A minimum agreement at the last moment avoids the chaos of a agreement Brexit, but further negotiations will have to be held over the next few years.

Fragment of Brexit mural [Pixabay].

ANALYSIS / Pablo Gurbindo

After the United Kingdom officially left the European Union on January 31, 2020 at midnight, with the entrance into force of the Withdrawalagreement , it seemed that the issue that has practically monopolized the discussion in Brussels in recent years had been settled. But nothing could be further from the truth. The "political Brexit" had been resolved, but the "economic Brexit" still remained to be resolved.

In order to avoid chaos, this agreement provided for a transition period of 11 months, until December 31, 2020. During this period the United Kingdom, despite being already outside the EU, had to continue to be subject to European legislation and the Court of Justice of the EU as before, but without having a voice and a vote in the EU. The goal of this transition was to give both parties time to reach an agreement to define the future relationship. All parties knew that 11 months would not be enough time. Only a new trade agreement takes years to negotiate, the agreement with Canada took 7 years, for example. For this, the transition period included a possible extension before June 30, but Johnson did not want to ask for it, and promised his citizens to have a trade agreement by January 1, 2021.

With the fear of a possible Brexit without agreement, and the serious consequences it would have for the economies and citizens of both parties, an agreement was finally reached on December 24, just one week before the end of the transition period.

This agreement entered into force on January 1, 2021 on a provisional basis, since there was not enough time for it to become C in one week. The question now is: what does this agreement consist of, what have been the sticking points, and what have been the first tangible consequences during these first months?

The agreement on Trade and Cooperation (ACC)

What needs to be made clear from the outset is that this is a minimum agreement . It is a hard Brexit. A agreement Brexit has been avoided which would have been catastrophic, but it is still a hard Brexit.

The PCA between the United Kingdom and the European Union comprises a free trade agreement , a close association on subject of public security and a general governance framework .

The most important points of the agreement are the following:

Trade in goods

The PCA is very ambitious in this sense, as it establishes free trade between the two parties without any tariff or quota subject any product. If there had been no agreement in this sense, their trade relationship would have been governed by the rules of the World Trade Organization (WTO), with its corresponding quotas and tariffs. However, this free trade has a catch. This absence of any tariff or quota subject is only for "British originating" products, and this is where the complexity lies.

The rules of origin are detailed in the PCA, and although as a general rule the agreement is generous in qualifying a product as "British", there are certain sectors where this certification will be more demanding. For example, for an electric vehicle produced in the UK and exported to the EU to avoid tariffs, at least 45% of its added value must be British or European and its battery must be entirely British or European. From now on, proving the origin of each shipment in certain sectors is going to become a bureaucratic hell that did not exist before December 31. And the re-export of unprocessed foreign products from British soil to Europe will now be subject to a double tariff: one on entrance to the United Kingdom and another on entrance to the Union.

However, even if there are no tariff or quota subject on products, the usual trade flow will not be maintained. For example, in the area of trade in agri-food products, the absence of an agreement in the United Kingdom's sanitary and phytosanitary regime means that from now on, trade in these products will require sanitary certificates that were not previously required. This increase in "red tape" may have important consequences for products that are more easily substitutable, as importers of these products will prefer to avoid this extra bureaucracy by switching from British suppliers to other European ones.

Financial Services

In the subject services, the agreement is rather poor, but the lack of agreement on financial services, a very important sector for the United Kingdom, which alone generates 21% of British services exports, stands out.

While the United Kingdom was part of the Union, its financial institutions could operate freely throughout the EU thanks to the "financial passport", since all Member States have agreed on similar regulatory and supervisory rules for the markets. But this no longer applies to the UK.

The British government unilaterally decided to maintain easy access to its markets for EU entities, but the EU has not reciprocated.

In the absence of agreements on financial subject , European rules and regulations concerning third country entities, as a general rule, simply facilitate the establishment of these entities in the Union in order to operate in its markets.

One of the EU's objectives with this lack of reciprocity may have been the desire to wrest part of its capital from the City of London, Europe's leading financial place .

Citizens

Most of this section was resolved with the Withdrawal agreement , which guaranteed for life the maintenance of acquired rightsresidency program, work...) for European citizens already on British soil, or British citizens on European soil.

The ACC has agreed to abolish the need to apply for visas bilaterally for tourist stays not exceeding 3 months. For these cases it will now be necessary to carry a passport, not just a national identity card. But for longer stays, residency program or work visas will be required.

As for the recognition of professional and university degrees and qualifications, despite the UK's interest in maintaining them automatically as they are now, the EU has not allowed it. This could mean, for example, that qualified professionals such as lawyers or nurses will find it more difficult to have their degree scroll recognized and be able to work.

data protection and security cooperation

The agreement will allow police and legal cooperation to continue, but not with the same intensity as before. The United Kingdom will no longer be part of the EU data instructions on these matters. Exchanges of information will only be made at the written request of a party, either by requesting information or by sending information on its own initiative.

British relations with Europol (European Police Office) or Eurojust (European Agency for Judicial Cooperation) will be maintained, but as an external partnership .

Participation in Union programs

The United Kingdom will continue to be part of some Community programs such as: Horizon, the main European scientific cooperation program; Euratom, through a cooperationagreement external to the ACC; ITER, an international program for the study of fusion energy; Copernicus, a program led by the European Space Agency for the development of autonomous and continuous Earth observation capacity; and SST (Space Surveillance and Tracking), a European program for tracking space objects to avoid their collision.

But on the other hand, the UK will not continue in other programs, most notably the important Erasmus student exchange program. Johnson has already announced the creation of a national student exchange program named after the British mathematician Alan Turing, who cracked the Enigma code during World War II.

