EU President Ursula von der Leyen

The December 24, 2020 Trade and Other Agreements Between the European Union and the United Kingdom — The Price and Rewards of Brexit

With the United Kingdom’s interim arrangement with the European Union after the January 2020 departure from the EU coming to an end at the end of December, negotiators for the two sides reached a series of agreements and declarations on December 24th that will take effect provisionally on January 1, 2021 upon actions by the EU and the U.K. and awaiting ratification.

The trade agreement provides, inter alia, for duty free/quota free access for goods for both sides. While each side has declared victory in the negotiations and expressed the view that the agreements are good for both parties, all independent analyses that have appeared to date note that there will be costs for both sides from the unraveling of the U.K.’s membership in the EU — not surprising but the reality of any breakup of a longstanding integrated relationship of members. Stated differently, while the agreements are unusual in the sense that they deal with relations between nations formerly participating in a single market upon separating, inefficiencies are added to the operation of markets in both the U.K. and in the EU as trade in goods will face at least customs clearance, potentially different standards, rules of origin as to what constitutes qualifying product of either the U.K. or the EU, and services will be restricted (e.g., air transport in terms of number of destinations within the trading partner; lorry drivers in the number of permitted stops to unload or load cargo, work permits in the other’s territory, etc.). The likely cost to the U.K. over the next 15 years has been estimated at a reduction of GDP of 4 percentage points by 2035 from levels likely achieved if the U.K. remained part of the EU. There will be costs as well for the EU, though likely smaller as a percent of GDP because of the smaller share of EU trade with the U.K. than vice versa.

For the United Kingdom, Brexit was about regaining control of the laws and regulations under which its businesses and citizens operate and eliminating the role of the European Court of Justice. It was also about regaining control of its waters for fishing.

For the EU, the objective was to minimize the damage from the U.K.’s departure, maintain unity among EU members and ensure that any agreement with the U.K. did not result in anticompetitive results from changes in environmental, labor or subsidy practices by the U.K. It seems fair to say that each side accomplished most of its core objectives.

Consider the statement of the U.K.’s Prime Minister Boris Johnson on December 24 on the agreement with the EU, https://www.gov.uk/government/speeches/prime-ministers-statement-on-eu-negotiations-24-december-2020:

“It is four and a half years since the British people voted to take back control of their money, their borders, their laws, and their waters and to leave the European Union.

“And earlier this year we fulfilled that promise and we left on Jan 31 with that oven-ready deal.

“Since that time we have been getting on with our agenda.

“Enacting the points based immigration system that you voted for and that will come into force on Jan 1.

“And doing free trade deals with 58 countries around the world.

“And preparing the new relationship with the EU.

“And there have been plenty of people who have told us that the challenges of the Covid pandemic have made this work impossible.

“And that we should extend the transition period.

“And incur yet more delay.

“And I rejected that approach precisely because beating Covid is our number one national priority and I wanted to end any extra uncertainty and to give this country the best possible chance of bouncing back strongly next year.

“And so I am very pleased that this afternoon that we have completed the biggest trade deal yet, worth £660 billion.

“A comprehensive Canada style free trade deal between the UK and the EU, a deal that will protect jobs across this country.

“A deal that will allow UK goods and components to be sold without tariffs and without quotas in the EU market.

“A deal which will if anything should allow our companies and our exporters to do even more business with our European friends.

“And yet which achieves something that the people of this country instinctively knew was doable.

“But which they were told was impossible.

“We have taken back control of laws and our destiny.

“We have taken back control of every jot and tittle of our regulation.

“In a way that is complete and unfettered.

“From Jan 1 we are outside the customs union, and outside the single market.

“British laws will be made solely by the British Parliament.

“Interpreted by UK judges sitting in UK courts.

“And the jurisdiction of the European Court of Justice will come to an end.

“We will be able to set our own standards, to innovate in the way that we want, to originate new frameworks for the sectors in which this country leads the world, from biosciences to financial services, artificial intelligence and beyond.

“We will be able to decide how and where we are going to stimulate new jobs and new hope.

“With freeports and new green industrial zones.

“We will be able to cherish our landscape and our environment in the way we choose.

“Backing our farmers and backing British food and agricultural production.

“And for the first time since 1973 we will be an independent coastal state with full control of our waters with the UK’s share of fish in our waters rising substantially from roughly half today to closer to 2/3 in five and a half years’ time after which there is no theoretical limit beyond those placed by science or conservation on the quantity of our own fish that we can fish in our waters.

“And to get ready for that moment those fishing communities we will be helped with a big £100m programme to modernise their fleets and the fish processing industry.

“And I want to stress that although of course the arguments with our European friends and partners were sometimes fierce this is, I believe a good deal for the whole of Europe and for our friends and partners as well.

“Because it will not be a bad thing for the EU to have a prosperous and dynamic and contented UK on your doorstep.

“And it will be a good thing – it will drive jobs and prosperity across the whole continent.

“And I don’t think it will be a bad thing if we in the UK do things differently, or a take a different approach to legislation.

“Because in so many ways our basic goals are the same.

