Prime Minister Boris Johnson and his government may have got Brexit across the line, and avoided the embarrassment and discomfort the country would have suffered had they not, but clearly they have not delivered on what was promised at the 2016 referendum.
The chief campaigner on the pro-Leave side Boris Johnson assured Britain that Brexit would get back control over its laws, borders, money, trade and fisheries – without cost to the rights and benefits currently enjoyed.
After more than 4our years of haggling disguised as negotiations, the cost has finally been revealed. Like a magician with a rabbit in a hat, Boris declared the deal reached on Christmas Eve was a ‘great new deal’ that ‘takes back control’ and from which Britain ‘would prosper mightily’, assured of its place in world trade, bigger and better than ever. A rebirth for Britain outside the EU?
In more measured terms the President of the European Commission, Ursula von der Lauren, described the agreement as “fair” and “balanced”, looking forward to a cooperative and mutually respectful and trusting relationships for the future. The deal, comprising some 1,246 pages of text including important annexes, covers a broad range of matters, apart from trade and economics, such as aviation, road transport, and social security; law enforcement and criminal justice (data exchanges, extradition, etc.); collaboration over health and scientific programs; and dispute settlement. The 34-page summary issued on Boxing Day by the UK government is available here.
The ‘great’ places in world trade to which Global Britain aspires are the US, China and the European Union with market populations of 330 million, 1.4 billion and 450 million, respectively. In leaving the EU, the UK has left both its customs union and its internal market and in return has secured a ‘free trade’ agreement that brushes aside Theresa May’s mantra that “no deal is better than a bad deal”. While being right so far, by meeting the exigencies of the moment, it may be a while before the deal as realised can be definitively assessed.
The Free Trade Agreement
FTAs are notoriously fickle, largely unenforceable and depend on trust and goodwill between the partners (witness the Australia/China FTA). At this juncture both partners are espousing both trust and goodwill. However there are escape clauses for the dissatisfied.
Core provisions securing tariff-free and quota-free trade depend on both parties achieving and maintaining a level playing field, and resisting significant divergence. Where this does not occur, the parties may accept arbitration via a Partnership Council (not a court), and/or a battery of sector committees, whose awards are not enforceable. Awards would mostly take the form of permitted policy adjustments or tariff increases against the ‘offending’ party. Conditions and limitations apply to cross-sector suspensions in some areas.
If the EU were to introduce a levy on cross-border products based on carbon content and the UK were not to do likewise this could adversely effect pricing and rut the level playing field.
The 34 page summary states: “The Agreement makes clear both parties will have their own effective systems of carbon pricing in place to help fulfil our respective climate goals. The Parties have agreed to cooperate on carbon pricing in future and consider linking their respective systems, although they are not under any obligation to do so.”
What, one may ask, if they don’t!
Lesser issues concerning the balancing or rebalancing of obligations and standards include fisheries and other sector agreements that envisage or allow for further negotiations or review down the line, or even an opting out. As for opting out altogether the Agreement is much less strict than that governing the EU. It provides that either the UK or EU may decide to terminate the Agreement with 12 months’ notice.
To quote the summary: “This overall termination clause is without prejudice to other termination clauses in the Agreement; certain areas of cooperation have bespoke termination clauses, meaning that either Party can decide to cease cooperation in these areas without the whole agreement being terminated.”
The Agreement also provides for termination of the sensitive Fisheries agreement on a mere nine months’ notice.
The EU relationship is not only about trade. It covers and facilitates relatively smooth transactions of economic and social activity throughout the region, a region that for the UK remains within its close neighbourhood. The paperwork required after January 1 for customs clearances and permissions at EU points of entry had been intended to be consigned to history decades ago but is now largely revived, albeit in certain respects in electronic form when all systems are activated. Its resurrection at the Irish borders was promised not to recur, and now threatens the Good Friday Agreement of 1998 on which Irish peace and good order largely depends. The Irish Prime Minister remarked that there was no such thing for Ireland as a ‘good Brexit’ but said he would work hard to minimise the negative consequences.
By regaining its ‘sovereignty’ and control a British government will no longer be able to blame the EU for its own shortcomings. It will have to stand up for itself in all trade disputes, including with the EU. It will need to establish its own independent tariff schedule and get that accepted one by one with some 160 Contracting Parties to the World Trade Organisation and the associated General Agreement on Tariffs and Trade – a process that can take years to complete.