Friction points in the negotiation

There have been certain points which, due to their complexity or symbolism, have been the main points of friction between the Union and the United Kingdom. They have even jeopardized the success of the negotiations. The three main sticking points for the negotiations have been: fisheries, the level-playing field and governance.

Fishing

The disproportionate importance that fishing has had on the negotiation is surprising, considering that it only represents 0.1% of the British GDP, and is not an essential sector for the EU either. Its importance lies in its symbolic value, and the importance given to it by Brexit supporters as an example of recovering lost sovereignty. It should also be borne in mind that it is one of the points on which the UK had the upper hand in the negotiations. British waters are home to some of Europe's main fishing grounds, which have been accounting for 15% of total European fisheries. Of these fishing grounds, 57% were taken by the EU-27 and the remaining 43% by British fishermen. This percentage greatly infuriated the British fishing sector, which has been one of the main sectors supporting Brexit.

The British intention was to negotiate annual access quotas to its waters, following Norway's example with the EU. But finally a 25% cut in catches has been agreed upon in a progressive manner, but maintaining access to British waters. This agreement will be in force for the next five and a half years, after which new negotiations will be necessary, which will then be on an annual basis. In exchange, the EU has kept the possibility of commercial retaliation in the event that European fishermen are denied access to British waters.

"Level-playing field"

The topic of unfair skill was one of the most worrying issues in Brussels. Given that from now on the British do not have to follow European legislation, there was concern that, just a few kilometers from the Union, a country of the size and weight of the United Kingdom would considerably reduce its labor, environmental, tax or public aid standards. This could result in many European companies deciding to relocate to the UK because of this reduction in standards.

The agreement establishes a monitoring and retaliation mechanism in cases of discrepancies if one of the parties feels aggrieved. If there is a dispute, depending on the case, it will be submitted to a panel of experts, or it will be submitted to arbitration. For the EU a system where tariff offsets would have been automatic and if not interpreted by the CJEU would have been preferable. But for the UK one of its main objectives in the negotiation was not to be under the jurisdiction of the CJEU in any form.

Governance

The governance design of the agreement is complex. It is chaired by the Joint association committee , which will ensure that the PCA is correctly applied and interpreted, and in which all issues that may arise will be discussed. This committee will be assisted by more than thirty specialized committees and technical groups.

If a dispute arises, it shall be submitted to this joint association committee . If a solution is not reached by mutual agreement , then an external arbitration will be held, the decision of which is binding. In case of non-compliance, the aggrieved party is authorized to retaliate.

This instrument allows the EU to cover its back against the risk of the UK breaching part of the agreement. This risk gained a lot of strength during the negotiations, when Johnson presented to the British Parliament the Internal Market Act, which aimed to avoid any internal customs subject in the UK. This bill would go against the "Irish safeguard" agreed by Johnson himself and the EU in the Withdrawalagreement , and would go against international law as a clear contravention of the principle of "pacta sunt servanda". In the end this law was not passed, but it created great tension between the EU and the UK, in the British civil service examination of Johnson and even among its own ranks by calling into question the international credibility of the country.

Consequences

During the first months of the ACC's entrance into force, several important consequences have already been observed.

The controversial withdrawal of the United Kingdom from the Erasmus program has already been felt. According to British universities, applications for programs of study from European citizens have fallen by 40%. The pandemic has played a role in this significant reduction, but it should also be noted that university fees in the UK after the program's exit have increased fourfold.

In terms of financial services, the City of London has already lost its degree scroll as Europe's leading financial center to Amsterdam in the first few months of the year. Daily equity trading in Amsterdam in January totaled 9.2 billion euros, higher than the 8.6 billion euros managed by the City. The London average last year was EUR 17.5 billion, far higher than the second-ranked European place , Frankfurt, with an average of EUR 5.9 billion. Last year, Amsterdam's average trade figure was 2.6 billion euros, making it the sixth largest financial place in Europe. The EU's lack of reciprocity in financial services has been able to achieve its goal for the time being.

One of the most curious anecdotes demonstrating the changes brought about by Brexit during these first months was the viral video of the Dutch customs authorities confiscating ham sandwiches from transporters arriving by ferry from the United Kingdom to the Netherlands. With the entrance into force of the PCA, animal products are not allowed to be exported without the corresponding health certificates.

Despite the absence of tariffs and quotas, the increased bureaucracy was expected to affect exchange and it has. According to data from the UK Road Transport association , UK exports to the EU via the ports fell by 68% in January compared to the same month last year.

It seemed that the British fishing sectors could be among the main beneficiaries of the agreement, but after these first months British fishermen are not satisfied. New bureaucratic requirements are slowing down deliveries and some fishermen are complaining that their catches are going to waste because they cannot be delivered on time to certain European markets. According to Scottish fishing representatives, delays due to bureaucracy are causing a loss of one million pounds a day to the sector. It should be borne in mind that UK fish exports to the EU accounted for 67% of the total in 2019. Faced with complaints from the sector, the British government has already announced a financial aid of 23 million pounds.

Conclusion

The agreement reached is undoubtedly a better result than the no agreement, but it is an incomplete agreement , and further negotiations will be necessary. The future of the PCA will depend on the change of position of the United Kingdom, which during the negotiation has prioritized having regulatory autonomy and recovering its "lost sovereignty". The agreement is also fragile as it allows either party to terminate the negotiated relationship if 12 months' notice is given.

The European Union and the United Kingdom are doomed to understand each other. The Union will have to learn to live with a neighbor with a lot of power and influence, and the United Kingdom will have to learn to live in the sphere of influence of the 27.

But, when the time comes, the United Kingdom will always have the option of article 49 of the EU Treaty, which regulates the accession of new countries to the Union.