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Britain and the European Union each hailed the Trade and Co-operation Agreement sealed on Christmas Eve as a triumph for their negotiators which secured their interests after Brexit on January 1st. But the deal, which covers issues like security, energy, transport and social welfare as well as trade, involved compromises on both sides and leaves Britain with a significantly weaker economic relationship with the EU.
Trade in goods
At the heart of the deal is tariff-free, quota-free access to each other’s market for goods, making it more expansive than any trade deal the EU has previously agreed with other major economies. But Boris Johnson’s assertion that the deal also eliminates non-tariff barriers to trade is not accurate.
The two sides have agreed to introduce trusted trader schemes and self-verification systems to reduce the impact of the hard customs and regulatory border that will apply to all parts of the United Kingdom except Northern Ireland from January 1st. But there will still be checks and increased bureaucracy which will make trade costlier and more cumbersome and British produce authorisations will no longer be automatically accepted by EU regulators.
Level playing field
In return for tariff-free, quota-free access to its single market, the EU demanded that Britain should make binding commitments to ensuring fair competition in employment rights, environmental standards and state aid, or subsidies. Britain initially rejected the concept of such level-playing field provisions out of hand, arguing that a central purpose of Brexit is to escape from the EU’s regulatory orbit.
The agreement respects British sovereignty insofar as it will not have to follow EU rules, it will have its own independent state aid regulator, and it will not be subject to the European Court of Justice (ECJ). But Britain has committed to establish its state aid regulator under terms agreed with the EU and to keep its subsidy policy within agreed parameters. It must maintain its current environmental and labour standards and if either side improves those standards so that a competitive gap emerges, they can go to arbitration and possibly impose retaliatory tariffs.
Services
Services account for 80 per cent of the British economy and almost half of its total exports, but the deal has little to offer on financial or professional services. Both sides have agreed to support enhanced co-operation on financial oversight with a memorandum of understanding due in March.
But there is no agreement on equivalence, which would allow British financial services firms to sell into the EU and vice-versa. Decisions on equivalence will be made unilaterally by each side, creating a more unstable environment.
Britain also failed to persuade the EU to automatically recognise British professional qualifications. From now on, British lawyers, doctors, nurses, engineers, architects and others will have to seek recognition in each member state in which they wish to operate.
Fisheries
Fishing was among the most contentious issues in the negotiations, the last to be agreed and the only one where Britain was clearly in the stronger position. But the outcome involved a huge climbdown for Johnson, who until a few weeks ago was demanding an 80 per cent reduction over three years in the value of fish caught in British waters.
The EU’s opening demand for no change in its current access to British waters was plainly unrealistic but under the deal, European boats will lose only 25 per cent of their catch, with the changes phased in over 5½ years.
After that, quotas for EU boats will be worked out in annual negotiations but if Britain dramatically limits access to its waters, the EU can retaliate by closing EU waters to British boats or imposing tariffs. The bloc dropped a demand that it should be able to impose sanctions on other elements of British trade in response to any dispute over fisheries.
Security
Britain is leaving the European Arrest Warrant and will no longer have access to Schengen databases that play an important role in police and judicial co-operation. British authorities will still have access to Passenger Name Record and Prüm DNA and fingerprint data.
Britain will have partnerships with Europol and Eurojust but will lose some of the advantages of full membership in terms of data access. In an important compromise, Britain has agreed to remain subject to the European Convention of Human Rights for now and if that changes, the EU can suspend the security cooperation agreement.
Both sides have agreed to maintain high standards of data protection with a view to each recognising the other in terms of data adequacy and a temporary arrangement will ensure continued data flows for up to six months. The ECJ has ruled that British laws giving its intelligence and security services access to personal data are in breach of EU law so any decision to grant Britain data adequacy could face legal challenge.
Dispute resolution
Either side can impose tariffs on the other in specific areas if they believe the agreement is being breached. And if the other side believes the tariffs are unfair, they can go to an arbitration panel which will be independent and has no role for the ECJ.
Individual parts of the agreement can be renegotiated to deal with disputes and the entire trade deal can be revoked if the two sides fall out very badly, although the security agreement would remain in place.
The agreement has a single, overarching structure, which means that it can be built on if a future British government seeks a closer relationship with the EU.
Other issues
Britain will no longer have access to the EU’s internal energy market but new trading arrangements will be introduced to ensure trading on interconnectors is smooth and the agreement includes guarantees of security of energy supply.
Britain will leave the Erasmus student exchange scheme, which Johnson described as “very expensive” and will introduce its own scheme named after the computer scientist Alan Turing. It will remain part of the Horizon Europe scientific research initiative.