Vulcan Insight

Post-Brexit trade agreement – one week in

8 January 2021

The post-Brexit trade and cooperation agreement reached in the hours before Christmas between the UK and the EU is one of the most important trade deals in history. It is also the first to disintegrate a trading partnership, constructing, rather than removing barriers to trade.

After 47 years of EU membership, British Prime Minister Boris Johnson welcomed in the New Year telling Britons that “we have our freedom in our hands and it is up to us to make the most of it.” So far, however, this newfound freedom has seemingly been characterised by a series of negative consequences from extra costs for consumers, to delays and extra paperwork for businesses. Many of the sticking points in negotiations were not agreed in the deal and so a number of patchwork solutions have been introduced.

As regards data flows from the EU to the UK, negotiators agreed that the UK will be governed by the EU’s data transfers framework for a maximum of six months, while the European Commission continues with its assessment of whether the UK’s proposed new data protection regime may be granted a coveted “adequacy decision.” For the UK, this means that it cannot agree on any new independent data transfer regime with a third country such as the United States until the EU’s decision has been made.

On goods trade, while the agreement allows for tariffs and quota-free trade in goods, the past week has shown that complicated rules of origins requirements, which mandate a certain minimum content of a good to be manufactured in the distributing country and which continue to have to be met, put a halt to cross-channel supply chains. In the past week, these requirements have already led to empty shelves on both sides of the English Channel.

As a result of the UK having left the EU’s Customs Union, customs paperwork and VAT forms are now required to ship products between the EU and the UK, leading to a significant increase in the cost of shipping to and from the UK since the end of the transition period on 31 December.

On fisheries, Chief negotiators Michel Barnier and David Frost have agreed on a transition period until June 2026 to transition from the current quota shares in UK waters to new ones, giving the EU guaranteed access to UK waters in the coming years, even if EU fishermen and women are now only allowed 75% of their previous catch in UK waters. Annual negotiations will occur to decide on volumes of fish allowed to be caught after 2026.

Regarding the services industry, which make up over 40% of the UK’s exports to the EU and 80% of the UK’s economic activity, the UK will face stark consequences. Of particular significance is the lost market access for trade in financial services, as passporting rights which allowed the City of London, automatic access to the single markets are now gone. Similarly, mutual recognition of professional qualifications was not agreed, increasing barriers.

While much of the detail on specifics remains to be worked out, an alternative scenario of no agreement would have had enormously detrimental consequences for both sides. Alors ça continue…