Brexit Trade Deal

What are the main features of the agreement?

• The UK-EU Trade and Cooperation Agreement, which came into force on January 1, 2021, retains the ‘zero tariffs’ and quotas trade regime of the past on all imports of goods.
• It thus averts the potentially catastrophic consequences for Britain of leaving the bloc without any agreement.
• A hard exit would have resulted in levies of 50% and higher and duties on dairy and food products, besides tariffs on manufactured goods, as per World Trade Organization rates.
• According to the U.K.’s fiscal watchdog, the Office for Budget Responsibility, the current arrangement could limit the potential economic impact from Brexit to a loss of 4% of the Gross Domestic Product over the medium term, compared to a possible 6% reduction had there been no agreement.
• Northern Ireland will continue to remain within EU jurisdiction, avoiding a hardening of its border with the Republic of Ireland.
• On access for EU fisheries to British seas — a contentious issue — the agreement “recognises U.K. sovereignty over our fishing waters”.

What are some new hurdles the U.K. will face?

• The latest agreement cannot shield Britain from a costly disruption to the frictionless trade flows during the past 47 years of its EU membership, because of its decision to leave the EU’s single market and customs union.
• An exit from the customs union means the return of customs controls at the U.K. borders and checks on rules of origin to prevent abuse of the zero-tariffs regime.
• The millions of customs declarations U.K. businesses will have to complete from now onwards are estimated to cost around £7 billion annually, according to HM Revenue & Customs.

How does the European Union plan to enforce a level playing field?

• The U.K. is free to set its own standards on labour laws and environmental protection.
• Access to EU markets could, however, be restricted and tariffs imposed wherever arbitrators rule that businesses have been granted unfair advantage.
• London has succeeded in breaking free from the jurisdiction of EU law and the European Court of Justice, which U.K. eurosceptics regard as an affront to national sovereignty.
• British and EU companies will be able to challenge state subsidies awarded to their rivals in relevant national courts if they suspect any violation of common provisions set out in the agreement.

How serious could be the impact of the exclusion of services from the accord?

• As the services sector accounts for about 80% of the U.K.’s economy, the fallout from leaving it outside the purview of the new accord will be hard.
• The agreement covers data flows in some areas of policing and law enforcement, while decisions on personal data transmissions are to be dealt with separately.
• Given London’s status as the premier global financial hub, the exclusion of financial services from the agreement is likely to cause uncertainty.
• Both sides have reached an understanding that the terms of access to each other’s markets would be subject to a unilateral declaration by one party that the regulatory framework of the other was equivalent to its own.
• Talks are said to begin this month to formulate a memorandum of understanding as a basis to strengthen mutual cooperation.

What does the future hold for relations between Britain and the EU?

• Ever since the 2016 referendum to quit the EU, European leaders have been unequivocal in their opinion that any future relationship must entail huge costs of exit for the U.K., just as its 47-year membership of the bloc brought vast benefits. In the four-and-a-half years since the vote, Brussels has largely achieved its overarching objective of ensuring that Brexit does not set a precedent for other member states.
• Conversely, Britain may discover that striking pragmatic compromises is the way forward to protect sovereignty and national self-interest. The latest agreement erects new barriers, rather than remove existing ones, in trade ties between London and Brussels.
• This peculiar and unprecedented character of the deal, as Pascal Lamy, former head of the WTO underscored, is a necessary and almost inevitable outcome of Brexit.
• Even so, this limited deal is better than a “no deal” for both parties. It lays the foundation for a future partnership between Brussels and London, based on the stringent terms imposed on Britain under the 2019 U.K. withdrawal agreement.

BREXIT Trade Deal

Context: Brexit is a highly important topic in UPSC Mains Examination 2021. It is also important for UPSC Interview 2020.

What is the European Union?

• The EU is an economic and political union involving 28 European countries. It allows free trade, which means goods can move between member countries without any checks or extra charges.
• The EU also allows free movement of people, to live and work in whichever country they choose.
• Headquarters of the European Union is in Brussels, Belgium.
• The UK joined in 1973 (when it was known as the European Economic Community) and it will be the first member state to withdraw.

Chronology of Events

• Margaret Thatcher was one of the first leaders to propose Brexit.
• David Cameroon said we won’t follow migration law, human rights law and minimum shelter. European Union rejected the idea.
• Art 50 said within 2 years, the UK can withdraw from the EU. UK took referendum in 2016 and won by 52%. David Cameroon lost and then resigned.
• UK Parliament was divided on the methods of exit and issues like Market access, compensation, and formula of trade. Eventually, Theresa May got defeated in Parliament in 2019.
• Then Boris Johnson took over in July 2019 and he promised Brexit as Do or Die by 31 Oct 2019 in favor of UK otherwise UK will exit without any deal.
• Leaving European Union without any deal promises would be a chaos for both UK and European Union especially regarding Citizenship, Trade, Migration, Illegal detention etc.
• Boris Johnson won in Britain in the 650-member House of Commons. He turned the poll into a de-facto Brexit referendum that only a stable conservative government could take the UK out of the EU quickly. He promised radical expansion of the State, with plans to tax the rich, increase public spending and nationalize utilities etc.

