The United Kingdom and the European Union late Thursday agreed to a post-Brexit trade agreement just a week before it is scheduled to leave the common customs union, free trade area and single market on January 1. The deal is valued at £668 billion (just over $900 billion), and is the largest ever trade deal ever struck by either negotiating side.
While the deal has been agreed to by negotiators on both sides, parliamentary approval is still required in the UK, EU and by its member states. Prime Minister Boris Johnson said that he hoped the British Parliament would give its approval on December 30.
The trade agreement primarily ensures that EU and UK goods can enter both regions with zero tariffs and zero quotas. It also ensures equal access access to the each others' jurisdictions for investors and suppliers without prejudice. It paves the way for minimal disruptions in trade via road and air, and ensures nearly optimal cooperation in security, social and cultural programs and a degree of stability in social security benefits.
The UK would also be an independent coastal state, and could take control of fishing in its own waters. A disagreement over this clause in the last leg of negotiations delayed the agreement by a few days. Eventually, the agreement ensures reciprocal access to each others' waters, with a gradual shift of EU quotas to the UK in 5.5 years.
On the flipside, citizens of the UK and EU lose total freedom of movement that they enjoyed - a hallmark privilege that EU member states have - even though they would not require a visa to travel. EU-issued passports for pets would also not be valid. Even professional credentials would not be recognized across borders.
The deal marks the tumultuous end of the Brexit process, which will be one of the biggest global shifts by the UK in modern history. It will serve as one of the two defining agreement that will govern the future relation of the UK and the EU, with the first agreement being the Brexit 'divorce' settlement, or the agreement covering its financial obligations to the EU. It let the UK officially leave the EU on January 31 this year, but it has continued contributing and participating with the EU as part of a period of transition as if it were a member albeit with lesser financial obligation towards it.
On June 23, 2016, the UK voted to leave the EU in a referendum in a poll that turned out to be an upset. 48.11% voted to remain, while 51.89% voted to leave. The Brexit process since then has consumed a major portion of political discourse in the UK, seeing the resignation of two British prime Ministers (David Cameroon and Teresa May), two general election (in 2017 and 2019) and therefore the three different governments (including the one currently led by Johnson) in a span of just four years.
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Why was this agreement required?
One of landmark provisions of the EU is free-trade among its members. Free trade implies the unrestricted movement of goods and services across its member states within the borders of the EU. Such trade is subject to virtually no inspections, border control, tariffs or quota.
The UK's withdrawal from the EU threatened this economic order, which it has maintained since it joined the predecessor of the EU - the European Economic Community - in 1973. This has caused uncertainty to the British economic future and has made businesses, until now.
There were two broad and extreme approaches to Brexit:
- A 'soft' Brexit: Where a trade agreement would ensure maximum integration with the EU and ensures minimum disruption, but defeating the spirit of the leaving the EU in the first place
- A 'hard' Brexit: Implying a complete departure from EU cooperation and fully respecting the Brexit referendum, but would be a precursor to maximum disruption and uncertainty to the UK
Another tenet of EU was customs union, where the EU imposed a common tariff on goods entering its borders from its trading partners globally. But this also meant that the UK could not negotiate agreements outside the EU that would solely benefit it freely.
The current agreement reconciles the disruptions caused by Brexit - by letting the EU and UK trade with minimum disruption due to the significance they hold in trading with each other. However, it also lets the UK look to the external world to third party countries outside the EU to negotiate free-trade agreements on their its own merit for its individual benefit rather than as part of a consortium of countries, giving the UK control over its borders and markets.
So far, 29 such deals have been struck, covering 58 countries/territories, with the latest deal being struck with Mexico on December 15. Talks are ongoing with 10 more countries and trading blocs.
How has the world reacted?
Johnson has hailed this trade deal as a bearer of stability, with Ursula von der Leyen, President of European Commission, has called this deal a "fair and balanced agreement with the UK", stating that the EU is "now moving on."
From within the UK, First Minister for Scotland Nikola Sturgeon did not welcome the deal, and stated that it is happening against Scottish will. In 2016, when the referendum took place, Scotland voted majorly in favour of remaining in the EU. She is a rallying for another Scottish independence vote (after one took place in 2014).
The German government said that it was happy Brexit is over, and it would use its presidency of the European Council to ensure a swift ratification of this deal. Germany is Europe's largest economy.
France too welcomed the agreement.
Johnson is scheduled to visit India as Chief Guest on Republic Day, and its trade relation with India would likely be elaborated at that point.
Read the British government's Brexit documents here and the EU's Brexit documents here.