As of today, it may seem early to examine the consequences of new Trade and Cooperation Agreement to which the United Kingdom and the European Union (EU) have signed. This agreement, which is lengthy in details, nevertheless authorizes some preliminary reflections.
It is the agreement that we all expected. Not the one we wanted, but it is the only one that could reasonably be achieved. The alternative was to have no agreement. The treaty is not a surprise for those who have followed the endless Brexit itinerary since its germinal hour, that is, when former Prime Minister David Cameron, after his negotiation with Brussels in February 2016 in which he demanded limitations on the freedom of movement, called the Brexit referendum for June 23, 2016. The EU, already back then, although it was pragmatic and made some concessions, reminded him that the four communal freedoms were indivisible. With a conservative party divided on the issue and David Cameron playing offended, like Prefect Renault, he exclaimed smugly and with a serious face “scandal, I discovered that it is played here”, as if he did not know in advance the answer from Brussels. The rest is well known.
The great Brexit heist
With a non-positive Brexit for the United Kingdom after a year of ineptitude with the covid, it could be believed that Johnson is on the last legs. But it is a mistake, for three reasons.
The same red lines That Brussels reminded him of David Cameron in 2015 and 2016, and that the European Council itself demanded the EU negotiating team in its session of April 29, 2017, have determined a good part of the negotiation. What the Council came to say is that a third State could not enjoy the benefits of the single market without accepting the indivisibility of the four freedoms. For its part, the United Kingdom has also seen its most important aspirations fulfilled: the end of the jurisdiction of the CJEU, complete control over immigration, the end of the common fisheries policy and the absence of an express obligation to converge with the EU on regulation matter, which has allowed it to reach the end of its negotiation without concessions that affect its sovereignty (except in the particular case of Northern Ireland).
The agreement is, therefore, the only one that could be reached after the overwhelming victory of Boris Johnson in December 2019, with some conservative deputies and a united government cabinet with hardly any fissures around the same idea: andhe transition period was to end with few concessions on December 31, 2020. And so it has been.
The paradox of this agreement is that, being a free trade agreement, it inevitably is intended to create barriers in the trade of goods and services. This was always the metaphysical drama of this negotiation. No deal was going to match the benefits of the single market without crossing the British red lines.
The agreement is much broader than it seems, as it regulates the trade of goods between both parties, digital trade, public procurement, fishing, energy, intellectual property, climate change, transportation (land and air), coordination in matters of social security and visas, and, finally, cooperation on criminal justice. It rests on a touchstone that will sustain the building of the new regulation: the commitment to maintain equal conditions (‘level playing field’) so that free competition is not distorted, although it is true that neither party renounces altering the regulatory framework.
Regarding goods, as expected, the agreement contemplates zero tariffs and fees, provided that the certificate of origin guarantees that, in fact, such good comes mostly from the United Kingdom or the EU. Likewise, in key sectors for Spain, additional measures have been agreed to facilitate trade in: chemical products (cooperation in regulatory matters), came (simplification of certificates and common principles on labeling), organic products (equivalence of the legislation of both parties), pharmaceutical products (recognition of the other party’s inspections) and, especially, automotive (use of international standards, application of the relevant UN certificate and cooperation on security standards).
Inevitably, the deal involves more bureaucracyIt will be necessary to comply with British regulations, which has not been done to date. For example, a key sector for Spain such as agri-food it will be affected by the divergence of regimes for sanitary and phytosanitary measures, although some measures have been introduced to alleviate these discrepancies.
In its attempt to “regain sovereignty” by leaving the European Union, the United Kingdom has ended up seriously wounding it.
The agreement is first and foremost a goods agreement and, predictably, does not regulate services broadly. Although it covers more aspects than those included in the model of the General Agreement on Trade in Services (GATS, for its acronym in English), does not include mutual recognition to facilitate the provision of services. It is the sector most affected by the treaty and will affect, above all, British companies, which will have to adapt to the regulations of each member state.
In financial services matter, the situation is one of uncertainty. Especially for the UK, which has not achieved mutual recognition for the City and is now awaiting a decision on EU equivalence. Such decision, which depends exclusively on the Commission, is independent of the agreement and is defined as being revocable in 30 days, with what is not a long term solution. Both parties have given themselves until March 31 of this year to reach a memorandum of understanding on the matter. For its part, London has granted equivalence to European entities in certain aspects of financial regulation. In the case of the non-European banking sector based in London, the main financial institutions have carried out their contingency plans, that is, replicate equipment in a European city to access the community market.
On the principle of equal conditions, true Gordian knot of this system of balances that is the agreement, although the obligation is not imposed (but the commitment is), corrective measures have been included in the event that one of the parties distorts this principle through, for example, the concession of public aid. By last, on public procurement —Essential for Spanish direct investment in the United Kingdom—, the agreement (very ambitious in this matter) foresees that European companies will be able to tender under equal conditions in a good number of sectors.
Brexit time has come: a practical guide for those staying and coming to the UK
Freedom of movement is over. Things change. And a lot. Both for those who stay and for those who plan to enter or leave the country
We are before a text that it will be subject to continuous review and interpretation and that it will be very actively nourished by the experience of both public and private institutions. This extreme is essential to begin to understand how the future of the relationship will unfold. The agreement itself is subject to an Association Council led by a representative from the EU and another from the United Kingdom, both – please note – with ministerial rank.
The negotiation is not closed with the agreement; the real Brexit negotiation begins ‘hic et nunc’, and it is precisely this Association Council – co-chaired by two politicians – that will administer the new economic and commercial model. Its powers are broad and include taking decisions on certain matters of the agreement, making recommendations and, especially, agree modifications to the agreement in the anticipated cases. There is also a trade association committee, 10 committees specialized in trade affairs, eight committees specialized in other matters (energy, fisheries, security, etc.) and up to four working groups.
The ideal agreement never existed because we came from a perfect situation
This institutional scaffolding (which ironically reminds the European Commission) is essential to understand how Brexit will unfold and run. Not only because the decisions adopted by the Association Council or, where appropriate, by a committee will be binding on both parties, but because the agreement will be in constant motion; the text continuously refers to modifications, rectifications, consultations, revisions, decisions, transition periods, etc. Thus, Brexit does not end with the signing of the treaty, but rather on the contrary, it will be a gradual, dynamic process that will change over time.
The new agreement stands before us as a point of departure, not of arrival. It is an open agreement and its practical implementation – yet to be defined – will differ from the literal text.
The ideal agreement never existed because we came from a perfect situation. The business model has changed and needs to change with it. Faced with this new reality that the treaty imposes on us, it is time to move away from the skepticism that unwanted changes usually generate. Although with more barriers (to which we will adapt), the British market will continue to be attractive for our companies. New rules, but same market. Being successful will require effort and the ability to adapt, qualities that Spanish companies are not unaware of.
* Eduardo Barrachina is president of the Official Chamber of Commerce of Spain in the United Kingdom, ‘solicitor’ and lawyer at White & Case.