Research & Analysis

The Brexit Endgame: A Trade deal, but it is yet to be over for the UK-EU

The trade deal marks the beginning of a new era in UK-EU relations.  However, the trade deal doesn’t ensure a tabula rasa for the UK. In matters of state aid, competition, the environment, employment and taxation the UK will be effectively joined at the hip with the EU. The country, in agreeing to the level playing field, will remain a highly regulated and taxed economy. As for the services, which comprise 80 per cent of the UK’s economy, the sector is not covered by the trade agreement. Thus, no protections have been afforded to the risks to the UK’s financial services sector.

After three and a half years of political negotiations, a new withdrawal deal, one general election and two Conservative Prime Ministers, the UK exited the EU on 31 January 2020. While the ink dried on the withdrawal agreement, the transition year remained fractured as the EU and the UK negotiated a long-drawn trade agreement before the UK discontinues abiding the European laws from 01 January 2021. 

What happened in 2020? 
As the UK exited the union beginning of the year, the political polarity between the ‘Brexit Remainers’ and the ‘Brexit Leavers’ faded and with it the political position of the Conservative party strengthened in the country. In a year, the UK and EU discussed on the structural and social changes that will come in place for both the parties such as the colour of the passport, currency, health insurance, extradition rules, pension rules and ease of travel as the UK brings back its old structure from 40 years. 

Internal Market Bill and an uptick to the North Ireland protocol 
As the UK, set to revamp its trade rules, it also sought to change the custom laws in the Northern Ireland that brought back the Irish conundrum for the kingdom. On 9 September UK Prime Minister Boris Johnson proposed a draft Internal Market bill that will allow the UK to change the customs laws in Northern Ireland thereby allowing itself a stronger role over trade rules. With consequent criticism from the EU, on 8 December, the government decided to withdraw the most controversial parts of its Internal Market Bill which is removing the dual customs system in the Northern Ireland. 

A Deal: The EU-UK Trade and Cooperation Agreement
Beginning December, Johnson flew to Brussels to join the talks with the British and European negotiators who had been struggling to iron out their differences on fishing rights across the English Channel and the clauses for the level playing field. On 10 December after Prime Minister Boris Johnson and EU chief Ursula von der Leyen agreed to abandon their make-or-break deadline and the hopeful rhetoric finally ended with a deal which became a face saver for both the parties. 

A “cakiest deal”, says Johnson; the major takeaways in brief
The deal avoids the disruption of a no-deal Brexit in the middle of the COVID-19 pandemic, and beginning January, trade in goods will become burdensome, since the UK will formally have left the EU customs union and single market. Although there will not be any tariffs levied or restrictive quotas imposed, a new set of customs and regulatory checks, including rules of origin and stringent local content requirements will need to be followed.  

First, one of the most difficult issues in the negotiations has been the fishing rights over how many fish will EU boats be able to catch in UK waters in future. The value of the fish caught by the EU in the UK waters has not been cut by 25 per cent, which considerably less than what the UK initially asked for. This cut will be phased in over a transition period lasting five-and-a-half years. This transition period is again shorter than what the EU initially asked for. 

Second, the agreement on the clauses for the level playing field, made the deal possible. The UK also agreed to stick to common principles on how state aid regimes work, and to an independent competition agency which will assess them. But it can also choose to develop a system which only makes decisions once evidence of unfair competition is presented. 

Lastly, the Trade and Cooperation agreement (TCA) does not in any way unpick the Northern Irish Protocol. Rather the Northern Ireland will remain in the EU’s Customs Union, subject to dynamic alignment with EU State Aid law, VAT and excise duties, and there will be a border down the Irish Sea.

What is the background?
Taking control back, Win for Conservative party but intra-party factions remain 
From Theresa May to Boris Johnson, missing deadlines, extensions, passing of a withdrawal deal after an internal party conflict and dissolution of the Parliament have been the characteristics of the Brexit process. The trade deal and the Brexit in January overturns this precedent. Boris Johnson, replaced Theresa May, on a political agenda to pass the Brexit in the Westminster and his political gamble to force through a Brexit withdrawal agreement paid off but also left intra party factions. After the snap election on 12 December 2019, Johnson’s win boosted his stakes and consolidated Tories political position but didn’t address the internal factions. In 2020, as the trade talks ended with a deal, Johnson thumped on his Brexit victory but the struggle remains to keep the Tories together. 

