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Britain’s relationship with the EU will look like Switzerland’s

THE TRADE deal that Boris Johnson and Ursula von der Leyen, the European Commission president, struck on December 24th is better than no deal. That is about the best that can be said for it. It does not cover all of Britain’s trade, nor does it provide stability. An eternity of negotiations lies ahead. Britain’s relationship with the EU will look rather like that of Switzerland, which has spent years battling over details.

Last-minute concessions on both sides got the deal done. Even a week earlier, many diplomats doubted it would happen. But Mr Johnson then gave ground on fisheries, and Mrs von der Leyen backed off a demand for instant retaliation if Britain diverged unfairly from the so-called level playing field for EU labour, environmental and state-aid standards. Businesses on both sides are relieved, although doing a deal barely a week before the standstill transition period ends on December 31st is likely to maximise short-term disruption.

For goods trade, the deal means no tariffs and no quotas, a broader agreement than Canada’s. Carmakers and the agrifood industry are reasonably happy, though the fishing lobby was disappointed with taking back only 25% of the EU’s catch in British waters until June 30th 2026. But Mr Johnson is wrong to claim that there will be no new non-tariff barriers. Leaving the single market and customs union necessitates border, customs, rules-of-origin and veterinary checks that will raise the cost of trading, even if the rules are lightly enforced at first. And the level playing field, albeit now subject to independent arbitration, means that if Britain diverges much from EU standards, tariffs may be reimposed.

The biggest gap is services, some 80% of Britain’s economy and nearly half its exports. The EU sees the free movement of people as integral to trade in services, so Britain was bound to lose unfettered access to that market. Brexiteers argue that since there is no EU single market in services, that is no great loss. It is certainly incomplete; but being cut out of it will still hurt. Professionals may find it harder to work in Europe, for their qualifications will no longer automatically be recognised. Audio-visual services, a business in which Britain leads Europe, are excluded from the deal. Digital and e-commerce providers will face new barriers. It has yet to be decided whether rulings in Britain’s civil courts will be valid in the EU; if not, lawyers may lose lucrative business.

Nowhere is the deal thinner than in financial services, the source of Britain’s greatest comparative advantage. Early hopes of keeping “passporting” rights that allow British-based financiers full access to EU customers evaporated with the decision to quit the single market. The Bank of England also insisted on keeping regulatory autonomy over financial services. The EU has granted equivalence for British regulatory standards only temporarily and in specific areas, such as derivatives clearing, that it sees as crucial to its own financial stability. Rishi Sunak, the chancellor, promises to negotiate a broader deal, but the EU is clear that equivalence is a unilateral decision that can be revoked at 30 days’ notice. Many EU countries hope to pinch financial business from London; there is no reason to expect them to be seized by a sudden fit of generosity to a rival.

There is a similar concern over the handling of data. It had been hoped that the EU would take an early decision to approve the adequacy of British data protection, but it has not yet done so. Purists on the continent are anyway dubious about Anglo-Saxon commitment to data privacy. The EU has in the past criticised British and American protection of personal data. British access to EU security and police databases will also be somewhat curtailed in future, making a nonsense of claims by Priti Patel, the home secretary, that the new deal somehow makes Britons “safer”.

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On financial services, data and much else the Brexit negotiations are by no means over. It is not just that there are loose ends in the deal to tie up. The agreement also sets up a raft of over 25 specialist committees, ministerial councils and working groups in areas ranging from organic products to sanitary and phytosanitary measures, from aviation safety to public procurement. And it provides for both sides to review the deal’s implementation every five years, which may be interesting after the next British election.

Further liberalisation of trade in services will equally be a matter of apparently endless negotiation. As David Henig, a trade expert, notes this week in a paper for Best for Britain, a lobby group, new restrictions on visas for EU citizens will make life harder for many services businesses that are heavily dependent on the ability of individuals to move around freely. He adds that, if it is to make further progress with global liberalisation of trade in services, which has largely stalled, Britain will first have to work more closely with the EU, by far its biggest market.

This is the lesson from Switzerland, which rejected EU membership in the early 1990s largely because of concerns about sovereignty that echo those of most Brexiteers. The Swiss have since spent years negotiating two complex packages of measures to give them broad access to the EU’s single market for goods, but not for many services, including most financial services (although Switzerland accepts free movement of people and is even a member of the Schengen passport-free zone). Over the past decade the EU and Switzerland have engaged in often grumpy negotiations to create a single governance structure for these measures rather like the one that will now be in place for Britain. Cross-retaliation has been common: 18 months ago, in a dispute over judicial oversight, the EU peremptorily withdrew its equivalence ruling for the Swiss stock exchange.

Swiss officials now devote much time and effort to poring over EU legislative proposals, Swiss diplomats to negotiating with Brussels. Yet however well they do their jobs, the imbalance with the EU puts them at a disadvantage. Britain is bigger than Switzerland, but it will be the supplicant in almost any negotiation. Brexiteers celebrating their country’s great escape will find that the future is not so blissfully free of the EU as they might hope.

This article appeared in the Britain section of the print edition under the headline "Britain’s Swiss role"

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Author: | Post link: https://www.economist.com/britain/2021/01/02/britains-relationship-with-the-eu-will-look-like-switzerlands
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