The Thin Trading Agreement Between the EU and the UK

After 9 months of hard negotiations, UK Prime Minister Boris Johnson and EU Commissioner Ursula von der Leyen reached an agreement in which neither side can claim victory nor cry in defeat. Compromises load this accord.  On December 28, the agreement received unanimous approval from all EU governments. Relief that the UK did not leave without a trading agreement is the principal emotion. The details are wrapped in a lengthy legal document that is only now being dissected.  The verdict is a thin agreement with much still to negotiate in the years ahead.  

            Based on an initial reading, what is in this agreement? The EU agreed that future EU regulations over labor, environment, social policy and state subsidies cannot constrain a future UK government. British sovereignty abhors future constraints. But should the UK introduce regulations which give advantage to British or foreign companies, the EU shall retaliate with tariffs whose kind and size will be decided by an independent panel.  The composition of such a panel will be equally divided between the UK and EU with an independent arbitrator appointed to make the final judgement. The consequence of this independent review is that weeks will elapse between the UK’s decision to favor an industry or agricultural product and the arbitrator’s judgement.  It can be hoped that the prospect of a decision harmful to the favored British sector may be sufficient to deter the grant of a competitive advantage. However, we should expect harsh exchanges as London defends its regulations and Brussels cries ‘unfair advantage.’

The Value of Mackerel

            Fisheries was a highly political issue with fishermen on both sides of the North Sea defending their rights of 45 years to fish in extensive UK waters.  A transition period will last for 5.5 years - a compromise between the 15 years initially sought by the EU and the 3 years offered by London. Only at the end of this period will talks begin on fish allocation. Meantime, EU fishermen will continue to have access to the UK’s 200-mile maritime economic zone.  The issue of what percentage of the value of the EU fish catch must be transferred to UK fishermen was finalized at 25 percent, far lower than the percentage sought by London.  We should foresee an enlarged troupe of inspectors at European ports, pouring over fishermen’s catch and weighing up the value of fish that each boat owner must transfer to the UK.  Disputes will abound, but haggling over the value of mackerel will be kept separate from disputes over other trade issues. Fish fights must be settled on their own merits.

            The European Court of Justice will no longer have a role in the administration of British justice, which shall remain sovereign.  However, the determination of how migrants are treated and whether they can be returned to one of the 27 EU nations will remain an issue for European justice. France has firmly rejected acceptance of migrants dumped there by the British.

            British students will no longer have access to the Erasmus program which supports UK and EU students studying in each other’s countries.  But separately, Brussels seeks to raise funds to continue this academic exchange program in order to stimulate a younger generation in the value of EU membership.  Meantime, London will contribute 1 billion euros to continue UK scientific collaboration in several EU Research and Development programs, including Euratom as well as Galileo and Copernicus, the EU space program.

Debate on Covid-19 relief

            An issue that will linger into 2021 is the determination of whether Covid-19 relief funds should be treated as state aid or not.  Brussels had wanted to excluded the release of its 750 billion euro ($858 billion) Covid relief fund from any regulations on state aid.  The UK is not eligible for this relief and refused to accept that EU countries could count the monies as non-state aid, while any aid that London distributes would be counted as state aid.  Clearly, this is an issue for further discussion in 2021 as the 27 plus the UK struggle to envigorate their respective national economies.

            The EU had wished for a statement on defense and foreign policy, but that was a leap too far.  It will have to wait for a future time when the current trade agreement has been tested and a degree of trust between the officials in both London and Brussels has been restored.  The Prime Minister portrayed the negotiations as a victory.  The EU Commissioner talked of a just and fair agreement that avoided a hard Brexit.  Both sides gained enough to leave town for Christmas, but neither can claim unbound victory.