“And in the context of this giant free trade zone that we’re jointly creating the stimulus of regulatory competition will I think benefit us both.

“And if one side believes it is somehow being unfairly undercut by the other, then subject to independent third party arbitration and provided the measures are proportionate, we can either of us decide – as sovereign equals – to protect our consumers.

“But this treaty explicitly envisages that such action should only happen infrequently and the concepts of uniformity and harmonisation are banished in favour of mutual respect and mutual recognition and free trade.

“And for squaring that circle, for finding the philosopher’s stone that’s enabled us to do this I want to thank President von der Leyen of the European Commission and our brilliant negotiators led by Lord Frost and Michel Barnier, on the EU side Stephanie Rousseau as well as Oliver Lewis, Tim Barrow, Lindsay Appleby and many others.

“Their work will be available for scrutiny, followed by a parliamentary vote I hope on Dec 30.

“This agreement, this deal above all means certainty.

“It means certainty for the aviation industry and the hauliers who have suffered so much in the Covid pandemic.

“It means certainty for the police and the border forces and the security services and all those that we rely on across Europe to keep us safe.

“It means certainty for our scientists who will be able to continue to work together on great collective projects.

“Because although we want the UK to be a science superpower, we also want to be a collaborative science superpower.

“And above all it means certainty for business from financial services to our world-leading manufacturers – our car industry – certainty for those working in high skilled jobs in firms and factories across the whole country.

“Because there will be no palisade of tariffs on Jan 1.

“And there will be no non-tariff barriers to trade.

“And instead there will be a giant free trade zone of which we will at once be a member.

“And at the same time be able to do our own free trade deals as one UK, whole and entire, England, NI, Scotland and Wales together.

“And I should stress this deal was done by a huge negotiating team from every part of the UK, and it will benefit every part of our United Kingdom, helping to unite and level up across the country.

“And so I say again directly to our EU friends and partners, I think this deal means a new stability and a new certainty in what has sometimes been a fractious and difficult relationship.

“We will be your friend, your ally, your supporter and indeed – never let it be forgotten – your number one market.

“Because although we have left the EU this country will remain culturally, emotionally, historically, strategically and geologically attached to Europe, not least through the four million EU nationals who have requested to settle in the UK over the last four years and who make an enormous contribution to our country and to our lives.

“And I say to all of you at home.

“At the end of this toughest of years.

“That our focus in the weeks ahead is of course on defeating the pandemic.

“And on beating coronavirus and rebuilding our economy.

“And delivering jobs across the country.

“And I am utterly confident that we can and will do it.

“By today we have vaccinated almost 800,000 people and we have also today resolved a question that has bedevilled our politics for decades.

“And it is up to us all together.

“As a newly and truly independent nation.

“To realise the immensity of this moment and to make the most of it.

“Happy Christmas to you all.

“That’s the good news from Brussels – now for the sprouts.”

On the same day, December 24, 2020, the European Union President Ursula von der Leyen provided these comments at the press conference in Brussels on the outcome of the EU-UK negotiations, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_20_2534:

“Good afternoon,

“We have, finally, found an agreement.

“It was a long and winding road. But we have got a good deal to show for it.

“It is fair and balanced. And it is the right and responsible thing to do for both sides

“The negotiations were very tough.

“But with so much at stake, for so many, this was a deal worth fighting for.

“We need to avoid major disruptions for workers, companies and travellers after 1 January 2020.

“It will protect European interests.

“It is also – I believe – in the UK’s interests.

“It will lay a solid foundation for a new beginning with a long-term friend.

“And it means that we can finally put Brexit behind us.

“Europe will be able to move on.

“Throughout this period, the European Union has demonstrated great unity, drawing on the strength
of 450 million people and the largest single market in the world.

“The Agreement we have reached clearly shows how much this matters.

“Chapter by chapter, line by line.

“Let me give you three examples.

“First:

“Competition in our Single Market will be fair and remain so.

“The EU´s rules and standards will be respected.

“We have effective tools to react if fair competition is distorted and impacts our trade.

“Secondly:

“We will continue cooperating with the UK, in all areas of mutual interest.

“For example in the fields of climate change, energy, security and transport.

“Together we still achieve more than we do apart.

“And thirdly:

“We have secured five and a half years of full predictability for our fishing communities and strong
tools to incentivise it to remain so.

“Of course, this whole debate has always been about sovereignty.

“But we should cut through the soundbites and ask ourselves what sovereignty actually means in the
21st century.

“For me, it is about being able to seamlessly do work, travel, study and do business in 27 countries.

“It is about pooling our strength and speaking together in a world full of great powers.

“And in a time of crisis it is about pulling each other up – instead of trying to get back to your feet
alone.

“The European Union shows how this works in practice.

“And no deal in the world can change reality or gravity in today’s economy and today’s world. We are
one of the giants.

“The EU is well prepared for Brexit.

“We know this deal will not stop disruption altogether.

“We have been working closely with authorities and businesses to make sure they are ready.

“We have set aside EUR 5 billion in our new budget to support all of the people, regions and sectors
affected by Brexit.

