Brexit EU Deal, Explained

Just days ahead of the end of the Brexit transition period, the UK and the EU finally agreed on a deal. The Free Trade Agreement between Great Britain & Northern Ireland and the European Union will constitute the legal basis to regulate hundreds of billion pounds worth of trade each year.

This was welcome news among British businesses and consumers alike, as a deal prevents major supply-chain disruptions and inflating prices caused by tariffs. UK Government officials hailed the agreement as “unprecedented” as it is based on a zero-tariff policy which the EU had never agreed with any other countries before.

However, with negotiations way beyond their original deadlines, much is left to further trade talks, and according to some critics British negotiator simply failed to deliver on some of the points they promised. One trade expert told Politico that the trade deal declarations are “an overflow graveyard of ambition.”

However, although maybe not ideal, the FTA is a much better result than many were expecting, and for most businesses it means no further change in import/export operations than they were already preparing for.

The summary of the deal is 34 pages long, and it’s a rather heavy read. So we summarised below the key takeaways for UK businesses.

1. Product Standards

This was one of the most complicated areas to define during the negotiations.

The FTA establishes a system where the UK is free to set its own legal standards for areas such as labour or the environment. However, the EU reserves the right to cut access to the European market if these standards are in too stark contrast with theirs.

An arbitration system defined as “rebalancing mechanism” allows either party to independently impose tariffs if it is determined that their businesses are at an unfair disadvantage because of standards set by the other party.

The deal then goes into further detail for specific sectors, some of which will face additional barriers as a result of the two parties not recognising each other’s standards automatically.

Food & Beverage

Geographical Indications rules have been delayed to later negotiations, and so have many of the details of how each party is allowed to protect such rules for the benefit of their own producers.

As neither side will recognise each other’s rules for protecting humans, animals and plants from pests and diseases, British farmers may need to obtain additional certifications that weren’t previously needed.

British farming lobbyists told Politico this poses greater barriers to them than traders from New Zealand.

Pharmaceuticals

As The Economist puts it, the Pharmaceutical sector saw only half of their demands met by the agreement.

While tests and inspections for medicines carried out on either side shall be considered valid on the other, medicinal products will need to undergo double safety and quality tests, both in the EU and in the UK.

Chemicals

On a more bitter note, together with its EU membership the UK will lose access to the “REACH” database for chemical products safety, in which it had invested £500m.

2. State Aid

State Aid was another contentious point in the agreement. The final solution seems to mimic the principle used for product standards.

These rules, which were previously set out entirely by the EU, regulate measures used by the Government to help UK businesses, including among others R&D Tax Credits, SEIS, grants and many of the COVID-19 measures.

The UK is allowed to set its own state aid rules through an independent, sovereign body. However, EU companies will be able to challenge state aid awarded to UK rivals in Britain’s courts if they feel it violates the alignment principles set out in the Brexit deal.

Crucially, UK companies will enjoy the same right towards their EU counterparts.

3. Visas & Labour

UK nationals will need a visa to stay in the EU for more than 90 days, and while visa-free travel can been granted to specific occupations, the deal faced criticism for not including many industries such as sport and entertainment professionals, who relied on visa-free travel to attend tours and competitions in Europe.

4. Data

Despite the huge amount of data flowing between the UK and the EU, as well as the questions raised by GDPR ceasing to apply to British law, the deal did not include a section on data.

However, per The Economist, experts are expecting a decisions from Brussel in a matter of weeks that grants free flow of data between the UK and the EU by means of recognising the British data protection system as equivalent to the EU one.

5. Financial Services

Another grey area of the deal. A final decision was not reached about UK financial services firms’ access to the EU market.

According to Politico, the deal’s declarations state the intention to reach a decision by March 2021 that either grants the “equivalence” of UK regulated companies to EU ones, or leaves it to firms to seek permissions from each individual member state.

6. Professional Services

UK professional service providers, such as doctors or engineers, will lose their ability to automatically work in the EU, as the deal did not reach an agreement on mutual recognition of professional qualifications.

“There will, however,” said Daniel Thomas from The Economist, “be provisions for short-term business trips and temporary secondments of highly skilled employees.”