Abstract
On 31 December 2020, Britain officially left the European Union and began to exist again as an autonomous state, but this has opened the issue about how the UK is going to tackle a future successful co-operation with the European Union and which are the institutional changes that will make such coordination possible. This analysis focuses on the Trade and Cooperation Agreement signed between the European Union and the United Kingdom. It aims to explain which are the main changes that took place in the economic relation between the two parties involved and to highlight the main deficiencies of the agreement.
In the first part of the paper, attention will be devoted to the explanation of some of its key characteristics and topics.
Secondly, potential downsides and negative consequences arisen after its enactment would be assessed in order to verify the impact of Brexit on international trade.
In conclusion, the paper will refer to the “Break Clause” included in the agreement to explain which would be a future possible scenario in the economic cooperation between the two parties.
Author:
Alessandra Condorelli Natarelli, Junior Researcher G.E.O., Economics Area
1. Scope and content of the Trade and Cooperation Agreement (TCA)
The Trade and Cooperation Agreement was adopted after the official withdrawal of the United Kingdom from the European Union, therefore it started to be provisionally adopted on the 1st January 2021.
Such agreement regulates the relationship between the two countries and ensures cooperation across a range of areas such as trade, aviation, road haulage, fisheries, police and security, health insurance, and continued UK participation in some EU programmes. (UK in a Changing Europe, 2021)
Its successful implementation is ensured by a joint UK-EU Partnership Council which consists of Members of the European Parliament and of Members of the Parliament of the United Kingdom and it serves as a forum to resolve disputes at the political level. The Council can make non-binding recommendations to the Parties and also adopt decisions, including amendment of non-essential provisions, where specifically provided in the Agreement.
The implication of the Agreement is that by leaving the EU’s system of common rules, the UK can no longer enjoy the benefits of its membership or the Single Market. Despite this, the Agreement aims to ensure a system of free, fair, and sustainable trade and also of connectivity, sustainability, and shared opportunities.
In addition, citizens’ security and protection of fundamental rights and personal data are taken into account.
It consists of four main pillars:
1. an unprecedented free trade agreement,
2. ambitious cooperation on economic, social, environmental, and fisheries issues,
3. a close partnership for citizens’ security,
4. an overarching governance framework.
2. Free trade agreement
Because of the extensive nature of the treaty, in this part attention will be devoted only to some of its key components of trade.
2.1 Trade in goods
In goods exchanged between the UK and the EU, there are no tariffs or quotas as long as the laws of origin are followed (with the exception of Northern Ireland where a special regime is in force treating it as a part of the EU single market). The TCA goes into great depth about how to comply with the applicable rules of origin, which are crucial for every importer or exporter. Traders can self-certify items' origins and benefit from "complete cumulation" (i.e. processing activities count towards origin and not just materials used). In general, commodities must be entirely sourced (e.g., grown, extracted) in the EU or UK, undergo major production in the UK or EU, or have a specific proportion of their value-added elements originate in the UK or EU.
The UK and EU will now have customs criteria that must be met, as well as increased non-tariff trade obstacles, but steps have been done to make customs and trade facilitation easier. Trusted trader programs (Authorised Economic Operators) are mutually recognized, allowing for faster customs transitions and a smoother flow of commodities. The United Kingdom continues to operate a VAT system and is classified as a third country by the EU (with the exception of Northern Ireland which continues to be treated as being within the EU single market for VAT purposes). As a result, businesses should assess their tax situation as well as the criteria for cross-border transactions.
2.2 Trade in services
The TCA between the UK and the EU contains limited-service provisions, which are even more restrictive than those envisioned in the parties' Joint Political Declaration from October 2019. The UK-EU service trade relationship will no longer be as open as it was when the UK was a member of the EU Single Market.
In the absence of future agreements between the UK and the EU on services trade, access to each other's markets may deteriorate over time as the EU Single Market evolves and the UK forges its own path as a third country. The TCA, however, "provides for a high level of openness for trade in services and investment, extending beyond the baseline principles of the World Trade Organization's (WTO) General Agreement on Trade in Services (GATS)," according to the European Commission.
In this regard, the UK and the EU have agreed that neither party can limit the number of service providers from the other's territory, or require a service provider from the other's territory to establish or maintain an enterprise or be a resident in its territory as a condition for cross-border service supply, or discriminate between their nationals. Both parties have also agreed to provide treatment to the other party's services and service suppliers that is no less favourable than that provided to its own services and service suppliers in similar conditions.
It's worth noting that the TCA doesn't apply to financial or audio-visual services. In fact, the capacity to provide a certain service or invest in a given area will be influenced by specific reservations outlined in the TCA, which may be placed on UK service providers when offering services in the EU in certain sectors and vice versa.
2.3 Energy provisions
Both parties have agreed to create a new framework for future energy cooperation. The UK is no longer participating in the EU internal energy market since January 1, 2021 and has been trading with the EU on third-country terms.
