After nine months of tortuous and at-times fractious negotiations, the UK and the EU have reached agreement on an economic partnership agreement that will govern large swaths of bilateral trade worth more than £650bn.
The deal covers technical aspects of trade for key sectors, including autos, chemicals, pharmaceutical and professional services as well as a governance mechanism to resolve disputes that may arise between the two sides.
Here, the Financial Times looks at key aspects of the deal and assesses how they will affect trade from January 1, when Britain becomes a so-called “third country” outside the EU’s single market and customs union.
Level playing field: standards
The UK and Brussels painstakingly negotiated a system that will leave the UK free to set its own standards in areas such as environmental standards and labour law but with the risk of having access to the European market restricted if it strays too far.
A “rebalancing mechanism”, governed by arbitration, will allow either side to impose tariffs should it be determined that their businesses were at an unfair disadvantage.
Crucially for the UK, the system does not rely on EU law or the European Court of Justice. Jim Brunsden
Level playing field: state aid
Companies in the EU will be able to challenge state aid awarded to UK rivals in Britain’s national courts if they feel it violates common principles set out in the trade deal. British companies will enjoy equivalent rights in the EU.
Britain also agreed to set up an independent state-aid authority, although the deal does not require the UK to have an “ex ante” regime that will vet subsidies before they are granted.
Either side would also be able to unilaterally impose tariffs to counter the effect of trade-distorting subsidies, although the other party could then call for accelerated arbitration.
For the UK, it was important to secure a system far removed from the EU’s original request that it simply continue to follow EU state aid rules — a demand it saw as an affront to sovereignty. Jim Brunsden
EU fishing fleets will have a five and a half-year transition period with guaranteed access to UK waters. After that, access will depend on annual negotiations.
During the transition, EU fishing rights in UK waters — currently worth about €650m per year — will be reduced by one quarter, with British quotas increased by a corresponding amount. The shift will boost UK boats’ current share of fishing rights in British waters from about a half to two-thirds.
After the transition, access to waters will depend on annual negotiations, such as those the EU already has with Norway. But the EU will have some leverage: should the UK revoke access, it will be able to take compensatory measures, including hitting UK fish exports with tariffs, and even shutting the UK out of its energy market. Jim Brunsden
The trade agreement does not contain a section covering the vast flow of personal data between the UK and EU which will be concluded in a separate “adequacy” decision due in early 2021. But the trade deal does cover data flows in specific areas of law enforcement and police co-operation between the two sides.
A senior EU official said the broader data adequacy decision — which is unilaterally granted by Brussels — could be concluded in the “coming weeks”. If granted, it would mean that the EU in effect recognises UK data protection standards as equivalent to its own to allow for the free flow of personal information of EU and UK citizens that underpins the digital economy. Mehreen Khan
Logistics and road haulage
For British hauliers the deal contained mixed blessings. The two sides recognised the validity of each others’ licences and permits and included full transit rights, allowing drivers to cross multiple countries in order to drop a load. This will enable Irish lorries to use the UK as a “landbridge” to deliver goods into the EU.
However, the agreement limits British truckers to a single drop-off and a single pick-up when in Europe, a significant downgrade from EU membership, under which drivers could do three pick-ups inside an EU country before returning home.
Richard Burnett, the head of the Road Haulage Association, said the deal risked decimating the concert haulage industry, which relied on the ability to make multiple trips inside an EU country. “At the moment we have three drop-offs, and this allows one,” he said. Peter Foster
Aviation and travel
The deal allows flying rights between the EU and UK to continue, but UK carriers will not be able to fly between two points within the EU. This was expected, and airlines on both sides have set up foreign subsidiaries to continue current routes, allowing easyJet, for example, to fly between France and Italy.
The UK will still have access to Horizon Europe, the EU’s €100bn research and development programme, while the space industry will be relieved it can access Copernicus, the earth observation programme.
For travellers, visas will be required for visits of more than 90 days, and there may be additional passport checks. Healthcare provisions will still be available for UK visitors into Europe on a basis similar to the current European Health Insurance Card. Philip Georgiadis
Food and drink
An overview published by the European Commission suggested the EU would immediately implement tough new checks on agri-food products, with no grace period. Still, food and farming businesses welcomed the deal but warned that leaving the customs union and single market in a week’s time would still disrupt the food supply chain.
Ian Wright, chief executive of the Food and Drink Federation, said: “This week’s chaos at Dover and the last gasp nature of this deal means that there will be significant disruption to supply and some prices will rise.”
Minette Batters, president of the National Farmers’ Union, said more UK-EU talks were needed to prevent perishable food becoming caught in border queues.
Shane Brennan, chief executive of the Cold Chain Federation, said the arrangements would mean that the UK’s “food chain will be slower, more complex and more expensive for months if not years.” Judith Evans
The British Retail Consortium, which had estimated that tariffs in the event of a no-deal Brexit would add £3bn a year to the cost of food for UK consumers, said it welcomed the deal. “Given that four-fifths of UK food imports come from the EU, today’s announcement should afford households around the UK a collective sigh of relief,” said chief executive Helen Dickinson.