What caused Brexit to happen?

• Immigrants: Faced with rising immigration locals worried about their jobs and the erosion of the English way of life wanted their government to clamp down on immigration. This was a revolt against unrestricted immigration from poorer Eastern European states, Syrian refugees residing in the EU and millions of Turks about to join the EU.
• Elites: Faced with decades of economic malaise, stagnant real wages and economic destitution in former industrial heartlands ever since the rise of “Thaterchism” and the embrace of Neoliberal policies by Tony Blair’s New Labour the non-Londoners have decided to revolt against the elite. This isn’t just about being against the EU as it stands, and its free market and free movement of people.
• Bureaucracy: Faced with Brussel’s asphyxiating amount of red tape the English people decide to “take back control” of their country’s bureaucracy.

What is the news?

• Britain has officially left the European Union (EU) and has become the first country to leave the 28-member bloc.
• The UK stopped being a member of the European Union (EU) on 31 January 2020.

What happens after Brexit day?

• After the UK formally leaves the EU, there is still a lot to talk about and months of negotiation will follow.
• While the UK has agreed the terms of its EU departure, both sides still need to decide what their future relationship will look like.
• During the 11-month transition period, the UK will continue to follow all of the EU’s rules and its trading relationship will remain the same.
• UK will leave the single market and customs union at the end of the transition. A free trade agreement allows goods to move around the EU without checks or extra charges.
• If a new agreement cannot be agreed in time, then the UK faces the prospect of having to trade with no deal in place. That would mean tariffs (taxes) on UK goods travelling to the EU and other trade barriers.
• Aside from trade, many other aspects of the future UK-EU relationship will also need to be decided. For example:

1. Law enforcement, data sharing and security.
2. Aviation standards and safety.
3. Access to fishing waters.
4. Supplies of electricity and gas.
5. Licensing and regulation of medicines.

What is the Brexit deal?

• The transition period and other aspects of the UK’s departure were agreed in a separate deal called the withdrawal agreement.
• Under the Withdrawal Agreement, UK - EU decided on a transition period until the end of 2020, during which UK will participate in EU's Customs Union and in the Single Market and to apply EU law, even it is no longer a Member State.
• The whole UK will leave the EU. But Northern Ireland will stay in EU’s single market for goods.
• Northern Ireland would be governed by EU regulation even as it legally remains within UK.
• UK can impose tariffs on goods entering Northern Ireland from 3rd countries as long as they are not at risk of entering the EU market. If they are at risk of entering EU market, EU tariffs will be applied.
• There will be customs border between Great Britain and island of Ireland.
• 1998 Good Friday Agreement or Belfast Agreement separated Northern Ireland and Republic of Ireland and Ireland and UK.
• UK will pay a 39 billion pounds ‘divorce Bill’.
• Right of UK people living in EU and EU people living in UK to be guaranteed.
• Most of that was negotiated by Theresa May’s government. But after Mr Johnson replaced her in July 2019, he removed the most controversial part – the backstop.
• The backstop was designed to ensure there would be no border posts or barriers between Northern Ireland and the Republic of Ireland after Brexit. If needed, it would have kept the UK in a close trading relationship with the EU.

Analysis of Brexit

• By leaving EU, UK automatically, mechanically, legally, leaves hundreds of international agreements of EU.
• After the announcement, the pound slid 1.1% against the $ relative to the gains after the election results, reviving market anxiety.
• Eliminating the threat of leaving without an agreement, the party argued, would diminish the government's negotiating position vis-a-vis the EU.
• The provision risks sidestepping normal democratic channels for industries and trade unions to influence the shape of their future trading relations with the EU, worth 90 billion pounds.
• Guarantees on labour rights previously included in the withdrawal bill have been removed. This amplifies sceptics' fears about a drift to a low tax low regulation UK economy after Brexit.
• The new scenario could strengthen demands in Belfast for unification with Dublin, potentially imperilling the UK's constitutional integrity.
• Brexit has strengthened calls for a second referendum on independence by the Scottish National Party, which won a big majority in UK elections.

Way Forward

• EU and UK are bound by history, geography, culture, shared values and principles and a strong belief in rules based multilateralism.
• In the World of turmoil and transition, UK and EU must consult each other and cooperate, bilaterally and in key regional and global fora, such as the UN, WTO, NATO or G20.
• EU is a group of 27 member states now, it will continue to form a single market of 450 million citizens. EU still is the largest trading bloc of the World and the World's largest development aid donor.