Brexit Trade Deal: What Are the New Terms and Tariffs

Summary

• The much-awaited Brexit deal would be effective from 1 January
• Fishing rights was one of the major hurdles in the deal. Now, the EU will have full access to British waters for more than five years.
• British cars manufactured with parts sourced from the UK or outside are expected to incur tariffs on entering the EU

The UK and the EU have finally reached an agreement on trade governance worth £650 billion after prolonged negotiations for over nine months. The much-awaited Brexit deal announcement came on Christmas eve as both sides were relieved to announce that the deal has been done. Notably, the deal would be effective from 1 January.

The trade agreement between the 27-nation bloc and the UK covers dispute redressal mechanisms along with trade rules for sectors such as autos, chemicals, fishing, pharmaceuticals, and other professional services. These sectors are well integrated and interdependent.

Sovereignty and national power are compromised upon by nations to some extent in order to get access to trade opportunities and increased economic power.

Also read: Brexit talks enter the penultimate fortnight period, fishing rights still the key issue

Key highlights of the deal

• Fishing rights

The EU will have full access to British waters for a five and a half-year transition period. The EU fishing rights, currently worth €650 million per year, will be reduced by 25 per cent during the transition period. This implies that the UK’s current share would go up by the corresponding amount. Access to British waters will depend on annual negotiations post the transition period.

• Car industry

The British car industry is hugely dependent on the EU for spare parts, and the trade-in automotive parts are worth around €14 billion. British cars manufactured with parts sourced from the UK or outside are expected to incur tariffs on entering the EU. However, the electric vehicle segment would be treated with preferential tariffs.

• Pharmaceuticals

Another sector that was seamlessly integrated so far will now be separated on 1 January. The EU and the UK regulators would not recognise the safety and quality tests done by either side, which was a key industry demand. However, the duplication of safety and quality tests would lead to extra costs and delays.

• Manufacturing

Tariffs had been avoided as the sector operates on fine margins. However, the loss of mutual conformity assessment and border delays can hurt the companies. The UK and EU might introduce new separate certification standards which could lead to increased costs and complexities.

• Professional services

This was one area where the UK failed to maintain existing market access for services providers. Doctors, vets, engineers, and architects aspiring to travel to the EU for work must have the educational or professional qualifications recognised in each EU member state. For highly skilled professions, there would be provisions in place for short-term business trips and temporary secondments.

• Chemicals

The Chemical industry feared £1bn in tariff costs, although now zero tariffs have been imposed. The chemicals usually constitute a part of global supply chains. However, the complexities and costs for the chemical industry might go up as the UK plans to replicate the EU REACH safety regime to safeguard human health and environment.

• Aviation and travel

UK-based airlines would not be able to fly between any two locations in the EU. Visas are not required for travel up to 90 days, and healthcare provisions would remain valid for the EU visitors.

• Level-playing field

UK businesses will enjoy the same status in the EU as before. However, they might be challenged in Britain’s national courts by the EU companies if they violate common principles set out in the trade deal. In order to counter the effect of trade-distorting subsidies, both sides can unilaterally impose tariffs and call for accelerated arbitration, if necessary.

While most of the people vouched for a ‘no deal’ with the EU, however, not having a deal with the closest allies and largest trading neighbour could have been disastrous for the UK’s economy.