By leaving the EU the UK cannot avail itself of the numerous bilateral and multilateral agreements the EU has with third countries. However the UK has already negotiated 29 continuity agreements with those countries and is negotiating a further six, some of which might lead to FTAs, e.g. with Australia, New Zealand and the US, to add to its FTAs with Japan, Switzerland, Singapore and Canada – and now the EU.
In general, the agreement incorporates typical substantive provisions of numerous FTAs in force around the world, giving them a tweak or two, or being more explicit as to expectations of enforcement or the converse, including exclusions. The Agreement picks up on well-worked provisions regarding subsidies in the GATT/WTO, including rules of origin and on technical barriers to trade. Specific reference is made to the WTO’s Trade Facilitation Agreement, which warrants stronger recognition and observance by the international trading community than has been seen to date . Elsewhere it adopts the ‘trusted trader’ scheme to minimise hassles for established cross-border transactors.
Standards and equivalence
While the UK is free to adopt its own standards vis a vis third countries, in relation to the EU existing standards on products, the environment and labour conditions must remain aligned approximately with those of the EU to avoid countervailing measures. To quote again from the summary: “The Agreement includes reciprocal commitments not to reduce the level of protection for workers or fail to enforce employment rights in a manner that has an effect on trade. … The provisions are clear that both Parties have the freedom and ability to make their own decisions on how they regulate – meaning that retained EU law will not have a special place on the UK’s statute books. This Chapter is not subject to the Agreement’s main dispute resolution mechanism but will instead be governed by a bespoke Panel of Experts procedure.“
The Agreement does little for services, notably financial services, or on rights of establishment, which is surprising given that services represent some 80% of the UK’s external earnings. But there are supportive provisions on ‘national treatment’, the avoidance of arbitrary and discriminatory actions against businesses in the other jurisdiction, on the facilitation of short-term cross-border business visitations (permitting stays of up to 180 days in a financial year); but nothing that one can see facilitating establishment other than full faith and credit given to the other parties’ domestic establishments. Cross-border digital exchanges and data are facilitated and protected as is intellectual property. In due course the parties envisage an FTA specifically for services. The notion of equivalence in rules and standards is accepted as a measuring principle to determine whether their respective systems and regimes are like for like in relation to access and mutuality.
There are a number of exceptions to ensure that a range of legitimate UK domestic policy aims are not affected by the trade Agreement. The summary states: The exceptions provide that existing national security practices are not affected by the terms of the trade agreement. There is also an exception which protects legitimate domestic taxation policy. Finally, there is a general exception which allows for UK action in a list of areas, such as the protection of public security or public morals to maintain public order, or measures necessary to protect human, animal or plant life or health.
Fisheries – a troublesome area
A sensitive area with high political salience and a make or break issue even though fish in UK coastal waters are worth just £165 million per year to the British economy [compared to £182 billion for Services – which hardly got a look in the negotiations].
The Agreement sets out the objectives and principles for fisheries management which the UK and EU share. It enshrines a joint commitment to sustainable fisheries management alongside shared principles for promoting long-term environmental, social and economic sustainability. It provides for a significant uplift in quota for UK fishers, equal to 25% of the value of the EU catch in UK waters. A further £146 million will be reclaimed in these British coastal waters, to be phased in over five years. It ends the dependence of the UK fleet on the ‘unfair relative stability’ mechanism enshrined in the EU’s Common Fisheries Policy, and increases the share of the total catch taken in UK waters taken by UK vessels.
The new quota arrangements will be phased in over five years to allow the respective fleets time to adapt to the changed opportunities. There will be also be an adjustment period for access to waters which provide stable access for 5 1⁄2 years. The UK will conduct annual fisheries negotiations with the EU alongside negotiations with other coastal States and international organisations regarding Total Allowable Catches for shared stock. These negotiations will also cover access arrangements.
The agreement includes arrangements for compensation if a Party decides not to grant access to its waters and for dispute settlement, in the event that a Party breaches the obligations … the Agreement establishes a Specialised Committee on Fisheries which will provide a forum for the UK and the EU to discuss and cooperate on a range of fisheries matters. As noted above, the Agreement can be terminated at any point with nine months notice. If the Agreement is terminated, any obligations of the Parties will continue until the end of the year.
Conclusion pro tem
Dangers and traps may lie in the 1,246 page text to be discovered. As Brexit has now been ‘done’ it is in the interests of both parties that implementation proceeds steadily without rancour, and that internal issues that beset both Europe and the derived regions of Britain will be resolved; and that in their various ways they remain cohesive even if not always united. It is not pages of legal text that sustains communities. It is political commitment.