UK and EU agree Brexit trade deal

Brexit | | MIC Customs Solutions |

British and European negotiators have finalized a trade deal that is set to take effect from January 1st.


The UK and the EU have reached an agreement on a post-Brexit trade deal, with just days to go before the end of the transition period on December 31st.

Negotiations were finally completed on Christmas Eve (December 24th), following months of disputes that saw several deadlines for a deal come and go.

It will ensure goods can continue to flow between the UK and the continent without additional tariffs and avoids a no-deal scenario that the UK's Office for Budget Responsibility calculated would have reduced Britain’s economic output by £40 billion in 2021 and cost more than 300,000 jobs.

However, there will still be additional steps for businesses moving goods between the UK and EU, with extra paperwork and costs still expected to apply.

Last-minute talks yield results 

Although many of the provisions of the post-Brexit deal have been agreed for months, discussions between the two parties had been held up by a couple of key issues where major differences remained, including fishing rights, the level playing field, and how any disputes between the UK and EU would be resolved.

The delays had led UK prime minister Boris Johnson to warn that the chances of a no-deal were "very, very likely", although some commentators had long suggested that given the economic costs of such an outcome, the pressure would always be on to find a deal.

However, an intense period of negotiations in recent days, including several direct phone calls between Mr Johnson and European Commission president Ursula von der Leyen, helped break the deadlock, with quotas for specific fisheries among the final details to be hashed out.

Brexit-supporting politicians in the UK were quick to hail the agreement as a win, with one leaked document claiming the UK had won on almost half of the demands it had set out, compared with around 20 per cent by the EU. However, others have pointed out the UK had already backed down on several key provisions.

The agreement will see the UK become a "third country" to the EU, with British nationals no longer able to enjoy freedom of movement with the EU.

In a press conference announcing the deal, Ms von der Leyen described the outcome as a "fair and balanced agreement" that protects the EU's interests and ensures fair competition.

She added there will be a review after four years to ensure both sides are playing by the rules agreed in the deal and to confirm that the level playing field remains level. However, she noted there are "strong safeguards" to ensure both sides are incentivized to stick to the terms of the agreement. 

Meanwhile, a statement from Downing Street described the deal as "fantastic news" for people in the UK. It added: "We have signed the first free trade agreement based on zero tariffs and zero quotas that has ever been achieved with the EU. The deal is the biggest bilateral trade deal signed by either side, covering trade worth £668 billion in 2019."

What are the next steps for the agreement?

The agreement will still need to be formally approved by parliaments in Westminster and Brussels. While the UK House of Commons is set to vote on the deal next week, the European Parliament is not expected to have its say until January.

However, this is not expected to prevent the terms of the deal taking effect as of January 1st. All member states have received the text of the draft agreement and, should governments in the 27 capitals be satisfied with the deal, ministers on the council of the EU will agree on provisional application of the agreement from January 1st.

The agreement itself comes to around 2,000 pages, which businesses and politicians will need to scrutinize carefully in the coming days to determine what, if any, new steps will apply.

One of the key areas of discussion has been on rules of origin, especially for industries such as auto manufacturing. According to the Financial Times, the UK has won concessions that will allow products such as electric cars to be traded tariff-free, even if a relatively high proportion of their components come from the rest of the world.

Governance was another of the major sticking points of the deal, with the EU keen to retain provisions that would allow it to enact future tariffs on British goods if the UK attempts to undercut EU standards in areas such as environmental protections or workers' rights. 

It had also demanded a mechanism that could see tariffs apply if the UK tried to change agreed quotas for fishing catches - one of the final areas of dispute. However, the Guardian has reported the UK rejected these efforts.

While it is likely to be some time before businesses can fully get to grips with any changes required as a result of the agreement, the avoidance of a no-deal will no doubt be a huge relief to importers and exporters on both sides of the English Channel.