The TCA commits both parties to promoting energy efficiency and renewable energy consumption. In accordance with EU acquis, biofuels must also meet sustainability and greenhouse gas emission reduction objectives. The TCA envisions collaboration on offshore renewable energy, including a dedicated technical conference modelled after the North Seas Energy Cooperation. Both parties will collaborate and share information on offshore safety issues, as well as international energy efficiency and renewable energy standards. The TCA sets key standards for future exchange energy merchandise and unrefined components, specifically those connecting with controlled valuing, trade evaluating, and authorisation for investigation and creation of hydrocarbons and age of power. Both parties concurred key standards connecting with ecological and energy endowments.
While the TCA text intently mirrors the EU energy acquis, it doesn't legitimately oblige the UK to adjust with future EU energy approaches, nor does it expand the principle advantages of the single market and customs association to the UK. By the by, energy strategies will be dependent upon the more extensive arrangements of the TCA connecting with appropriation control and a level battleground. Normal collaboration between the two gatherings will happen in a Specialized Committee on Energy, under the structure of the Partnership Chamber.
3.The cost of Brexit
In order to verify the actual cost of Brexit and its impact on international trade, the Centre for European Reform carries out frequent analysis to assess trade losses.
In the last report published in March 2022 and collecting data until December 2021, what emerges is that UK goods trade was between 11 and 16% lower following Brexit.
The graph compares the UK data with another indicator called Doppelgänger UK. “The doppelgänger is a subset of countries selected from a larger group of 22 advanced economies by an algorithm. The algorithm finds the countries that, when combined, create a doppelgänger UK that has the smallest possible deviation from the real UK data from January 2009 to December 2019, before the pandemic struck. (The data includes goods trade, GDP growth, population, inflation, industrial production as a share of output, as well as some other measures.)” (John Springford, 10 March 2022)
The model shows a trade loss of about 14.9% or in money terms £12.9 billion for the month of December. This negative trend is present also on UK goods imports and exports. Therefore this makes us infer that even though the agreement contains favourable measures for both parties, it still does not manage to contain losses that emerged after the decision of the United Kingdom to leave the internal market.
4. Break Clause & Future possible scenario
The Agreement also contains a Break Clause, which provides that the whole deal can be terminated after four years if either the UK or the EU believes it is not working properly. If disputes emerge, the trade deal can be renegotiated in its entirety or even partially (meaning that only some chapters can be reopened).
This break clause ensures that UK sovereignty is maintained and that its government is able to renegotiate the terms of the agreement if it is not happy about the way it works out. Moreover, it ensures that the UK will not be subject to unilateral sanctions from the EU.
This trade deal is therefore not definitive, it just marks the beginning of the new relationship between the two parties. In the future, it is likely that the UK will try to re-negotiate or alter some aspects of its relationship with the EU. Especially because the agreement includes extensive measures and liberties in terms of trade in goods, but the same thing can not be said for the trade in services. Although the agreement contains elements for the liberalisation of trade in services, especially the liberalisation of telecommunications, road and air transport and financial services, the EU has held firm, avoiding conceding too many liberties.
Financial and professional services are the ones the suffered the most after the enactment of such agreement. As we can see below, the table summarizes the main losses in services’ exports.
This table is taken from an analysis of a British research centre called “UK in a Changing Europe”
Conclusions
This paper has assessed the main features of the Trade and Cooperation Agreement and provided a brief analysis of its consequences on the economic situation of the United Kingdom.
What emerged is that despite being reasonable in terms of commodities commerce, the EU-UK Trade and Cooperation Deal is a bare-bones agreement in terms of services. It's a setback, shifting from a cohesive and productive relationship to a damage-limitation effort. Without a doubt, its main advantage is that it keeps bilateral communication and negotiation channels open, allowing a more pragmatic approach –as the economic costs of Brexit become more apparent and the ideological charge that has characterized the UK negotiating stance subsides– to translate into much more reasonable levels of economic integration for two partners whose proximity forces them to cooperate – to translate into much more reasonable levels of economic integration for two partners whose proximity forces them to cooperate.
To sum up, there are two features that stand out about the TCA. First, it is extremely complicated; despite the tight deadlines for review and approval, experts, attorneys, and officials will need months to properly and fully understand its consequences. Second, it is an ongoing project. This paper makes references to future changes and possible improvements. Many of these changes will be made as a result of the work of Specialised Committees and complex governance frameworks. The TCA shows an aim to facilitate 'trade and cooperation' while also attempting to reduce the UK's links with the EU.
Sources Ranking
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Confirmed by other independent sources; logical in itself; coherent with other information on the topic |
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Not confirmed; logical in itself; coherent with other information on the topic |
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Maybe true |
Not confirmed; reasonably logical in itself; coherent with some other information on the topic |
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Not confirmed; possible but not logical in itself; no other information on the topic |
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Not confirmed; not logical in itself; contradicts with other information on the topic |
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