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How UK-EU trade deal will change relations between Britain and Brussels

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The future relationship deal struck between the UK and the EU will bring far-reaching changes, as both sides are forced to adapt to the end of Britain’s 30-year membership of the European single market.

The trade agreement between London and Brussels will offer UK and EU companies preferential access to each other’s markets, compared with basic World Trade Organization rules — ensuring imported goods will be free of tariffs and quotas.

But economic relations between the UK and the EU from January 1, when the deal is due to take effect, will be on more restricted terms than they are now. 

“Everyone needs to get prepared for a situation next year that will be very different to today,” said an EU official.

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A trade agreement along the lines of the one negotiated between the two sides will leave Britain facing a 4 per cent loss of potential gross domestic product over 15 years compared with EU membership, according to the UK’s Office for Budget Responsibility. Failure to secure an agreement would have led to lost potential GDP of almost 6 per cent, the fiscal watchdog estimated.

Below are some of the benefits conferred by the UK-EU future relationship deal, which also includes security co-operation — and the important areas in which Britain’s links with the bloc will fall short of existing arrangements.

Containers are unloaded from ships at the port of Felixstowe, Suffolk © Neil Hall/EPA/Shutterstock

1. Trade in goods 

The EU and UK’s starting point for the future relationship talks was that they should lead to a deal with no tariffs on trade in goods between the two sides. They also wanted no quantitative restrictions on the volume of goods that could be sold free of tariffs. 

That was negotiated, meaning the deal will go beyond what the EU has done with any other advanced economy outside the European single market. 

But the agreement is still a very different state of affairs to membership of the EU single market and customs union.

Once implemented, from January 1, a hard customs and regulatory border will exist between the EU and UK, and goods will face checks and controls that can be smoothed at the margins only by co-operation.

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The deal will include facilitations such as co-operation on trusted trader schemes, but none of these erase border checks.

“The agreement provides for continued and sustainable air, road, rail and maritime connectivity, though market access falls below what the single market offers,” said the European Commission.

2. Fair business competition

The EU’s offer on tariff-free trade was contingent on the UK agreeing to uphold a “level playing field” on fair business competition in areas such as environmental standards.

Brussels was also keen to ensure the UK does not have unfettered scope to disburse state aid to prized industries, giving them a competitive advantage. 

The agreement includes common binding principles on state aid, enforceable in both sides’ courts, which would be able to recover illegal subsidies.

It also includes a painstakingly negotiated “rebalancing mechanism” to deal with a situation where the sides’ regulations in areas such as labour rights diverge over time.

The mechanism, which would be subject to independent arbitration, would allow the disadvantaged side to impose tariffs to restore fair competition.

But, crucially for the UK, it will not be required to follow EU rules directly or be subject to the jurisdiction of the European Court of Justice.

Being outside the European single market has other regulatory consequences for Britain. For example, UK businesses will no longer be able to assume that product authorisations from British watchdogs will allow their goods to be placed on the European market. 

A British fishing boat off the south-east coast of England © Glyn Kirk/AFP/Getty Images

3. Fish

The deal creates a five-and-a-half-year transition period during which EU fishermen will have guaranteed access to UK waters.

EU quotas in British waters will decline in the transition by 25 per cent compared with current levels, and this will have the knock-on effect of boosting how much UK fishermen can secure. EU boats currently catch about €650m of fish in British waters each year.

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Once the transition period is over, EU boats’ access to UK waters will in principle depend on annual negotiations between both sides. Those talks will also determine the overall quantities of different species that can be caught.

Should EU boats’ access to British waters ever be revoked by the UK, the bloc will have the right to take compensatory measures. These include retaliatory closing of EU waters to UK boats, and the imposition of tariffs on British fish.

The deal also links the UK’s access to the EU energy market to access to British fishing waters.

The UK warded off EU demands for a cross-retaliation power to hit other parts of the British economy should a dispute over fish escalate.

Still, the deal does provide a last-resort “safeguard” option that would allow either side to take emergency measures to protect coastal communities, subject to dispute-settlement arrangements in the agreement.

The deal enshrines the principle that Britain is now outside the EU’s common fisheries policy: an independent coastal state with sovereignty over its waters.

4. Financial services

The City of London will exit the EU’s single market for financial services at the end of the Brexit transition period on December 31.

Both sides have said that the new market access arrangements for UK and EU financial services companies should be based on unilateral decisions by Britain and the bloc, rather than be provided for in the trade agreement.

These so-called equivalence decisions involve each side evaluating whether the other’s financial services regulations are as tough as its own.

Banks and traders have acknowledged that the proposed system is more piecemeal than existing arrangements, and less stable. The EU did not announce any fresh equivalence decisions on UK access to the bloc’s markets alongside the trade agreement on Thursday, resulting in uncertainty in key areas including share trading and derivatives.

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The two sides plan to put in place a regulatory dialogue on financial services based on a separate memorandum of understanding.

Ending free movement for EU nationals in the UK was identified by the British government as one of the benefits of Brexit © Oli Scarff/Getty Images

5. Migration

Current British and EU expatriates have their rights safeguarded by the UK’s 2019 withdrawal agreement with the bloc, but big changes to migration arrangements take effect from January 1.

Britons will no longer have the benefit of European freedom of movement: the right to go to any EU member state and seek to work and live there on the same basis as the country’s own citizens. 

Instead, Britons will rely on a visa-waiver programme to travel to the EU for short stays, and on member states’ national rules for the right to work. 

Ending free movement for EU nationals in the UK was identified by the British government as one of the benefits of Brexit, allowing the country to devise a new immigration system. 

6. Security

The EU and UK have been at pains to emphasise the importance of continuing co-operation in the fight against terrorism and organised crime, although talks in this area were complicated by Britain’s determination to escape the ECJ’s jurisdiction.

But ahead of the deal being finalised, EU chief negotiator Michel Barnier confirmed the sides had found ways to maintain “close co-operation” on crucial matters including the work of the bloc’s crime-fighting agencies Europol and Eurojust, and the sharing of criminals’ DNA data.

Brussels said the deal “builds new operational capabilities, taking account of the fact that the UK, as a non-EU member . . . will not have the same facilities as before”.

The deal establishes that security co-operation can be suspended if the UK breaks away from the European Convention on Human Rights.

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