Yahoo Finance Brexit talks followed common pattern but barrier-raising outcome is unique
In most respects, the Christmas Eve deal between the UK and the EU followed the usual pattern of trade talks down the ages. The negotiations seemed to go on for ever, they often teetered on the brink of collapse, and they were only rescued when the politicians got involved.
Sometimes, the gap between the two sides is simply too big, but that never looked likely in this case. There was always going to be a point when Boris Johnson and Ursula von der Leyen would step in and make the necessary compromises.
This time the endgame was about fish – a tiny part of the economy that, despite its political salience, was never going to be allowed to thwart a deal. Von der Leyen seems satisfied that the EU’s share of the catch in British coastal waters will only be cut by 25% for the next five-and-a-half years. Johnson said British boats would have two-thirds of the catch and that the people of the UK would have to eat prodigious amounts of fish.
For weeks, the prime minister has been insisting that the UK would be happy to trade with the EU on the same terms as other members of the World Trade Organization, and predictably enough he is now insisting the strategy worked.
To an extent that’s a fair point. The EU is battle-hardened when it comes to trade talks and will exploit any sign of weakness. David Frost, Johnson’s chief Brexit negotiator, had to show that the UK would have been prepared to walk away in order to get anywhere.
But in the end Johnson had to choose between a relatively thin trade deal and no deal, and to no great surprise he has opted for the former.
This week’s chaos in Kent highlighted the risk of the first few weeks of 2021 being marked by queues of lorries on the M20 and food shortages in the shops. While the disruption would probably have been only temporary, it would have damaged confidence in the government’s competence, already dented by its handling of the pandemic.
What’s more, a no-deal Brexit would have led to a sharp fall in the pound, which would have pushed up the cost of imported goods. Sterling was trading at $1.36 against the dollar when trading in the City closed for Christmas. Absent a deal, analysts were predicting it could fall to $1.15.
Johnson also knows that cutting a deal with the EU improves the chances of a free trade agreement with the US. Joe Biden is much less hostile to Brussels than the man he is replacing as president.
In one respect, though, the UK-EU deal is unique. Generally, the reason for embarking on trade talks is that both sides want to secure better market access for their companies. This is the first trade deal in history that has been about erecting barriers rather than dismantling them. There will be more red tape, more friction.
The text of the agreement runs to 500 pages and the details are as yet unclear. Broadly, though, it means that the UK will have tariff-free and quota-free access to the EU, and vice versa.
This matters to the two sectors of the UK economy – the auto industry and agriculture – that have been most vociferous in opposing the idea that Britain might trade with the EU on the same terms as any other nation that belongs to the WTO.
That’s because the EU has always been keen to protect its carmakers and its farmers, and has been much slower to reduce its tariffs for these two sectors. The average tariff for imported manufactured goods is 3-4%; in the auto sector it is 10%.
Interestingly, neither side adopted a triumphalist tone once the deal was done, a sign that both London and Brussels can live with the outcome. A good rule of thumb is that the side that makes the most extravagant claims has come off the worse.
Trade negotiators always seek to secure maximum market advantage in areas where they are strong and continue to protect sectors that are relatively weak. So, the EU was happy to negotiate a continuation of tariff-free, quota-free access for cars, washing machines and fridges because it ran a trade surplus in goods with the UK of close on £100bn last year. By contrast, it has given little or nothing away in the area where the UK is strongest: services.
Johnson said the deal put the UK in charge of its own destiny and put the issue of Europe to bed. Although this is the start rather than the end of trade negotiations between London and Brussels, in political terms he is right. If the prime minister’s days are numbered, it won’t be Brexit that does for him.