However, she added that the zero-tariff agreement should be implemented as soon as possible and new ways needed to be found “to reduce the checks and red tape that we’ll see from the January 1”.
The chemicals industry is among the most exposed to costs of new trading arrangements, with products that enter a large number of cross-border supply chains, from car paint to haircare products, food to pharmaceuticals.
Steve Elliott, head of the Chemical Industries Association, welcomed the “zero-tariff” element of the deal, saving the industry up to £1bn in feared tariff costs, but continued to raise concerns about UK plans to duplicate the EU’s Reach safety regime, in which UK companies had invested £500m in recent years.
The CIA said that unless the UK government had secured access to costly product safety databases on which Reach was based, the industry faced a bill of more than £1bn in “unnecessarily duplicating that work for a new UK regime”. Peter Foster
A key pharma industry goal — that tests and inspections for medicines carried out on one side of the English Channel should be considered valid on the other — has been only partially achieved.
The agreement included “mutual recognition” clauses that should mean UK manufacturing facilities will “not need to undergo separate UK and EU inspections”. However, initial indications on Thursday evening were that the deal did not appear to embrace another key industry demand: mutual recognition of the safety and quality tests. This would mean presale safety tests carried out on medicines in the UK will now need to be duplicated in the EU, causing delays for patients and additional costs. Sarah Neville
The car industry warned that the deal would introduce “much more red tape and regulatory burden for the industry”, which trades almost 3m vehicles a year between the EU and the UK. Cross-Channel trade in automotive parts accounts for almost €14bn.
The UK has already conceded that the EU would not agree to taking a more flexible approach when it came to assessing whether UK cars manufactured with large amounts of non-UK components could qualify for zero-tariff access to the bloc under a trade deal. As a result, some cars may incur tariffs on entering the EU.
However, the UK government said it had won concessions for batteries and electric vehicles that would ensure that British-made electric vehicles were at least eligible for preferential tariff rates. Peter Foster
The UK manufacturing sector welcomed the fact tariffs had been avoided that risked wiping out profits in the sector but warned that companies still faced border delays and the loss of mutual conformity assessment.
This could mean two lots of certification and testing to meet both EU and UK standards, according to Stephen Phipson, chief executive of the manufacturers group Make UK. “This would add significant complexity and cost, for a sector that operates on fine margins,” he said.
A so-called ‘trusted trader scheme’ — where qualified companies could speed through customs — was also welcomed, although companies said they would need to see details, given the costs of participating in the system.
Far fewer companies in the UK have this “authorised economic operator” status than in Europe, given the costs, which means that it may end up benefiting larger groups with in-house experts over smaller operators.
Mr Phipson added that the lack of recognition of professional qualifications was “challenging news for manufacturers wanting to send engineers to the EU”. Daniel Thomas
Professional services providers will lose their ability to automatically work in the EU after the deal failed to obtain pan-EU mutual recognition of professional qualifications.
This means that professions from doctors and vets to engineers and architects must have their qualifications recognised in each EU member state where they want to work. There will, however, be provisions for short-term business trips and temporary secondments of highly skilled employees.
Sam Lowe, a senior research fellow at think-tank the Centre for European Reform, said the deal “did little to maintain existing market access for UK services providers” and the UK had failed to secure ambitious provisions, relying on “vaguer commitments that offer little in practice”. Daniel Thomas
The deal does not cover financial services access to EU markets, which is still to be determined by a separate process under which the bloc will either unilaterally grant “equivalence” to the UK and its regulated companies, or leave firms to seek permissions from individual member states.
The UK government did claim two “wins” for the City of London: preventing a measure that could have restricted EU firms from outsourcing lucrative work to the UK and excluding financial services from “cross retaliation” measures if other parts of the trade agreement were breached.
However, legal experts said these were not significant victories for the UK, as equivalence and market access were bigger factors. “These are wins, but pretty small on the Richter scale of regulation,” said Simon Morris of law firm CMS. “What matters is wider wholesale market access, on a basis yet to be defined let alone negotiated.” Matthew Vincent
Defence and security
As expected, UK police and intelligence agencies are to be cut off from the EU’s most sensitive real-time crime databases. However, British security services will still be able to see crucial air passenger data, criminal record information, and DNA, fingerprint and vehicle registration data, with ongoing access to so-called PNR and Prüm databases.
This means they will still be able to work with EU allies on joint investigations into terrorism and all forms of organised crime. It is not yet clear what exactly will replace the European Arrest Warrant, which allows swift extradition of criminals between EU countries. The National Police Chiefs’ Council, which represents chief constables, said it was working with government to “fully understand the detail” and ensure forces are prepared for any changes. Helen Warrell
Credit: Financial Times