The relegation of the Labour Party as opposition Force 
The Labour party’s new leader, Sir Keir Starmer, repeatedly said he wants to get a trade deal with the EU. Hours before Johnson’s meeting with Ursula von der Leyen, Sir Keir focused his weekly questioning of the PM on the topic. But with the consorted deal in place, the Labour party has time and gain faced the challenge of not having a clear position on the Brexit issue. After the electoral defeat in 2019, Labour party has remained largely absent from being a political guard against the Conservatives. 

A Tooth and Nail Fight for a Deal  
The trade talks were a déjà vu. It brought back the moments of the 2019 withdrawal deal when the two parties couldn’t agree till the 11th hour and made a last-ditch attempt on the backstop agreement to come to a deal. This time it was on the fishing rights. The fishing rights have remained an emotive issue for Britain and the EU’s offer of a 25 per cent cut have been contested by France. The UK sees its waters as “British fishing grounds foremost for British boats,” while France sees it as a political issue before its 2022 elections. 

A no-deal Brexit is not something both the UK and EU desired or ought to be. The cost of operating under the WTO rules would have had both economic and political cost for the UK. While the intraparty factions would have widened discussing the loss of face to EU, the people would have felt the pinch of soaring food prices in their pockets amid the pandemic. 

Return of the Irish question 
The Internal Market bill brought back the Irish question for the country with a point of conflict erupting by violating the Good Friday Agreement.  The proposed bill attempted to breach the binding withdrawal agreement which Westminster approved by majority votes in December 2019. With custom changes in Northern Ireland, the bill also in all likelihood would have made the UK’s only land border with the EU a hard border thereby putting in question another agreement (the Good Friday Agreement) with the Republic of Ireland that aims to preserve the Irish identity and peace in the region. Getting in conflict with the Good Friday Agreement would have also overturned the border of sorts kept to ensure the devolution of power in Northern Island. 

The Post Brexit UK in 2021
The trade deal marks the beginning of a new era in UK-EU relations.  However, the trade deal doesn’t ensure a tabula rasa for the UK. In matters of state aid, competition, the environment, employment and taxation the UK will be effectively joined at the hip with the EU. The country, in agreeing to the level playing field, will remain a highly regulated and taxed economy. As for the services, which comprise 80 per cent of the UK’s economy, the sector is not covered by the trade agreement. Thus, no protections have been afforded to the risks to the UK’s financial services sector.

A major sell out for the UK has been on fishing rights. It is bound to have long-term political impacts as the waters do not come back to the UK cost-free after the transitionary period ends.

Within the UK, the EU has dropped its demand that the ECJ should play a direct role in policing the governance of the agreement in future. But the ECJ will still play a role is Northern Ireland. Northern Ireland will vote both for the withdrawal agreement and the trade deal in four years and it will remain another test for on its integration question. 

The enormous bearing of the TCA will be on the UK for years to come when it will add red tape and just-in-time supply chains will take a while to adjust to the new reality. 

This paves the way for the US-UK trade deal, in principle. But Johnson will have to do some damage control with the Biden administration over the Irish question. Proud of his Irish ancestry, Biden is the most Irish President since JFK in 50 years ago. He will not tolerate the Good Friday Agreement becoming a “casualty of Brexit.” 

In short, when one considers the combination of the Withdrawal Agreement, Northern Irish Protocol and the TCA, the UK has not have taken back total control of its laws, borders, cash or fish. Neither has the UK left the EU as one United Kingdom. 

 

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About the author

Sourina Bej | NIAS

Project Associate at the School of Conflict and Security Studies in NIAS. Her research includes studying identity politics, group identities, migration and conflict with a special focus in South Asia. She also studies integration and political dynamics in Europe as part of the NIAS Course on Global Politics.

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