Current Affairs

‘UK ‘finally’ struck a post-Brexit trade deal with EU’

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  • Categories
    World Affairs
  • Published
    26th Dec, 2020
  • Context

    Britain clinched a historic deal with the European Union as both sides managed to thrash out a post-Brexit free trade agreement just days before the December 31 deadline.

  • Background

    • Some 47 years after joining the European Union, Britain officially left the bloc on January 31, 2020.
    • In doing so, it became the first ever nation to leave the EU known as ‘Brexit-British exit’, after the referendum of June 2016 in which Britons voted 52% to 48% to leave the EU.
    • However, it agreed to continue following European rules until the end of 2020 so it could negotiate friendlier trading conditions with the 27 other nations.
    • Since then the UK and the EU have been trying to define the future contours of their relationship but the negotiations went to the wire, as the current arrangement ends on 31 December.
    • Though the details of the final pact are yet to be released, the full document is about the new rules for how the UK and EU will live, work and trade together.
  • Analysis

    What are the EU and Brexit?

    • The European Union is made up of 27 European countries.
    • EU citizens are free to live and work in other EU countries, and firms in those countries can buy and sell each other's goods without checks or extra taxes at borders.
    • The UK first applied to join what was then the European Economic Community in 1961 and finally became a member in 1973.
    • Now called the European Union, it has grown to include former Soviet bloc states and has at its heart a "single market" allowing goods and people to move freely.
    • The UK was the first country to leave the EU and this was known as Brexit - British exit.
    • Brexit happened because a public vote - or referendum - was held in June 2016, to decide whether the UK should be in the EU.

    The history behind Brexit

    • In 1957, France, West Germany, Belgium, Italy, Luxembourg and the Netherlands signed the Treaty of Rome, which established the European Economic Community (EEC), the predecessor of today’s European Union.
    • When the United Kingdom first applied for membership in the EEC in 1963, its application was vetoed.
    • The UK finally made it into the club in 1973, but just two years later was on the verge of backing out again.
    • Tensions between the EEC and the UK exploded in 1984, due to talks to reduce British payments to the EEC budget. 
    • The Maastricht Treaty, which took effect in 1993, created the Brussels-based European Union (EU), of which the EEC, renamed simply the European Community (EC) was the main component.
      • The EU was designed to integrate Europe’s nations politically and economically, including:
        • a united foreign policy
        • common citizenship rights
        • a single currency, the euro (for most member nations, not including the UK)
    • In 2013, David Cameron promises a referendum if the Conservatives win the election.
    • In 2015, the Conservatives win the election.
    • Following a referendum Britons vote 52 percent to 48 percent in favour of leaving the EU.
  • What is the deal all about?

    • The deal contains new rules for how the UK and EU will live, work and trade together.
    • The two sides reached a “zero tariff-zero quota deal” which will help smooth the trade of goods across the channel.
    • Though the detail are not known yet because the full document has not been released.
    • However, it signals that:
      • No taxes on each other's goods when they cross borders (known as tariffs)
      • No limits on the amount of things which can be traded (known as quotas)
    • The UK and EU will "continue co-operating in all areas of mutual interest, including things like climate change, energy, security and transport".

    Key points from the deal:

    • Guarantees: Zero tariffs and quotas on goods
    • Movement: The end of free movement, meaning UK citizens will no longer have the right to work, live, study, or start a business in the EU without a visa
    • Border checks: Border checks will apply between the UK and EU member states
      • There will be no hard border on the island of Ireland between the Republic of Ireland and Northern Ireland
    • Fishing activities: The UK will be able to further develop British fishing activities for at least 5-and-a-half years, during which time European fishing communities will be safeguarded
    • Climate commitment: A shared commitment to protecting the environment, to fight against climate change and carbon pricing
    • Labour rights: A shared commitment to protecting social and labor rights
    • Taxation: Keeping standards on tax transparency
    • Transport sector: Passengers' and workers' rights in the transport sector
    • Participation in EU programs: The UK's continued participation in a number of EU programs until 2027 such as Horizon Europe, subject to a UK financial contribution.
  • Assessing the impacts

    • No free movement: Even with a trade deal, goods and people will no longer be able to move freely between the U.K. and its continental neighbors without border restrictions.
    • Visas: EU citizens will no longer be able to live and work in Britain without visas -- though that does not apply to the 4 million already doing so - and Britons can no longer automatically work or retire in EU nations. Exporters and importers face customs declarations, goods checks and other obstacles.
    • Strengthening economy: The agreement would help mitigate economic disruption and could provide a starting point for constructive future economic and political relations.
    • Green signal for businesses: Given that the EU is the UK’s biggest trading partner, this is big deal for the businesses which were getting jittery about the prospects of a deal Brexit. 
    • Fulfilling goals: Both sides claim that the deal protects their cherished goals.
      • Britain said it gives the U.K. control over its money, borders, laws and fishing grounds.
      • The EU says it protects the EU’s single market and contains safeguards to ensure that Britain does not unfairly undercut the bloc’s standards.
  • How would the deal impact India?

    • Indiamay emerge as a net gainer from the Brexit deal signed between the UK and the EU as services exports from Asia’s third-largest economy are likely to benefit from the curbs on the free movement of professionals between the two markets.
    • The country should explore opportunities in service sectors like IT, architecture, research and development and engineering.
    • India would now be able to sign trade deals separately with both the EU and the UK.

    The bilateral trade between India and the UK dipped to $15.5 billion in 2019-20 from $16.9 billion in 2018-19.

  • What are the unaddressed challenges in the deal?

    The challenges remain on multiple fronts.

    • The operationalization of this deal will be closely watched as the new year will commence with some immense changes for ordinary Britons.
    • Unaddressed service sector: Also, this agreement doesn’t deal with services which will have to be taken separately later on and that will be critical for the UK given its huge services sector.
    • Lack of negotiating space: This will be particularly difficult time for the UK financial sector whose entry into the EU would depend on EU’s decision without any negotiating space for the UK.
    • Data flow: The data flow between the two will also have to be addressed later on.
    • Unprecedented challenges: With the continuing Covid-19 pandemic, decelerating economies, an inward looking America, a belligerent China, and an unprecedented flux in the Indo-Pacific, both the EU and the UK have to look beyond their immediate periphery.
  • What remained unanswered through the deal?

    • Despite the deal, there are still unanswered questions about huge areas, including:
      • security cooperation between the U.K. and the bloc
      • access to the EU market for Britain’s huge financial services sector.
  • The road ahead

Quick Recap

Even though the deal has been agreed, it still needs to be made law. For that to happen it must be looked at and approved by both the UK and European parliaments. As it's been left so late, the European Parliament won't have time to sign it off before the end of the year.  However, the deal will come into force on 1 January in any case with both sides trying to get over this last hurdle without any further delays.

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