U.K., European Union Reach Trade Deal; Next Up Is Agreement with U.S.
A timely Christmas present was delivered to the citizens of Europe when, on Christmas Eve, a historic trade agreement was reached between the United Kingdom and the European Union (EU) on their future relationship going forward, following Britain's decision to leave the EU. As a result, a trade and cooperation agreement was prepared by the European Commission and the U.K. and EU approved and adopted it into law on Dec. 30, 2020. The agreement is 400-plus pages with a further 800-plus pages of annexes, and citizens and observers hope that it provides a robust and stable basis of a future trading relationship going forward. It has been warmly welcomed by trade and industry on both sides of the divide on what has been a fairly acrimonious series of negotiations since 2016.
As with most trade deals, there has been some compromise on both sides. For Britain, it has finally secured the acknowledgement by the EU of its sovereignty to reach separate trade deals free from any future interference from any EU institutions, especially the European Court of Justice. For the EU, it has achieved the goal of a clear commitment from Britain not to lower its standards on a host of issues and create a so-called "Singapore-on-the-Thames" that is a low-cost, low-tax competitor to the EU on its doorstep. What finally broke the deadlock was a deal on the politically emotive – but economically insignificant – issue of fishing rights and quotas in U.K. waters, and a mutual right to "rebalance" the agreement if there are "significant divergences" in the future that is capable of "impacting trade."
What this means in practice is that the U.K. can continue selling goods to the EU market without tariffs or quotas and ensures the continued smooth transport links between the U.K. and EU. There will be some new paperwork involved and observers await to see how this and the other provisions of the agreement will work in practice. For example, watching to see how the independent binding enforcement and dispute settlement mechanism will work to address unfair competition. It is also important to note that the agreement does not address the service sector, which is such a vital part of the U.K. economy and on which the government has said it will address next year.
To reach a complex agreement in such a short time is an achievement on both sides, given the painful history of reaching similar agreements in the past. At the same time, the U.K. has reached a number of bilateral trade deals with a large number of non-EU nations. Observers now look forward to see if the long-awaited U.K.-U.S. trade deal can be reached. This has been delayed by the U.S. presidential election and should be made easier once the EU trade deal is in place, as President-Elect Joe Biden has made it clear that he wanted an amicable solution to this issue and was particularly keen to ensure that the Republic of Ireland was content, given his proud Irish ancestry.
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