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Post-Brexit Trade Agreement

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December 26, 2020

Why in news?

Britain and the European Union have struck a provisional free-trade agreement as part of the Brexit deal.

What is the Brexit deal and why is it needed?

  • The UK formally exited the European Union on 31 January 2020.
  • After this, it entered an 11-month transition period.
  • The UK’s post-Brexit transition period officially ends on 31 December 2020.
  • The two sides thus attempted to strike a deal to define key aspects of their relationship ahead of this deadline.
  • These included areas such as a viable trade agreement, defence, security and immigration.
  • The deal is also likely to lay down rules of governance.
  • This will dictate how any deal is enforced and the penalties if one party violates the terms of a mutually-approved agreement.
  • Further, the two parties will have to finalise agreements on issues like airline safety and information sharing.

Why is the delay?

  • Talks stretched on as both sides were unable to agree on major points.
  • These particularly included fishing rights, governance, and guaranteeing a ‘level playing field’ on government subsidies and regulations.
  • A level playing field essentially means that in order to trade with the EU’s single market, the UK will have to follow the same rules and regulations.
  • This is to ensure that it does not have an unfair advantage over other EU businesses.

Why is fishing such a big deal?

  • Fishing is a relatively small part of the economy on both sides of the English Channel.
    • It was just 0.02% of the overall economy both in the UK and in the EU.
  • However, the issue is extremely emotive and its political consequences far outweigh the economic impact on both sides.
  • For the EU, access for its boats is an important precondition for a trade agreement.
  • On the other hand, Britain sees it as a symbol of sovereignty that needed to be regained.
  • Policy - Even though Britain formally left the EU on January 31, 2020, it still has to adhere to the EU’s rules until the year end, including the bloc’s Common Fisheries Policy.
  • So, till then, the fishing fleets of every country involved have full access to each other’s waters.
  • This goes well beyond the territorial water that covers the first 12 nautical miles (22km) from the coast.
  • But the volume of fish, depending on the species, are to be claimed by each country as per a complex national quota regime.
    • This has been formulated using historical data going back to the 1970s.
  • The UK government wants to significantly increase the British quota share in this.
  • But EU negotiators have been pushing Britain to continue to allow their fishing crews to have access to its waters.
  • The EU, meanwhile, wants to divide the amounts of fish that each country’s boats are allowed to catch in a way that will not be renegotiated every year.
  • With the present deal, there is now a five-and-a-half-year transition period that guarantees continued access for the affected EU states.
  • Nevertheless, the reduced terms for the latter are expected to help British fisheries.

What is the significance of the present deal?

  • The agreement comes four and a half years after Britain decided to leave the EU in 2016.
  • The agreement averts a catastrophic ‘no deal’ scenario.
    • Failure to strike a deal before the December 31 deadline would result in a ‘no-deal Brexit’.
  • This could have far- reaching ramifications both domestically and internationally.
  • The country now faces a potential 4% loss of GDP over 15 years, compared to remaining in the EU.
  • Leaving without any agreement would have led to a potential loss of an estimate 6% of GDP.
  • Moreover, the U.K. relies on the EU for about 75% of food product imports.
  • So, a zero duty trade is of great significance to consumers and the retail economy.
  • By striking a zero-tariff and zero-quota deal, the UK and the EU will be able to safeguard the trade of goods between them, which amounts to around $1 trillion annually.
  • The tariff-free trade accord in goods should mitigate somewhat the consequences of Britain’s decision to leave the EU.
  • A no deal would have also strained the already-tense relations between the UK and EU for some time, which is now prevented.

 

Source: The Hindu, The Indian Express

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