A deal in the nick of time

There were 1,645 days between the UK voting to leave the EU in June 2016 and the two sides finally reaching a trade agreement on Christmas Eve 2020. To describe the tortuous process, European Commission president Ursula von der Leyen reached for the lyrics of Paul McCartney: “It was a long and winding road.”

The journey cost two UK prime ministers their jobs and on many occasions threatened to tear apart the Westminster political fabric. Prime Minister Boris Johnson’s decision to prorogue Parliament last autumn even provoked a constitutional crisis.

Throughout, the EU had been remarkably disciplined, never straying from its negotiating strategy. There was a lot at stake for Brussels too: The EU is a complex construct and several (mainly populist) parties would also like their countries to quit the union. In that sense EU chief negotiator Michel Barnier’s job was to limit the damage of Brexit to the EU politically as well as economically. He has been a hero of the negotiations, keeping 27 member states aligned for four and a half years, briefing their ambassadors every step of the way, which will reap a further benefit now that member states and the European Parliament need to sanction the deal.

The deal came in the nick of time. The transition period ends on Dec. 31, which is when the UK will leave the EU departure lounge and enter the new post-Brexit world. World Trade Organization terms would have been devastating for many, such as farmers or car manufacturers, who would had EU import duties imposed on any of their products sold in the single market.

According to the UK’s Office of Budget Responsibility, a deal along the lines of the one negotiated will cost the British economy 4 percent of GDP growth over the next 15 years. No deal would have driven that figure up to 6 percent. In the words of the Taoiseach. Micheal Martin: “I believe the agreement reached today is the least bad version of Brexit possible, given current circumstances.”

What distinguishes this agreement from other trade deals is that it regulates the will of the signatories to go their different ways, with less rather than more alignment. The deal is thin. It regulates in great detail the trade in goods, but not services, which account for 80.2 percent of the UK’s GDP. There is a particular dearth of clarity on financial services, the lifeblood of the City of London.

While tariffs are averted, increased customs formalities will place a burden, with associated costs, on exporters and importers alike. Northern Ireland remains in the customs union, keeping the border with the Republic open and thus preserving the Good Friday Agreement, but it comes at the expense of a customs border down the Irish Sea between Northern Ireland and Britain.

There was a compromise on fish, the final sticking point; and also on the “level playing field,” as both sides maintain transparency on environmental, social, labour and tax changes, which should nip in the bud any attempts to undercut each other in future. Most importantly for the UK, the European Court of Justice will not sit in judgment over compliance with the agreement, and disputes will be settled by independent arbitration.

Just how far the two sides had drifted apart became clear when von der Leyen and Johnson spoke about sovereignty in their press conferences on Thursday. For Johnson, sovereignty is very much a matter ofregaining control of the country’s borders, money and laws. For von der Leyen, sovereignty in the 21st century is about pooling strength. These are different ideological concepts, and probably beyond reconciliation.

The House of Commons has been recalled to vote on the agreement on Dec. 30. It will sail through with the support of the opposition Labour Party. The European Parliament will not vote on the agreement until the beginning of 2021, but Barnier has briefed EU ambassadors, who are expected to advise their capitals to allow for the deal come into effect on a provisional basis on Jan. 1.

It is the end of a long and arduous process, but the beginning of the EU and the UK having to navigate their new relationship on a daily basis. The agreement is an achievement for both negotiating teams, and proved that Johnson was right when he said a deal was there to be done. Trade deals with the EU can take years to negotiate. They got there on this one, however thin, in a little over 10 months.

• Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources. Twitter: @MeyerResources