Last reviewed 4 January 2021
This feature examines the UK/EU trade agreement and how the relationship between the UK the EU will develop over the coming year.
In sharp contrast to Prime Minister Boris Johnson’s expressions of delight at the Christmas Eve conclusion of the months of negotiations between the UK and the EU, European Commission President Ursula von der Leyen struck a more regretful note.
While she welcomed the deal reached by the two sides as a fair and balanced agreement, she was clearly unhappy that the parting of the ways had arrived and that, with the transition period due to conclude on 31 December 2020, the UK had finally severed its ties with the Union. However, taking a leaf from the book of a Prime Minister who likes to pepper his speeches with quotations from great writers, she added an interesting point. Referring to TS Eliot’s “Four Quartets”, she said: “What we call the beginning is often the end, and to make an end is to make a beginning.”
They think it’s all over
She ended the reference there, but Eliot’s next line is “The end is where we start from” and that, numerous commentators have pointed out, may be an even more appropriate quote. Brexit may be done, as Mr Johnson would argue, but there is almost general agreement among trade and diplomatic experts that this is only a pause and that negotiations between the UK and its largest trading partner will go on for years – if not decades.
As to why this might be, we should look at the contrasting reactions to the trade agreement by the UK’s chief negotiator, Lord Frost, and the Leader of the Opposition, Sir Keir Starmer. It was, Lord Frost said, one of the biggest and broadest ever; no, said Sir Keir, it was only a thin agreement. Somewhere between these two extremes lies a complicated deal that means further discussion will be needed whenever either side decides to change their rules in a way that the other believes puts it at a disadvantage.
To be continued
Furthermore, there is a rather large elephant in the room in the shape of trade in services. This is hardly mentioned in the 1200+ pages of the EU-UK Trade and Cooperation Agreement despite the fact that services account for some 80% of the UK economy while fishing, about which so much metaphorical blood was shed during the talks, is worth 0.12% of the UK’s GDP. The Prime Minister wore a tie decorated with fish as he hailed the result of the talks but many in the City of London might have preferred to see one covered in £ signs as they battle with Paris and Frankfurt to defend London’s place as a world international centre for financial services.
The main problem they face is that the end of the transition period means the end of “passporting” rights for financial firms registered in the UK. This previously granted them easy access to the rest of the EU when it came to selling funds, debt, advice or insurance to clients. It is reported that 7500 jobs have left the City for the EU since the Brexit referendum as firms began to prepare for the possibility of losing access to European clients. The Government will be watching anxiously to ensure that those numbers do not continue to grow.
Another cloud on the horizon for the future of services is that freedom of movement has previously meant that it was possible for UK professionals to take their teaching, legal, medical and other qualifications and work in any of the EU’s Member States. That right ended on 31 December 2020 as the transition period concluded. A UK Government guide, available at
https://www.gov.uk/government/collections/providing-services-to-eea-and-efta-countries-after-eu-exit now lists what those providing services and travelling for business will need to take into account for each separate Member State of the EU as well as for Switzerland and the countries in the European Economic Area (EEA) — Iceland, Liechtenstein and Norway.
The future looks complicated
Among the pages of advice for each country, the Government frequently suggests: “Consider appointing an English-speaking lawyer in Bulgaria (or Greece or the Czech Republic or…) to help you comply with specific regulations” which seems very sensible given the likely complexities. On a positive note, it also suggests that the professional body representing a particular group will be able to discuss with their opposite number in one of the EU countries the possibility of mutually agreeing on the recognition of each other’s qualifications. They can then submit joint recommendations to the UK-EU Partnership Council for profession-specific arrangements.
“Once approved,” the Government explains, “these mutual recognition agreements would provide routes for UK professionals to have their qualifications recognised in the jurisdiction of an EU Member State, and vice versa.” But that will be profession by profession and country by country — it could all take a long time, and a lot of negotiating.
Until the end of the transition period data flows between the UK and EU Member States are governed by the General Data Protection Regulation (GDPR). This has effectively been brought into UK law by the Data Protection Act (DPA) 2018 and, more specifically, by the Data Protection, Privacy and Electronic Communications (Amendments etc) (EU Exit) Regulations 2019.
The two sides therefore reached 1 January 2021 with their rules effectively matched but, with the issue only partly settled in the transition period talks (a six-month temporary provision), the UK will revert to being what the EU calls a third country – and third countries cannot exchange data with the EU until their rules and processes have been examined and they have been granted what the European Commission calls an adequacy decision.
Volumes of data entering and leaving the UK increased 28 times between 2005 and 2015, and three-quarters of these data transfers are with EU countries, so any lengthy delay in granting an adequacy decision could be costly for the UK. Some of the Commission’s assessments of third countries have taken up to five years and while it is unlikely that it will take that long, given the UK’s adoption of the EU’s GDPR, the timetable is out of the Government’s hands. More delay, more negotiations.
Trading with the world
It was noticeable on Christmas Eve, as everyone waited for the announcement that the talks with the EU had reached a conclusion, that the main item on the press page of the Department for International Trade (DIT) was that the UK had in fact signed a Strategic Partnership, Trade and Cooperation Agreement… with Moldova. Trade between the UK and the Eastern European country was worth £395 million in 2019; the deal with the EU, announced hours later, is said to be worth £668 billion.
However, small as it is, the Moldova deal must be seen in the context of a major effort by International Trade Secretary Liz Truss to sign continuation deals with the more than 70 countries with which the UK has been trading under the aegis of the EU’s trade policy. She has already signed up the likes of Japan, Switzerland and Canada and managed to add Turkey to that list before the end of 2020 - bringing to 60 the number of “roll-over” deals competed by DIT (see https://www.gov.uk/guidance/uk-trade-agreements-with-non-eu-countries#history for the full list).
There was one final ironic touch to the week that saw the UK complete its deal with the EU and finally move away from the possibility of dealing with the Union on “Australian terms”. The Prime Minister seems to have coined this description as an alternative to “no deal” and has repeatedly said that it would be a good outcome as Australia, which has no deal with the EU, seems to be managing perfectly well. However, the European Commission has just reported that the ninth negotiating round has been completed with Australia which has been trying since 2018 to get away from dealing with the EU on World Trade Organization (WTO) terms and move to a proper trade agreement.
One word sums up the reactions of the UK business community to the completion of negotiations with the EU: relief. As British Chambers of Commerce (BCC) Director General Adam Marshall said: “After four long years of uncertainty and upheaval, and just days before the end of transition, businesses will be able to muster little more than a muted and weary cheer.” His suggestion that businesses would welcome a “phasing-in” period to give them more time to adapt to the new paperwork and restrictions that will apply from 1 January 2021 was echoed by a number of other trade bodies including the CBI, Make UK and the Institute of Directors (IoD).
So Brexit is done, but, with problems, discussions, deals and possible transition periods ahead, this series of articles will continue to take a monthly look at what is happening in the ongoing saga of the UK’s relationship with its largest trading partner.