Stephen Booth is Head of the Britain in the World Project at Policy Exchange.
Much of the analysis of the UK-EU Trade and Cooperation Agreement will flow from underlying prejudices. “The UK shouldn’t have left”, “we don’t need a trade deal with the EU”, “the UK should have or could have asked for X or Y”. It is, however, more instructive to assess the deal against the Government’s stated aims and, for that matter, what the EU said it wanted.
Brexit will have economic and geopolitical consequences. But, ultimately, it is a constitutional question for both Brexiteers and Brussels. In the foreword to the UK explainer, the Prime Minister cites “restoring national sovereignty” as the “central purpose of leaving the EU”.
Meanwhile, the EU’s brochure is quick to stress that, even under the new agreement, the UK will lose the benefits of membership. “This will recreate barriers to trade in goods and services and to cross-border mobility and exchanges that have not existed for decades,” it says. In other words, freedom comes at a price.
The past year of negotiations has not simply been an exercise in haggling over the price of UK legal independence from the EU system. At times, it seemed Brussels was simply unwilling to recognise this principle as part of a negotiated settlement. The EU had initially demanded dynamic alignment with EU law, enforced via the European Court of Justice (ECJ). And it demanded a continuation of existing EU fishing rights in UK waters, despite the UK’s departure from the Common Fisheries Policy.
A Brexit government with a significant majority could not have accepted such a deal. Nonetheless, convincing the EU to conclude a deal that does recognise the UK as a “sovereign equal” is a significant achievement for the negotiating team led by David Frost. The agreement is based on international law, there is no role for the European Court of Justice (ECJ) and no requirement for the UK to continue following EU law. Under the terms of the Northern Ireland Protocol, ECJ jurisprudence will continue over some issues in the province. Despite this, there has been a calming of Northern Irish tensions over the issue.
As has been noted before, this negotiation was unique, since it was driven by the desire for separation rather than integration. Therefore, any agreement essentially had to do two things. First, establish the new baseline for the UK-EU economic relationship (or the degree of dislocation) and, second, address how further divergence (or convergence) in the future should be managed.
The deal’s main feature is ensuring there are no tariffs or quotas on goods traded between the UK and the EU, where they meet the relevant rules of origin. This is significant because it is the first time that the EU has agreed a zero-tariff, zero-quota deal with any other trading partner (for example, the EU retains a small number of tariffs on Canadian agricultural exports). Certainly, businesses would have liked more time to adjust to the new relationship, but the deal provides important stability for the sectors most vulnerable to a no deal Brexit, such as agriculture, automotive, aerospace and chemicals.
The UK has secured some simplifications for customs formalities and important provisions for haulage, but there will be new frictions on UK-EU trade. For example, the EU refused to reduce the frequency of checks on food imports and has insisted that some products be certified by EU rather than UK testing bodies. The provisions on services are limited. The cost of doing business with the EU will be increased as a result.
There are several issues that could evolve in future. UK professional qualifications will not be recognised at the outset, but there is a mechanism to do so in the future. Arrangements for personal data and financial services remain dependent on unilateral EU decisions, due to be taken next year, which might provide a basis for further cooperation.
On fishing, a delicate balance has been struck. 25 per cent of EU boats’ fishing quota in UK waters by value will be transferred to the UK fleet, over a period of five-and-a-half years. The Government says this will bring the share of the total catch taken in UK waters by UK vessels to around two thirds. After this period, there will be annual talks on the amount EU boats can catch in UK waters (and vice versa). The UK would then have the right to completely withdraw EU access to UK waters. However, in response, the EU could impose tariffs on fish or other goods exports from the UK. These measures would need to be proportionate to the impact of the loss of access and are subject to arbitration. This means that the annual negotiations from 2026 could yet become a difficult political battleground.
The UK probably gave a little more than it would have liked to. However, the amount of fish caught in UK waters by UK vessels will increase, the UK has maintained tariff- and quota-free access to the EU market where much of the UK catch is sold, and the agreement establishes the principle of the UK’s status as an independent coastal state. It is undoubtedly an improvement on the status quo and, at this point, it is not clear the UK has the capacity to catch all the fish available.
The other major contentious issue throughout the negotiations has been the level-playing field. The agreement is a reasonable solution to satisfy the UK’s demand for regulatory independence and address the EU’s concern that future divergence may result in distortions to trade or investment.
The UK has agreed not to lower its existing standards on employment and the environment or use subsidies to unfairly distort trade. Both sides would also have the right to take countermeasures, such as imposing tariffs, if they believe they are being damaged by future changes to subsidy policy, labour and social policy, or climate and environment policy. As such, any dispute would only concern the effects of any changes to UK legislation, rather than whether UK rules are exactly the same as the EU’s.
This “rebalancing mechanism” has the potential to get messy if it is used frequently. However, crucially, any countermeasures are subject to independent arbitration, which means there would need to be solid justification for any EU tariffs in response to UK divergence. Tariffs cannot be used arbitrarily by the EU for leverage over the UK in the future. Ultimately, a race to the bottom on standards was always likely to be a bigger EU concern in theory than in practice. The reality is that the UK is likely to be equally as ambitious as the EU in many of these areas, such as climate change or animal welfare commitments, and perhaps more so.
In summary, this agreement is a considerable political achievement, because it manages to combine independence from the EU’s regulatory system with a high degree of market access (relative to comparable trade agreements, rather than EU membership). At times, this appeared impossible and, therefore, the UK’s strategy has been vindicated.
The deal recognises that the UK-EU relationship will continue to evolve. There could be future disputes but the deal is likely to provide stability for the next five to ten years when the world will no doubt be different again.
It is equally important that the country can move on and devote its energies to the future, both with regards to domestic policy and international relationships beyond Europe.
This is the first of a new series of pieces by Policy Exchange for ConservativeHome looking at the various issues that arise from the Brexit trade deal.