“So now is the time to turn the page and look to the future.

“The United Kingdom is a third country.

“But it remains a trusted partner.

“We are long standing allies.

“We share the same values and interests.

“Whether it be the COP26 summit in Glasgow or the upcoming UK G7 and Italian G20 presidencies:

“The European Union and the United Kingdom will stand shoulder to shoulder to deliver on our
common global goals.

“This moment marks the end of a long journey.

“I would like to thank our Chief Negotiator, Michel Barnier, and his team, and Stéphanie Riso for their
tireless efforts, their endurance, their professionalism.

“I also want to thank David Frost and Tim Barrow for having been tough but fair negotiating partners.

“And I am grateful to all our Member States and the European Parliament for their trust and their
support. I will now convene the College.

“Ladies and Gentlemen,

“At the end of successful negotiations I normally feel joy.

“But today I only feel quiet satisfaction and, frankly speaking, relief.

“I know this is a difficult day for some.

“And to our friends in the United Kingdom I want to say: parting is such sweet sorrow.

“But to use a line from TS Eliot: What we call the beginning is often the end. And to make an end is
to make a beginning.

“So to all Europeans I say: It is time to leave Brexit behind.

“Our future is made in Europe.

“Thank you so much.”

Because of the shortness of time from the conclusion of the negotiations until the agreements should take effect, the EU is looking at adopting the agreements provisionally until February 28, 2021. As reviewed in a press release on December 24:

“The Commission proposes to apply the Agreement on a provisional basis, for a limited period of time until 28 February 2021.

“The Commission will swiftly propose Council decisions on the signature and provisional application, and on the conclusion of the Agreement.

“The Council, acting by the unanimity of all 27 Member States, will then need to adopt a decision authorising the signature of the Agreement and its provisional application as of 1 January 2021. Once this process is concluded, the Trade and Cooperation Agreement between the EU and the UK can be formally signed.

“The European Parliament will then be asked to give its consent to the Agreement.

“As a last step on the EU side, the Council must adopt the decision on the conclusion of the Agreement.”

Press Release, European Commission, 24 December 2020, EU-UK Trade and Cooperation Agreement: protecting European interests, ensuring fair competition, and continued cooperation in areas of mutual interesthttps://ec.europa.eu/commission/presscorner/detail/en/IP_20_2531.

EU ambassadors gave provisional approval to the agreements on December 28 in Brussels. Financial Times, December 28, 2020, EU ambassadors give green light to Brexit deal,https://www.ft.com/content/8e4d5aa2-5851-4bea-8d4f-b880376f8413 The U.K.’s House of Commons is expected to approve the agreements on December 30, 2020.

The list of agreements and declarations agreed on December 24 is provided below.

Trade and Cooperation Agreement Between the European Union and the European Atomic Energy Community, of the One Part, and the United Kingdom of Great Britain and Northern Ireland, of the Other Part, https://ec.europa.eu/info/sites/info/files/draft_eu-uk_trade_and_cooperation_agreement.pdf (1246 pages).

Agreement Between the European Union and the United Kingdom of Great Britain and Northern Ireland Concerning Security Procedures for Exchanging and Protecting Classified Information, https://ec.europa.eu/info/files/eu-uk-security-information-agreement_en (8 pages).

Agreement Between the Government of the United Kingdom of Great Britain and Northern Ireland and the European Atomic Energy Community for Cooperation on the Safe and Peaceful Uses of Nuclear Energy, https://ec.europa.eu/info/files/eu-uk-civil-nuclear-agreement_en (18 pages).

draft EU-U.K. declarations, https://ec.europa.eu/info/sites/info/files/draft_eu-uk_declarations.pdf (embedded below).

draft_eu-uk_declarations

As stated at the beginning, the early analyses of the EU-U.K. agreements have identified many concerns for the increased inefficiencies and uncertainties of trade in goods and services that will face producers and service providers in both the U.K. and in the EU. See, e.g., Wall Street Journal, December 24, 2020, How the Brexit Deal Alters Relations Between the U.K. and European Union, https://www.wsj.com/articles/how-the-brexit-deal-alters-relations-between-the-u-k-and-european-union-11608836744?mod=searchresults_pos9&page=1; Politico, December 27, 2020, 10 key details in the UK-EU trade deal, https://www.politico.eu/article/10-key-details-uk-eu-brexit-trade-deal/. Indeed, there are lots of issues still to be negotiated, or rights and obligations to be tested over time and significant bureaucracies to be added to address commitments made in the agreements.

So unlike other trade agreements entered in 2020 that portend more liberalized trade at least among the signatories, the reality of Brexit was always going to require agreements which reduced market access to some extent. The key is how minimum the disruptions and increased inefficiencies will prove to be versus the greater flexibility that the United Kingdom feels to shape laws, regulations and policies to meet its own needs and preferences (and whether the increased flexibility proves to be more limited by the agreements than perhaps desired) and whether the remaining EU members will feel a greater sense of unity on the forward direction of the EU. Time will tell whether the “success” of Christmas eve proves to be a positive for the EU and the U.K. in fact moving into 2021.