As for the timing, although I had long expected talks to go to the wire – and well beyond the October deadline which both sides originally aimed for – the announcement of a deal on Christmas Eve was a lot closer to the year-end deadline than even I had anticipated. From an optics point of view, there were good domestic political reasons for dragging out the discussions for as long as possible as it gave the impression that the British were fighting their corner until the very end. An even more cynical view is that by hurrying it through whilst the British parliament is in recess, this reduces the time available for scrutiny ahead of 31 December and limits the prospect that MPs might find reasons to delay its implementation. After all, there is a lot that Brexit supporting MPs can find to object to.
Win, loss or draw?
Boris Johnson was quick to portray this as a win for the UK. In the 34 page explainer of the deal, a signed foreword by the prime minister argued that “the UK will fully recover its national independence … we will take back control of our trade policy and leave the EU customs union and single market. We will take back control of our waters … We will take back control of our money by ending vast payments to the EU … Most importantly, the agreement provides for the UK to take back control of our laws ... The only laws we will have to obey are the ones made by the Parliament we elect.” It is precisely this sort of nonsense that raises my hackles by distorting what the UK could and could not do whilst a member of the EU. There is, however, a particular irony in the last sentence given that Johnson himself presided over a government that tried to circumvent parliament in a bid to get Brexit done.
The EU’s response was more measured with Michel Barnier suggesting in a TV interview that there were no winners – both sides lose something. We should be in no doubt that the UK’s trading arrangements with the EU will be far less advantageous than they were when the UK was an EU member. And of course, EU companies exporting to the UK are subject to similar disruption. Moreover this is a harder Brexit than that envisaged by Theresa May’s government, which planned that the UK remain in a form of customs union with the EU. Although this avoided a border in the middle of the Irish Sea, as Johnson’s deal implies with the result that goods entering Northern Ireland from Britain are now classified as imports, the quid pro quo was that Northern Ireland would have remained aligned with certain EU legislation. As we all know this fell foul of those who prioritised sovereignty (or to be more accurate, the impression of sovereignty) over the economic well-being of the UK, and did for May’s career what the EU question has done to a number of her predecessors.
A closer look at the detail
A closer look at the agreement indicates that it provides a comprehensive set of rules for sectors such as autos,chemicals and pharmaceuticals which was in line with prior expectations. On the surface the general absence of tariffs means that this is a deal which minimises the direct cost to UK consumers, which can only be good news. One of the key sticking points in negotiations was how to monitor and resolve disputes. The final outcome means that although the UK has avoided being subject to the oversight of the ECJ, it is still subject to arbitration panels in the event that it is deemed to have strayed too far from EU standards on environmental or labour market standards. Consequently, the EU still holds a lot of sway on the imposition of standards which may not be the kind of freedom from EU legislation that some of the Brexit purists were hoping for. After all a 1246 page document packed with dense legal language covering various aspects of a detailed trading relationship does not exactly scream liberation from red tape.
A special mention is due for the vexed issue of fisheries which is a totemic symbol of Brexit. EU access to British waters is to be reduced by 25% over the next five and a half years but thereafter access to territorial waters will be subject to annual negotiations. The EU will have a lot of leverage in such negotiations and has the power to take retaliatory action should the UK curtail access to British waters. Were it minded to do so, the EU could well turn the screw on this issue in 2026.
The new arrangements imply considerably more delays in cross border trade flows – more red tape rather than less – but this should be no surprise in a trade agreement which takes the UK out of the single market. In the words of Pascal Lamy, former head of the WTO, this was “the first negotiation in history where both parties started off with free trade and discussed what barriers to erect.” Quite how much impact this will have on cross-border trade and overall GDP growth in 2021 remains to be seen. However, the BoE predicts that export flows in 2021 will be smaller than in 2020, despite the expected recovery in the EU economy, with the worst of the impact concentrated in the early weeks of 2021 as exporters adjust to the new rules.
What they didn’t say
But it is what is not in the agreement which is really telling. There is, for example, no mutual recognition of professional qualifications. The likes of doctors, architects and engineers must now apply to have their British qualifications recognised in each of the countries where they intend to work. This is hardly designed to enhance the strength of the service sector where the UK runs a trade surplus with the EU. And as I have long pointed out, financial services have largely been ignored. Johnson indeed admitted in a newspaper interview at the weekend that the deal “perhaps does not go as far as we would like” regarding access to EU markets for financial services, which is an understatement. This will be a subject for heated discussion in 2021 and beyond.
British travellers, whether for leisure or business, will feel the pain of longer queues to enter the EU and a more onerous administrative burden. Students will no longer be able to participate in the Erasmus scheme which seems a particularly petty act, particularly since the government stated in January that participation in the scheme would not be affected and is yet another Brexit action which disadvantages the young. Ironically the Republic of Ireland has guaranteed that it will pay the costs of Northern Irish students wishing to participate, which has led many to speculate that this could be the thin end of a wedge which ultimately results in a United Ireland.
The bottom line
All told, the EU has granted the UK some concessions in areas such as goods trade, where it holds most of the economic cards and has offered little to nothing in services where the UK has many advantages. This is not to deny the fact that any deal is better than no deal. But this is sub-optimal compared to what the UK enjoyed previously. As for any gains in sovereignty, they are offset by the fact that trade rules are more heavily proscribed than before and the government continues to give no recognition to the fact that the UK has willingly given up its role in setting the rules for EU trade. It is as much a rule taker as it ever was – maybe even more so – as I warned all along.
For all the talk that Brexit is done, nothing could be further from the truth. Negotiations over areas such as financial services and fisheries will drag on for years. It may start to fade from the front pages as politicians try to talk about something else but from here on the economics starts to assert itself. Nothing I have heard from many Brexit supporters in the last five years suggests that they understand the full economic implications of the course they have pursued. Whenever I raise this point I am told that it is all worth it to regain sovereignty. Having seen what is on offer in the trade deal, if I were a Brexit supporter I would be asking whether I have been taken for a ride.
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