After four and a half years and unprecedented social and political discord, it has finally happened: the United Kingdom has left the European Union with the bare bones of a free trade agreement.
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Bare bones free trade agreement
It took until Christmas Eve — ahead of the Dec. 31 deadline exit date for both sides to make the final compromises necessary to reach an agreement.
However, to Prime Minister Boris Johnson’s credit, after all of the lies and disinformation around the benefits of leaving the E.U., he did finally get it done. Even the normally neutral and sober Financial Times acknowledges it is but the bare bones of a deal, with much left uncovered and much still to be agreed.
The deal covers goods, exports to the E.U. of which make up just 8% of U.K. GDP. However, the deal leaves out services. According to The Guardian, services account for around 80% of the U.K.’s economic activity and about 50% of its exports by value to the E.U.
There will be a lengthy process of ongoing negotiation around how much access the City of London is allowed to E.U. business. Similarly, there will be discussions regarding what constitutes the required “equivalence” for which the E.U. is looking.
This means the previous passporting agreement allowing automatic access to the E.U. is replaced by so-called equivalence. That is, each side unilaterally permits companies from the other to conduct certain financial activities in its territory.
That’s hardly a stable position. E.U. countries like France and Germany have made no secret of their desire to challenge the U.K.’s historical dominance in financial services post-Brexit.