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There will be no palisade of tariffs on January the 1st, and there will be no non-tariff barriers to trade.
Four and a half years after Britain voted to leave the EU, London and Brussels finally agreed a new trade and security agreement that will shape their relationship for decades to come. The deal will guarantee tariff free and quota free trade between Britain and the EU. It's the biggest trade deal that the UK is likely to strike now that it's left the bloc.
The EU accounted for 43 per cent of Britain's exports in 2019 with £294bn. More than half of UK imports, worth £374bn, came from the 27-country bloc. The agreement is focused on free trade in goods. There's little in it to promote services, where the UK has a large trade surplus.
Free trade in services would have required much closer alignment of rules and regulations, which the UK government did not want. Britain's official economic forecasting body, the Office of the Budget Responsibility, estimates that a limited deal of this sort will leave UK GDP 4 per cent smaller than it would have been by 2035. As of January the 1st, Britain will be leaving the EU single market and customs union.
So even with this deal, trade between the UK and EU will be on much more restricted terms than now. Businesses will have to fill in customs declarations to export and import goods. Food products will need veterinary certificates and may be checked at the border.
This kind of extra bureaucracy could disrupt the flow of goods and cause problems for businesses with just in time supply chains. The deal agreed represents a much harder form of Brexit than even many Leave voters thought they were voting for in 2016. Brexit campaigners said that the UK can retain the advantages of the single market. However, Prime Minister Boris Johnson was determined to regain sovereignty, taking back control.
That limited the scope of the deal. The UK was granted tariff free trade only after agreeing to a so-called level playing field with the EU. Britain will be constrained from dishing out subsidies to give an advantage to UK companies or from undercutting environmental and labour rules.
This was one of the most vexed issues in the talks, but an agreement was eventually found after the EU abandoned its demands that the European Court of Justice adjudicate on disputes. And Britain matched EU rules and regulations. There will be a mechanism for settling disputes and periodic reviews of the arrangements to ensure both sides are fulfilling the terms of the agreement.
Another difficult issue was fishing rights. EU boats currently catch some 650m euros worth of fish a year in UK waters. There will be a transition period when they'll give up rights to about a quarter of that catch.
The UK and EU agreed a temporary fix to allow companies to keep sharing data after January the 1st, but a longer term deal on whether Britain meets European data privacy standards will still have to be found. Britain also needs the EU to declare that its financial regulation is on a par with the EU's, so City firms can keep selling services to the bloc. These are just some of the issues that will still need to be resolved next year. Even with this deal, Britain and the EU will be negotiating different aspects of their relationship for many, many years to come.