The dust has now settled on the frantic efforts by the EU and the UK government to secure a Preferential Trade Agreement (PTA). As business gets back to normal, we are beginning to see the effects of the shift from Single Market (SM) and Customs Union (CU) membership to the Trade and Cooperation Agreement (TCA) that the parties signed on Christmas Eve.

In the attached document we explain:

• What is changing in Great Britain’s trade with the EU and Northern Ireland?
• How does the TCA compare with PTAs and trade arrangements that the EU has with other non-EU countries near and far?
• What are the likely impacts?

Whether the effects are net-positive or net-negative, the TCA represents a seismic shift in the UK’s trading relationship with its largest market - the European Union - and with the policy priorities that govern its approach to this relationship.

For every action, there is a consequence. For every cost there is a related benefit. Every choice to enjoy one benefit is a choice not to enjoy a different benefit. Our goal in this summary is not to pre-determine whether the UK economy will succeed under the TCA. Rather, we aim to set out the trade-offs that the UK government has made – what it has traded off in exchange for what – and what this means for businesses.

By leaving the Single Market, the UK has traded away the ability of British citizens to live, work, study, retire, and deliver services seamlessly throughout the European Economic Area (EEA) and Switzerland in return for full control of the ability to similarly restrict EEA and Swiss citizens. It has traded away frictionless trade with respect to regulatory barriers for a level of regulatory autonomy that it has not enjoyed since the birth of the Single Market in 1993. By leaving the Customs Union, it has traded away frictionless trade with respect to customs documentation, to VAT and excise procedures, and to qualification under Rules of Origin for tariff-free trade, for the ability to reach PTAs with countries outside the EU.

Whether this is appropriate for the economic needs of the country remains to be seen. However, the stark choices that the government has made mandate it to be clear with affected businesses and consumers that these changes are material and not, in the near term, reversible. There will be real costs for British firms in continuing to serve continental and Northern Ireland clients through trade avenues that they had taken for granted as seamless but that will no longer be so.

We will shortly launch a regular series of trade bulletins, we will be providing examples of companies that are adapting to the new situation as well as of those enjoying new benefits. We will return in each bulletin to the themes that we set out here.

In this explainer, we will also compare the TCA to PTAs and other trading arrangements that the EU has struck with other third countries. In this comparison, there is a clear distinction between the EU’s PTAs with distant countries – most of whom have more facilitations and fewer obligations than the UK now has – and its more integrated arrangements with neighbouring countries, compared to which the UK now has an unprecedented level of regulatory freedom. Of course, it also does not have many of the features of frictionless trade that are necessary to take advantage of proximity in the same way as those other EU neighbours do. 

The success of the government’s strategy depends on the relative magnitude of the benefits it seeks and the costs it has imposed. In this paper, we set out those costs and benefits.

A full version of this report, written by the CEF trade group can be downloaded here.