On December 24, the United Kingdom narrowly managed to avoid crashing out of the European Union when the Brexit talks finally managed to come to a close.
Negotiations were stalled several times by the coronavirus pandemic as officials on both sides of the table went into isolation. Notably, U.K. Prime Minister Boris Johnson was quarantined for the coronavirus twice.
Other factors also held up the talks. Arcane issues like quotas on fish, how both sides would enforce the deal, and the specifics of how British goods would gain access to Europe's single market proved to be particularly contentious.
Despite these obstacles, the terms of the U.K.'s divorce from the European Union are now final. And while Britain will avoid a slew of new taxes, clogged up seaports, and the disappearance of European goods from supermarket shelves, on January 1, many vital questions will remain unanswered.
What's in the deal: Resolving Conflicts and Trade
The December 24 deal offers a bit of clarity on issues like regulatory compliance or how both sides will resolve disputes, but not much as U.K. would've liked.
Conflict resolution was perhaps the gravest issues on the table this year. The E.U. had insisted on a "equivalence mechanism," which would've enabled the bloc to apply unilateral tariffs on British goods if the E.U. felt the U.K.'s standards had diverged too much from their own. Instead, under the deal's "rebalancing clause," either side can initiate a formal review of the economic aspects of the agreement.
The rebalancing clause implies that the terms of the deal could change at any time and that the current "tariff-free" deal could one day result in tariffs.
Product standards were another crucial issue. But, as it stands, there is no agreement on "mutually recognized conformity assessment." A deal on this topic would have resulted in far fewer customs checks. But as it stands, retailers who want to sell their goods on both sides of the Channel will have to send their products through customs twice.
However, larger producers will get some relief in the form of trusted trader schemes.
But perhaps what's more important than what's in the Brexit deal is what's not in it.
What's not in the deal: Clarity for the Services Sector
While the deal offers some clarity on how goods will be travel across the Channel, there is little to no mention of how services will be exchanged. The deal's ambiguity on these matters means that Britain's thriving financial industry could take a beating come January 1.
The financial services sector has the largest trade surplus of any sector in the U.K, and British banks lend 40 billion dollars in the E.U. each year. But at the start of 2021, British lenders will lose "blanket access" to the European market. British banks will only have access to Europe's single market if E.U. officials find British financial standards "equivalent" to their own. Already, British banks have warned E.U. customers that their accounts will be closed. And London based financial firms have relocated a trillion pounds in assets to their European locations.
When it comes to the exchange of goods and services, British bankers, farmers and retailers alike will have to trust in the good graces of European regulators. E.U. regulators will have to deem British standards "equivalent" for money, goods, and services to flow freely between both shores. If not, tariffs could follow, banks will have to apply for licenses in every E.U. member state and goods could get stalled in customs. Citigroup
But, as officials on both sides of the table have implied countless times, any deal is better than no deal.