unrest among citizens. Unionists (those who are against the reunification of Ireland) were particularly outraged because of their original opposition to the Northern Ireland Protocol when it was first introduced. Government officials from London, Belfast, Dublin, and Brussels must cooperate and come to a solution soon to prevent something as trivial as Amazon parcels to serve as the main point of a unionist argument against the protocol.
Does the deal set a precedent for a trade deal between the US and the UK?
Technically speaking, the deal does set a present for a US-UK trade deal. While the Biden administration has stated that new trade deals are not a priority, many Conservative lawmakers in Westminster are hopeful and seek to obtain the prize that is a US-UK trade deal. Theoretically, a deal should be achievable by 2023; however, doubt remains whether it would have enough domestic support in the UK. Many UK citizens might not be in favor of opening up its markets for agricultural goods, pharmaceuticals, and financial services. It is also not clear that the UK would have much to gain from doing so. Furthermore, the United States will also want to prioritize its trade relationship with the EU and come up with a joint strategy to deal with a rising China, which could complicate the US-UK negotiations. So, while a trade deal between the US and the UK is possible, it is not very likely, at least, for now.
Some might think that this new Brexit deal marks the end of controversial discussions and blaring headlines, but this Christmas Eve agreement is hardly the end. It is a living document that will be revisited as the UK navigates global relations without the protection of the most influential trading bloc in the world.
Discussion Questions:
Will Britain be successful in its venture as a lone standing country?
Was the trade deal too rushed, or was it about time the EU and UK came to an agreement?
Does Britain’s exit set a precedent for other EU member countries itching to break out of the trading bloc?
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