A last-minute minimum agreement avoids the chaos of a no-deal Brexit agreement, but further negotiations will have to take place over the next few years.

Fragment of Brexit mural [Pixabay].

ANALYSIS / Pablo Gurbindo

After the United Kingdom officially left the European Union on 31 January 2020 at midnight, with the agreement Withdrawal entrance in force, it seemed that the issue that has practically monopolised 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 had to be resolved.

To avoid chaos, agreement provided for a transition period of 11 months, until 31 December 2020. During this period the UK, despite being outside the EU, was 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 sides time to reach a 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 30 June, but Johnson did not want to ask for it, and promised his citizens to have a trade agreement by 1 January 2021.

With the fear of a possible no-deal Brexit agreement, and the serious consequences it would have for the economies and citizens on both sides, agreement was finally reached on 24 December, just one week before the end of the transition period.

This agreement entered into force on 1 January 2021 provisional, as there was not enough time for it to enter into force within a week C. 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 for Trade and Cooperation (TCC)

What needs to be made clear from the outset is that this is a minimum agreement . It is a hard Brexit. Brexit has been avoided without agreement which would have been catastrophic, but it is still a hard Brexit.

The PCA between the UK and the EU comprises a free trade agreement , a close association on subject on citizen security and a general framework on governance.

The most important points of agreement are the following:

Trade in goods

The PCA is very ambitious in this respect, as it establishes free trade between the two parties without any subject tariffs or quotas on any product. If there had been no agreement in this sense, their trade relationship would have been governed by World Trade Organisation (WTO) rules, with their corresponding quotas and tariffs. However, there is a catch to this free trade. This absence of any subject tariff or quota 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 31 December. And the re-export of unprocessed foreign goods from British soil to Europe will now be subject to a double tariff: one from entrance to the UK and another from entrance to the EU.

However, even if there is no subject tariff or quota on products, the usual trade flow will not be maintained. For example, in the area of trade in agri-food products, the absence of agreement in the UK'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 to European suppliers.

Financial services

On subject services agreement is rather poor, but the lack of agreement for financial services, a very important sector for the UK, which alone generates 21% of UK services exports, is notable.

While the UK was part of the Union, its financial institutions could operate freely throughout the EU thanks to the "financial passport", as all Member States have agreed similar market regulation and supervision rules. But this no longer applies to the UK.

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

In the absence of agreements at subject financial, the European rules and regulations referring to third country entities, as a general rule, simply makes it easier for these entities to establish themselves in the Union in order to be able 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 agreement Withdrawal, which guaranteed for life the maintenance of acquired rights (residency program, work...) for European citizens who were already on British soil, or British citizens who were on European soil.

In the PCA it has been agreed to abolish the need for apply for visa bilaterally for tourist stays not exceeding 3 months. For these cases it will now be necessary to carry a passport, a national identity card will not suffice. For longer stays, however, visas will be required from residency program or work.

As for the recognition of professional and university degrees and qualifications, despite the UK's interest in maintaining them automatically as they have been until now, the EU has not allowed this. This could mean, for example, that qualified professionals such as lawyers or nurses would find it more difficult to have their degree scroll recognised 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 UK will no longer be part of the instructions of data on these matters. Exchanges of information will only be made at written request 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 programmes

The UK will continue to be part of a number of Community programmes such as: Horizon, the main European scientific cooperation programme; Euratom, through a cooperationagreement external to the PCA; ITER, an international programme for the study of fusion energy; Copernicus, a programme led by the European Space Agency for the development autonomous and continuous Earth observation capability; and SST (Space Surveillance and Tracking) a European programme for tracking space objects for collision avoidance.

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

Negotiation sticking points

There have been certain points that, due to their complexity or symbolism, have been the main points of friction between the Union and the United Kingdom. They have even jeopardised 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 of fisheries in the negotiations is surprising, given that it represents only 0.1% of 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 regaining 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 accounted for 15% of total European fishing. Of these fisheries, 57% were taken by the EU-27, with the remaining 43% taken by British fishermen. This percentage greatly infuriated the British fishing sector, which was one of the main sectors that supported Brexit.

The UK's intention was to negotiate annual access quotas to its waters, following Norway's example with the EU. But in the end a 25% cut in catches has been agreed on a progressive basis, 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 and then on an annual basis. In return, the EU has retained the possibility of trade retaliation in the event that European fishermen are denied access to British waters.

"Level-playing field

The topic of the unfair skill was one of the issues of greatest concern in Brussels. Given that from now on the British do not have to follow European legislation, there was concern that, just a few miles from the Union, a country of the size and weight of the United Kingdom would considerably reduce its labour, environmental, tax and public aid standards. This could result in many European companies deciding to relocate to the UK because of these lower 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 compensation would have been automatic and if not interpreted by the CJEU would have been preferable. But for the UK one of its main negotiating objectives was not to be under the jurisdiction of the CJEU in any way.

Governance

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

If a dispute arises, it will be referred to this committee of association Joint. If a solution is not reached by mutual agreement agreement , then an external arbitration will be used, the decision of which is binding. In case of non-compliance, the aggrieved party is entitled 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 momentum during the negotiations, when Johnson presented the Internal Market Act to the UK Parliament, which aimed to prevent any internal UK customs subject . This Act would go against the "Irish safeguard" agreed by Johnson himself and the EU. This bill would go against the "Irish safeguard" agreed by Johnson himself and the EU in the agreement Withdrawal, and would go against international law as a clear contravention of the "pacta sunt servanda" principle. In the end this law was not passed, but it created great tension between the EU and the UK, in the UK's civil service examination to Johnson and even within its own ranks by calling the country's international credibility into question.

Consequences

During the first few months of the PCA's entry into force, entrance , several important consequences have already become apparent.

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

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

One of the most curious anecdotes demonstrating the changes that Brexit has brought about during these first months was the viral video of Dutch customs authorities confiscating ham sandwiches from transporters arriving by ferry from the UK to the Netherlands. With the PCA in force, entrance , 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 the trade 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 agreement, but after these first few 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 fishermen's representatives, delays due to red tape are causing the industry to lose £1 million a day. It should be borne in mind that UK fish exports to the EU accounted for 67% of the total in 2019. In response to complaints from the sector, the British government has already announced a £23 million financial aid .

Conclusion

The agreement reached is undoubtedly a better result than 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 UK, which during the negotiation has prioritised regulatory autonomy and regaining its "lost sovereignty". The agreement is also fragile as it allows either side 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 EU will have to learn to live with a neighbour with a lot of power and influence, and the UK will have to learn to live in the sphere of influence of the 27.

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