On June 24, 2016, United Kingdom woke up to the shocking news of a Brexit vote. Seemingly against all expectations, the British people had voted to leave the European Union. The prime minister at the time, David Cameron, supported the U.K. staying in the European Union, but he mounted a lukewarm campaign at best. He misjudged the mood of his countrymen, who had become disenchanted with what they perceived to be a gradual, yet significant, erosion of Britain’s ability to plot its own destiny. Sick of E.U. directives that determined everything from the shape and size of bananas to the U.K.’s immigration policy, the voting public decided that their country should pack its bags and petition for divorce.
The following four and a half years saw each milestone to this conscious uncoupling go to the very wire—and the final deal itself was no less a nail-biter. With only days remaining until a no-deal scenario would have been declared, Britain and the E.U. finally announced on Christmas Eve that they had reached agreement on a trade deal worth more than £650 billion annually. Set out in 1,250 pages, the new treaty represents the framework for future relations, as Britain navigates its way as a so-called “third country” outside of the E.U.’s single market and customs union.
Although the leader of the opposition, Labour Leader Keir Starmer, described the deal as “thin,” offering predictably vague remarks concerning inadequate protection of creative industries and workplace rights, he agreed to whip his parliamentarians in support of the deal. Having put forward a largely incoherent Brexit policy at the 2019 general election, which secured the worst Labour performance since 1935, it would seem that the new Labour leadership have resolved to put up and shut up, rather than risk further embarrassing themselves.
Setting aside party politics, and the unlikely possibility that an E.U. member state attempts to scupper the deal as it heads toward the European Parliament, there is finally reason for positivity concerning a subject that has literally torn the country in two. Most importantly, the deal delivers much needed certainty to British producers who will be able to continue trading freely with the E.U., while embracing opportunities for trade agreements with international partners.
Trade:
Crucially, the deal agrees upon quota- and tariff-free trade. This comes as a relief to producers who would otherwise have fallen back into World Trade Organization rules. Absent such an agreement, Britain would have imposed a new U.K. global tariff on E.U. imports and faced the European common external tariff on exports.
However, in spite of the free trade agreement, there remain concerns surrounding custom checks, as goods move between the U.K. and the continent. In 2021, the British government estimates that there will be an additional 215 million annual customs declarations—presenting a significant logistical and administrative hurdle, as businesses will need to navigate the likes of import licenses and inspection fees. Although this presents a challenge, it is one that can surely be overcome. Each year, $700 billion worth of goods pass across the U.S.-Canada border, 62 percent of which is hauled by truck. If such a volume of goods is able to pass relatively seamlessly across the U.S.-Canada border, then the U.K. and E.U. can surely achieve something similarly painless on the Irish border and at Kent, where the Channel Tunnel links to the continent.
Moreover, with its departure from the E.U. and the customs union, Britain is now at liberty to form its own trade deals with international partners. As of December 17, 2020, the U.K. had secured 33 trade agreements with 89 countries. This list is growing impressively, but there remains one notable absence—the United States. Britain’s prime minister from 2016 to 2019, Theresa May, passed on President Donald Trump’s offer for a quick trade deal. Now, given the incoming Biden administration, it is unclear when and what kind of a trade deal will materialize. Sadly, presumptive President-elect Joe Biden does not appear to be an Anglophile. In a recently resurfaced clip, Biden rebuffs a question from a BBC journalist, just stating “I’m Irish.” Perhaps someone might remind Biden that the Anglo-Norman invasion of Ireland happened over 800 years ago, Cromwell is long dead, and the Corn Laws were repealed many, many years ago. One would hope that historic prejudice will not color the judgement of the incoming administration, but let us see.
Fishing:
It is perhaps surprising that fishing, an industry that currently contributes only £446 million a year to the British economy—less than Harrods department store—threatened to derail an agreement. However, fishing rights and the impact of the Common Agricultural Policy came to symbolize European interference and bureaucratic constraint, during the 2016 referendum. When the U.K. joined the European Economic Community in 1973, fishermen found themselves sharing their waters with competition from all over Europe. The 1983 introduction of a quota system gave greater entitlement to European boats, pushing many British fisheries out of business. Indeed, many coastal constituencies such as Great Grimsby, which was once the largest fishing port in the world, voted overwhelmingly to leave the E.U..
It has been agreed that during a five-and-a-half-year transition period, E.U. fishermen will repatriate 25 percent of the value of fish caught in British waters. Although this is much less than initially demanded by British negotiators, it is important to note that, in the short term, Britain lacks the resources to single-handedly fish its waters. Furthermore, the tariffs that would have been imposed on fish by the E.U. in the absence of a deal would have rendered the U.K. fishing industry uncompetitive on the continent. Johnson capitulated somewhat in this area, but British fisheries still attained a relatively improved position. And with the prospect of renegotiation at the end of the transition period, the industry might now look forward to a more prosperous future.
Governance:
In a victory for Britain, the E.U. relented in their demand that the European Court of Justice (ECJ) adjudicate on any future disputes over the agreement. Instead, a new dispute resolution body—with equal representation and an independent arbitrator—will be created. Gaining independence from the rulings of the ECJ was central to the argument for Brexit and represents a fundamental development in restoring the sovereignty of the British legislature.
The E.U. also backpedaled on their demand for “lightening tariffs,” which would have enabled them to unilaterally impose tariffs without arbitration. This means that, moving forward, tariffs can only be implemented by an independent party.
Financial Services:
The agreement does not offer a great deal of clarity concerning the future of financial services operating between U.K. and E.U. jurisdictions. Johnson has publicly admitted that the treaty “perhaps does not go as far as we would like.” And the chancellor of the exchequer, Rishi Sunak, has stated that the financial services might seek to “do things a bit differently” as the U.K. leaves the single market.
The hope is that the E.U. will issue “equivalences,” which would grant market access to British industries that abide by similarly robust rules and regulations as those within the bloc, enabling them to provide services to clients within the Union. Although the approval of equivalences would keep the City of London operating normally, access under a system of equivalences can be withdrawn by the E.U. with a mere month’s notice, making the system unpredictable and a potential political football. In expectation of a bumpy ride, merchant banks including Barclays, J.P. Morgan, and Goldman Sachs have moved a combined 7,500 jobs and £1.2 trillion worth of assets onto the continent.
Conclusion:
The deal is not perfect, but it has been crafted during a worldwide pandemic and in an atmosphere of very real fear that there could be no amicable extrication from the E.U. An agreement which both the E.U. and the U.K. can live with represents a triumph, in many ways.
There will, of course, always be hard-core “Remainers” who consider this separation from Europe as calamitous folly and Brexit purists who relished a clean-break Brexit, but the deal has managed to find the illusive ground between these two polarized camps. Given Theresa May’s flawed Chequers proposal, which would have left Britain under E.U. rules and within the jurisdiction of the ECJ, Johnson is making good on his promise to deliver a liberating Brexit that “take[s] back control,” while securing trade and cooperation.
Naturally, challenges lie ahead. Equivalences and market access threaten to become a political football. And customs arrangements will no doubt be a headache. However, a large structural trade deficit should ensure that cooperation and common sense prevail in what has become one of the most contentious divorces of all time. Whether you believe in Brexit or not, provided you have accepted the result of the referendum, this deal should come as good news.
Britain is now very much the captain of its destiny—let’s see what can be done with it.
*The views expressed in this article solely represent the views of the author, not the views of the Chicago Thinker.
