2021: The end of the beginning

Post–Brexit UK has only very limited room to diverge from EU regulation, according to the ‘UK regulation after Brexit’ report, published on Friday (26 February) by the UK in a Changing Europe academic think tank. [Shutterstock/Borislav Bajkic]

This article is part of our special report What to expect in EU policy in 2021?.

A collective sigh of relief greeted the Christmas Eve agreement on a post-Brexit free trade deal. After months of criticism over his government’s handling of the COVID-19 pandemic, Prime Minister Boris Johnson won the media plaudits for ‘getting Brexit done’. For the EU, it put an end to years of frustrating and time-consuming talks with its awkward former member.

At midnight on Thursday (31 December), the UK is out of the single market. “The destiny of this great country now resides firmly in our hands,” Johnson said on Wednesday.

Yet in the four and a half years since the 2016 referendum, it has become clear that Brexit is a process, not an event. The trade pact alleviates most of the economic damage and disruption of a ‘no deal’ scenario but, as UK Cabinet Office Minister Michael Gove has predicted, there will be “bumpy moments”.

The treaty was hurriedly ratified, with just a few hours of debate, by the UK parliament on Wednesday in a bid to beat the 31 December deadline when the transition period ends. On the EU side, there is no such rush, though there is little reason to expect any hiccups.

The chances of the European Parliament refusing to ratify are slim to none but the parliamentary approval across the EU-27 could serve up a banana-skin. Four years after delaying the EU-Canada trade agreement, the Belgian province of Wallonia has hinted that it will veto the post-Brexit deal, if necessary.

The early months of 2021 will be a steep learning curve for many businesses. The small print on the 2,000-page trade treaty is still wet and businesses will have to quickly work out its implications. Some British sausage products and mincemeat will not be tariff-free, for example.

With travel largely unchanged, the most likely delays are set to be at the Eurotunnel terminal in Dover, where 3,500 trucks pass through daily, making it an obvious bottleneck if businesses struggle with new customs paperwork.

In the meantime, the treaty still has some blank areas that lawmakers will seek to fill in the coming months. A four-month extension will allow cross-border data transfers to continue but London will seek to obtain the ‘adequacy decision’ from the European Commission required to make this permanent.

On financial services, meanwhile, where some sectors are covered by equivalence decisions from the EU executive, there are already signs that lobby groups will try to re-open sectoral talks.

“While a deal is welcome, financial and related professional services are clear-eyed about the need for both sides to continue to develop the relationship in services in the years ahead,” said TheCityUK’s boss, Miles Celic.

UK Finance, a banking and financial services association, added that “it will be important to build on the foundations of this trade deal by strengthening arrangements for future trade in financial services,”.

Hilary Benn, the chair of the Future Relations committee in the UK parliament, warned that “uncertainty remains in areas such as financial services and data adequacy as the full implications of the end of the transition period become clear”.

“The government must ensure it has detailed answers to the questions facing citizens, businesses and traders as they adjust to life outside the single market and customs union.”

Disruption will not only affect UK firms. Earlier this week, the European Commission tabled its proposal for a Brexit Adjustment Reserve with an overall budget of €5 billion, agreed by EU leaders in July, to help counter the adverse economic and social consequences of the UK’s exit.

Meanwhile, though the compromise on access to UK fishing waters has rightly been portrayed as a concession by London, the French government has already indicated that it will introduce a generous subsidy scheme for its fishermen.

Elsewhere, the UK will continue its ‘Global Britain’ agenda of negotiating new trade agreements, led by International Trade Secretary Liz Truss.

There are indications that the incoming Joe Biden-led US administration will prioritise improving trade relations with the EU over the US-UK trade pact on which President Donald Trump’s administration began talks this summer. A UK-US deal is now unlikely to emerge before 2022, according to US officials.

If the UK offers its main African trading partners more generous trade terms, that could put pressure on the EU to follow suit in the context of its plans to carve out a new ‘strategic partnership’ with Africa in 2021.

“We must now seize this moment to forge a fantastic new relationship with our European neighbours, based on free trade and friendly cooperation,” Johnson told MPs on Wednesday.

Lawmakers on both sides of the Channel will certainly welcome the removal of the sword of Damocles of ‘no deal’. If nothing else, the new pact offers the foundations for future EU-UK relations. It marks the end of the beginning.

[Edited by Zoran Radosavljevic]

Subscribe to our newsletters