Press play to listen to this article
The deal between the U.K. and the EU is the largest bilateral trade pact in history, the two sides said on Thursday. It is also the first modern trade deal to disintegrate a trading partnership, erecting and defining barriers between markets.
The deal, which covers a collective market worth $905 billion as of 2019, has not yet been published in full but a suite of documents released by the EU and the U.K. paints a picture of the agreement.
The agreement covers goods and services trade, but also includes investment chapters, provisions on fish and data protection.
Here’s a breakdown of the key elements known so far.
The pact allows for tariffs and quota-free trade in goods, provided they meet so-called rules of origin that determine how much content in a product must be derived from a nation bound by the agreement. But these can be self-certified, a boon for business that makes it easier to comply with the rules and therefore benefit from the deal. Nevertheless, there will be fresh paperwork and procedures for businesses to grasp within a short period of time.
The agreement enables both the EU and U.K. to set their own rules on geographical indications, rules designed to protect the quality and reputation of foodstuffs produced in a particular region. A review mechanism in the agreement means the two sides can choose to coordinate on rules at a later date.
In a separate agreement, the EU granted the U.K. so-called third-country listing, confirming the U.K. has met the necessary animal health and biosecurity standards required to export live animals and animal products to the EU.
Moving goods will also be eased by keeping access for transport by road and by air unlimited and there are detailed commitments on how to allocate the handling of air freight and passenger rights.
There’s also a chapter on how the EU and U.K. will tackle regulatory barriers, building on the World Trade Organization trade in technical barriers agreement in areas like labeling and the testing, inspection and certification of products before they are allowed on the market. There are sector-specific annexes on the automotive, chemical, pharmaceutical, organic produce and wine sectors, the U.K. said.
The chapter allows the two sides to “regulate goods in the way most appropriate for their own market,” according to U.K. negotiators, but anticipates that the two sides will share information on “dangerous and non-compliant products.”
The need to sustain the deal’s commitments through so-called level playing field rules, which the EU wanted to ensure British business can’t undercut the bloc, was given strong emphasis in the European Commission’s briefings on the agreement. Such rules had been contentious in the negotiations and were highlighted by many EU member states as a top priority.
The briefings said these provisions were crucial to ensuring fair competition. They cover areas like climate change and labor rights, tax and the politically sensitive area of state aid, which had been a key stumbling block in talks.
There are mechanisms baked in, should either side renege on these aspects: “Both parties can engage in cross-sector retaliation in case of violations of the agreement. This cross-sector retaliation applies to all areas of the economic partnership,” one EU guidance document reads.
State aid was a key priority for the U.K. side too, with negotiators keen to ensure Britain could have its own system to support sectors after the transition period ended and wasn’t tied to EU rules.
The U.K. documents says of subsidies: “The Agreement ensures that each Party will have in place its own independent system of subsidy control and that neither Party is bound to follow the rules of the other.”
The EU and the U.K. have agreed on a transition period until June 2026 to switch from the current quota shares in U.K. waters to new quota shares. That gives the EU guaranteed access to U.K. waters in the coming years.
Both sides also agreed on a 25 percent cut in the share of fish caught by EU vessels in U.K. waters. That’s a compromise for both sides. The EU initially wanted to maintain its current access but then compromised to a 25 percent cut. The U.K. wanted to see a 60 percent cut.
After the transition period, there will be annual negotiations on access and to decide on the volume of fish the other party can catch in each other’s waters.
Although the U.K. is no longer part of the single market, the agreement will make sure that energy continues to flow between the U.K. and EU through new trading arrangements over interconnectors — international connections between electricity and natural gas networks.
Securing an arrangement on energy was hugely important to both sides, because they trade gas and electricity in real-time, share a lot of technology, and a number of energy companies operate in both markets.
The agreement also commits the two sides to cooperating on renewable energy and tackling climate change. The agreement can be suspended if either party breaches their commitments under the Paris climate accord. A separate agreement deals with nuclear energy cooperation.
On services, by quitting the single market, it was made clear during the negotiations that the U.K. lost some market access for trade in financial services. This is still the case since there is no provision for the sector in the agreement. More than 40 percent of the U.K.’s exports to the EU are services, and the sector accounts for around 80 percent of the U.K.’s economic activity.
Passporting, which allowed automatic access to the single market, is gone, as is a key ask from British business lobbying groups: Mutual Recognition of Professional Qualifications (MRPQs), the mechanism that allows workers such as doctors, engineers and architects to have their qualifications recognized across member states. This will not be simply rolled over.
The devil will be in the detail of the full document on MRPQs and other frameworks for recognition of standards. The short summary document from the EU on the deal says there will be: “Facilitations for short-term business trips and temporary secondments of highly-skilled employees.” The U.K. side said: “From early 2021, the government will provide help and guidance to U.K. regulatory authorities and professional bodies” on how to make use of a framework for MRPQs within the deal.
For smaller contracts — the size of which is not yet detailed — the two parties will be able to access one another’s public procurement markets. This is particularly significant given the huge levels of government investment likely on both sides as they try to recover from the devastating impact of the coronavirus pandemic.
There’s a provision for the flow of data until the two sides decide that each other’s data protection rules are strong enough to allow data to move between the U.K. and the EU. But this temporary provision will last for “no longer than 6 months,” the U.K. said.
In an acknowledgement of how embedded EU and U.K. citizens are within one another’s jurisdictions, the deal will provide for coordination of some social security benefits such as pensions.
What happens next
The deal will be examined by EU ambassadors in Brussels on Christmas Day at 10.30 a.m. Brussels time. For the deal to enter into force provisionally, it will have to be approved by the bloc’s member governments via the Council of the EU by December 31. The European Parliament is expected to vote on the agreement retrospectively early next year.
Meanwhile, the U.K.’s House of Lords and House of Commons have both been recalled for December 30 and are expected to vote on the deal. Given Prime Minister Boris Johnson’s huge majority in the Commons, he is not expected to face significant opposition. Labour leader Keir Starmer said Thursday afternoon his party would reluctantly back the deal, but only because the choice was “this deal or no deal.”
Want more analysis from POLITICO? POLITICO Pro is our premium intelligence service for professionals. From financial services to trade, technology, cybersecurity and more, Pro delivers real time intelligence, deep insight and breaking scoops you need to keep one step ahead. Email [email protected] to request a complimentary trial.