This is a highly unusual agreement in that it raises barriers to trade between the parties; most trade agreements are designed to reduce or remove them.
The TCA also prioritised goods over services even though services form 80 per cent of the UK economy – as one member of the House of Lords put it, it gives the 27 members of the EU free access to our goods market but with nothing in return on services. Overall, it is a thin agreement in which both parties focused on preserving their autonomy and not on supporting their economies. It will also require constant negotiation, putting the UK in a similar situation to Switzerland.
The economic impact will vary over the short, medium and long-term. Media comment has tended to concentrate on the short-term impacts of the disruption as traders adjust to new procedures which are slower, more cumbersome and more expensive than those they have been used since the Single Market was established in its present form on 1 January 1993.
But the true impact will take longer to emerge. A recent survey suggested a fall of 26-28 per cent in UK exports to the EU, a fall of about 30 per cent in imports from the EU and smaller reductions of both exports and imports to/from the rest of the world of about 10 per cent. This would imply a fall in GDP of 4.4 per cent compared to the pre-Brexit position. Such estimates are complicated by the enormous uncertainties created by the Covid-19 pandemic and its economic effects.
Part of the difficulty for the UK lies in the fact that, so far, the trade deals with third countries will generate little additional trade (with a minor exception in the case of Japan). They mainly protect existing trade (i.e. they replicate the EU trade agreements that previously included the UK). Many are with countries with which the UK has a trade deficit anyway and which therefore stand to benefit more than the UK.
The impact on direct investment into UK will be of great importance. The UK’s membership of the Single Market helped to make it the number one destination in the EU for inward investment prior to 2016. Our legal system, the English language and historic ties with other countries (such as the US) were also important but membership of the EU enabled investors to locate in the UK and use it as a springboard into mainland Europe. Now that no longer applies, investors not only in manufacturing (such as the Japanese car companies attracted in the 1980s to locate in Britain) but also many service sector providers are likely to choose to establish themselves inside the EU rather than the UK. In addition, those already in the UK may choose to close down (as with Honda) or relocate into the Single Market (as many broadcasters and financial service providers have already done).
One aspect where there is no clarity at all is the role of Parliament (and the public) in the oversight of the institutions set up by the TCA to manage the agreement.
The political impact of both Brexit as a whole and this agreement in particular is as yet unclear. The Government faces a difficult choice whether to treat the TCA as a floor or a ceiling. Will it seek to fill in the gaps in the TCA or will the deal remain largely as it is until the review in five years’ time provided for in the agreement? That impending review could become politically more significant as the date approaches, not least because it will fall early in the next parliament. In addition, the review of the Northern Ireland Protocol (to the Withdrawal Agreement) will be reviewed four years’ from the end of the transition period; that could also be an important moment. Much will depend on the attitude of ministers towards the EU and the extent to which they wish in practice to diverge from EU legislation. As the row over the Internal Market Bill demonstrated, there is not a lot of trust in Brussels that the UK Government will honour its promises.
Then there are the implications for the Union. Brexit is putting great strain on the terms of the devolution settlement and is likely to lead to disputes within the UK about the impact of Brexit on the different parts of the UK (for example, over fishing and other issues with Scotland and the impact of the protocol on Northern Ireland). These disputes will fuel demands for a second Scottish independence referendum and encourage calls for Irish unification.
The UK-EU agreement did prevent the potentially disastrous consequences of a no deal but it won’t end the Brexit debate or divisions, it may just prolong them.
Read the whole report here
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