Britain’s Exit From the EU — Is It Final?
The morning of June 24th 2016 marked an unprecedented event in the docket of global history as 52% of UK citizens voted to leave the European Union, their classical intra-continental ally.
Four and a half years down the line, after a lot of political hemming-and-hawing, the UK has finalised a deal, formally instumentalising its secession from the EU, being the first country to do so after 47 years of affiliation with one of the world’s largest trading blocs.
But at what cost? And with what benefits?
Let’s break down the fine points of the conclusive deal and an analysis of where that leaves all parties involved therein.
A Tiny Recap
Britain had ceremonially withdrawn from the EU on January 31st 2020 when the agreement was ratified by both the EU as well as the British Parliament. Following this, an 11-month “transition period” commenced during which the country enjoyed a de facto (in practice) position within the group, short of membership.
This period was meant to be a buffer for formulating the nitty-gritties of a deal that would apply to both parties post 31st December 2020, the final deadline beyond which the UK would lose its membership de jure (in essence) and tentative rights within the EU, regardless of whether a deal was finalised or not.
During this 11-month period, the UK had access to the EU’s single market and customs union. Had this deal not gone through, the country would have been forced to exit the EU’s almost 450 million-large single market empty-handed and lost more than 8% of its GDP over the next decade.
However, come Christmas Eve, British Prime Minister Boris Johnson declared a “done” deal which is supposedly akin to a “Canada-style” deal worth £660bn ($893bn) and the beginning of an era of regained sovereignty for all UK citizens.
Key Takeaways From This Final Deal
The 2000-page long document touches upon the elemental points of what a post-Brexit financial arrangement would look like, in comprehensive legal terms. The following is a summary entailing the most significant and controversial issues of the deal:
Fishing — This was one of the primary contentions for the UK which wished to preserve maximised output from its territorial waters. The final deal says that the value of fish caught by the EU in UK waters will be cut by 25% (midway compromise between the 18% and 80% cut proposed by both parties respectively). This arrangement will work for five and a half years after which the UK is at liberty to increase protectionist limits.
Business Operations — This was the cornerstone of EU’s demands to ensure UK workers/producers don’t gain any unfair advantage over their competitors in domestic markets. For now, there’s no fixed metric but the UK has agreed to enable an independent competition agency to oversee common standards of business and preserve fair competition.
Travel — No more free borders. UK nationals have to mandatorily apply for visas should they wish to stay in the EU for more than 90 days in a 180-day period.
Professional Standards — Professionals from the UK whose qualifications were recognised automatically in the EU would no longer enjoy those privileges. They will need to apply individually to separate countries and await permits.
Data Protection — The EU’s formal acknowledgement that the UK’s data rules are more or less in tandem with its own, is still awaited. Meanwhile, the former has agreed to a “specified period” of four months, extendable by another two months, during which data can be exchanged between both parties similarly as it is done now.
Dispute Resolution — This is one of the begrudging mechanisms put inside the deal which involves significant tariff policing. If the agreed-upon common standards of trade are deviated from by a party in one sector, the other can trigger a “dispute mechanism” that may include retaliatory tariff measures being imposed in the same or another sector. This little grounding manoeuvre could be a sticking point in UK-EU relations in the future but the lawmakers have carefully branded it as a “rebalancing” clause.
Justice — The European Court of Justice (ECJ) will not have jurisdiction over the UK anymore, except for Northern Ireland.
Security — The “real time” access to EU security databases has been redrafted to “continued” access. Access to criminal records, fingerprints, wanted individuals’ list etc. Will be shared, albeit, under greater restrictions. Same applies to extradition. The UK’s role in Europol (the European cross-border security agency) has also been reduced to that of an observer.
Points Still Under Ambiguity
The most glaring inadequacy in the deal involves the absence of provisions for the financial services sector. Starting January 1st, UK-based financial institutions will lose access to the EU single market. But, they will be granted so-called “equivalence rights”, which will allow them to operate in the single market. But, they can be revoked at short notice.
This could prove largely detrimental to UK’s interests, which has reportedly faced relocation of financial assets from its shores to the EU amounting to £1.2trn ($1.25trn) coupled with the loss of about 7,500 jobs since the Brexit referendum.
Having said that, the two sides plan to arrive at an understanding on this issue by March. More than 90% of euro-denominated interest-rate derivatives and 84% of forex trading in the EU takes place in the UK, which indicates that the onus of loss isn’t just on the UK if they don’t reach an understanding on this.
The second drawback in the deal is the lack of any agreement on production standards. Even though there is mention of “mutual recognition of conformity assessment”, emphasising on the need to cut down unnecessary and intrusive checks on goods and services moving across the border, there still isn’t a proper outline on what kind of checks and balances need to be put in place exactly. This suggests a judgement-call scenario wherein the degree of checks will be on a product-by-product basis, which ironically sounds like it will add more intrusions and increase red-tape.
Which brings us to the third ambiguity (or irregularity) that worsens the above situation, that is, when you add Northern Ireland to the equation. Even though it’s under the UK’s sovereign rule, Northern Ireland will continue to have access to the EU’s single market and customs union. At the same time, it will NOT have a hard-border with the Republic of Ireland.
What this means is that goods coming from the UK to Northern Ireland will be subject to checks at the latter’s ports but goods moving in and out of Northern Ireland to the Republic of Ireland (and by extension, the greater EU) will not face any barriers.
This means two things. One, Britain will have a trade protectorate inside its own dominion. Two, Northern Ireland will likely emerge as a liberated trade frontier and tariff-haven for businesses that wish to flock from the UK. This is something that had already been agreed upon by both parties two years ago. However, January 1st onwards, it remains to be seen how its modalities fall into place.
Expectations for India
On an immediate basis, the finalisation of the long-impeding deal has removed substantial equity overhang looming over markets worldwide, including India.
However, Indian professionals working in the UK might have to undergo certain difficulties and delays in securing work permits in EU-countries due to the qualification embargo placed on them by the final deal.
Other than that, the biggest stake that has now opened up is the possibility of a Free Trade Agreement (FTA) between India and the UK. This deal is now at the stage of Memorandum and is expected to replace the much-wanted India-EU FTA which fell through earlier due to lack of consensus on import-duties on wine and automobiles.
The UK is also India’s sixth-biggest source of FDI. In the presence of a comprehensive FTA between both countries, bilateral trade is estimated to shoot up by as much as 26%. That is a substantial upscale on the $14bn trade relationship currently.
This is particularly important in light of worsening UK-China relations due to the former’s resolve against the anti-democratic processes occuring in Hong Kong and its threat of sanctions which pose challenges to their bilateral trade. Who better to contemplate an alliance with in such circumstances but a demographic twin and an emerging economy?
(Originally published December 26th 2020 in transfin.in)
