Since the UK left the Single Market and Customs Union at the end of the transition period, its firms are now trading with the EU under the Trade and Cooperation Agreement (TCA) that the parties signed on Christmas Eve. This brings several profound changes.
In this explainer we cover:
- What is changing in Great Britain’s trade with the EU and Northern Ireland
- How does the TCA compare with Free Trade Agreements (FTAs) and trade arrangements that the EU has with other non-EU countries near and far?
- What are the likely impacts?
Whatever the effects, the move from Single Market and Customs Union membership to the TCA represents a seismic shift in the UK’s trading relationship with its largest market and in the policy priorities that govern its approach to this relationship. Trade-offs characterise every aspect of trade policy. In this explainer, we set out what the government has traded off in exchange for what, and what this means for businesses.
By leaving the Single Market, the UK has traded away the absence of barriers to trade resulting from different regulations for a level of regulatory autonomy that it has not enjoyed since the birth of the Single Market in 1993; it has traded away the ability of British citizens to live, work, study, retire, and deliver services seamlessly throughout the European Economic Area (EEA) in return for full control of the ability to similarly restrict EEA citizens.
By leaving the Customs Union, it has traded away automatic qualification under Rules of Origin (RoO) for tariff-free trade, the absence of customs documentation, and simplified VAT and excise procedures, for the ability to reach Free Trade Agreements (FTAs) with countries farther afield any countries be willing to sign one with the UK that are unable to reach one with the EU.
Whether this is beneficial for the economic needs of the country remains to be seen. However, these changes are material. 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.
In our upcoming regular series of trade bulletins, we will provide examples both of companies that are adapting to the new situation and of those enjoying new benefits. We will return in each bulletin to the themes that we set out here.
In this explainer, we also compare the TCA to FTAs and other trading arrangements that the EU has struck with other third countries. There is a distinction between the EU’s “arms-length” FTAs with distant countries and its integrated arrangements with neighbouring countries.
The success of the government’s policy depends on the relative magnitude of the benefits that it seeks and the costs that it has imposed. In this paper, we set out those benefits and costs.