Brexit – Understanding the Agreement

The announcement of the trade deal by EU and UK finally sets the terms of separation, four and half years after Britain voted to exit the European Union. The agreement was preceded by tough negotiations, threats of no-deal exit, change of governments, elections in UK and so on. Yet, the deal is unique as both parties have given each other privileges not given to any other country minimizing the economic impact of exit. That make it largely a political separation – “restoring UK’s national sovereignty”, as per the deal documents with core agreement running over 1,246 pages. Here is a look at some of the details.

The two parties have managed to retain the core trade arrangement which existed so far. There would be zero tariff for movement of goods between the two regions and no restriction on quantity of trade, keeping the trade flow intact. However, both parties would have to adhere to each other’s quality and environmental standards, failing which, restrictions may be imposed. This would also subject the goods to greater physical check and make the movement less seamless. Still, this is a rather small price. Even though the movement of goods do not face any restriction, transporters’ right to move goods within other’s territory gets restricted. While they would have the permission to move goods to, from and through each other’s territory, there would be a limit on number of times they can do so in other’s territory.

Trade in services face some restrictions as UK professionals such as doctors, engineers, architects, lawyers would lose their automatic right to access and would have to secure permission to offer their services. Still, the deal offer relief to UK as financial services, which are firm-based rather than individual run, would have equivalent market access. However, the agreement is not very clear on terms of agreement and existing arrangement would be maintained until the discussion on specific equivalence determinations are concluded. To that extent, the deal has avoided a potentially catastrophic element as export of financial services is the backbone of UK’s economy.

While the goods and services trade deal have maximum implication in terms of value, it is the agreement on fishing rights which was most contentious. EU’s unfettered access to UK’s water was perceived as infringement of UK’s sovereign rights and the agreement gives UK “new identity as a sovereign independent coastal State”. While UK wanted to restrict EU to 20% of total annual catch, the final agreement gives EU rights over 75%. The gains, as per the deal documents, is £146 million, quite insignificant for an economy with GDP of about £2.2 trillion but brings back the rights of fishing community. The limit would progressively decline and EU would have no rights to fish in UK waters after five and half years. However, EU would have right to fish in surrounding waters outside UK as per an arrangement where both parties get different shares based on the variety of fish and area of fishing. The agreement is quite complex listing out 105 different sharing arrangements with UK having a share as low as 0.10% for a particular variety in a particular region. It would be interesting to see how the fishing agreement is enforced.

Other issues where some restrictions have been imposed are Visa requirements for stay beyond 90 days, restriction on airlines to do business within EU, restricted access to data on security, discontinuation of students exchange program etc.

Despite the acrimony, the deal shows a great deal of maturity shown by both parties. This is best reflected in the dispute resolution mechanism where both sides have agreed to form a panel in case of a dispute, even though its decision is not binding. The affected party may take a counter measure in case of failure to arrive at a resolution through the panel. The document specifically mentions that UK will no longer be bound by judgements made by the European Court of Justice, the other area which affected UK’s sense of being a sovereign nation.

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