More than 1,600 days after the United Kingdom voted to leave the European Union, a final trade deal has been agreed that will avoid border and economic chaos on New Year’s Day.

The deal brings an end to a four-year divorce period since the 2016 Brexit referendum, and signals the end of the UK’s membership in the European bloc it had been a part of since 1973.

The 500-page agreement will mean there are no quotas or tariffs on the goods trade that makes up half of the annual commerce between the UK and EU, worth more than $1 trillion.

European Commission President Ursula von der Leyen told a press conference in Brussels the deal was “fair” and “balanced”.

“It was a long and winding road,” she said.

“But we have got a good deal to show for it.

“It is fair, it is a balanced deal, and it is the right and responsible thing to do for both sides.”

British Prime Minister Boris Johnson tweeted a picture of himself inside Downing Street, raising both arms in a thumbs-up gesture of triumph, with the words: “The deal is done.”

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“We have taken back control of our destiny,” he said during a press conference at Downing Street.

“People said it was impossible, but we have taken back control.

“We will be an independent coastal state.

“We will be able to decide how and where to stimulate new jobs.”

Johnson hails ‘jumbo’ deal

Mr Johnson described the last-minute agreement as a “jumbo” free trade deal, along the lines of what was done between the European Union and Canada, and urged Britain to move on from the divisions caused by the 2016 referendum.

The deal will also support the peace in Northern Ireland, a priority for US president-elect Joe Biden, who had warned Mr Johnson that he must uphold the 1998 Good Friday Agreement.

EU member Ireland said the deal, which the European Commission website said would be published soon, protected its interests as well as could have possibly been hoped.

The trade deal will not cover services, which make up 80 per cent of the British economy, including a banking industry that positions London as the only financial capital to rival New York.

Access to the EU market for UK-based banks, insurers and asset managers will become patchy at best.

Mr Johnson said the deal did not contain as much as he would have liked on regulatory equivalence for financial services, but still contained some “good language”.

‘Parting is such sweet sorrow’

While both sides praised each other’s negotiators for sticking to their respective stances, Ms von der Leyen was much more sombre in her tone than Mr Johnson’s bullish optimism, even evoking a line from Shakespeare’s Romeo and Juliet.

“Ladies and gentlemen, at the end of a successful negotiation journey I normally feel joy,” she said.

“But today I only feel quiet satisfaction and frankly speaking, relief.

“I know this is a difficult day for some, and to our friends in the United Kingdom, I want to say parting is such sweet sorrow.”

Michel Barnier, the EU’s chief negotiator who had dealt with three different Brexit ministers and three different chief negotiators from the UK, echoed Ms von der Leyen’s sentiments.

“The clock is no longer ticking,” he said.

“Today is a day of relief.

“But tainted by some sadness, as we compare what came before with what lies ahead.”

He said the new deal was built around ambitious and equitable free trade, and an “unprecedented” economic and social partnership.

Deal delayed to the very end

A deal had seemed imminent for almost a day, until haggling over just how much fish EU boats should be able to catch in British waters delayed the announcement of one of the most important trade deals in recent European history.

Mr Barnier said Britain would have a new status as an independent coastal state, and new fishing quotas had been agreed between the EU and Britain.

“The European Union will stand beside its European fishermen, and will accompany them. That is our commitment,” he said.

Although the UK officially left the EU on January 31 this year, it has been in a transition period to negotiate a free trade deal for when Britain leaves the EU’s single market and customs union at midnight on December 31.

The 11-month transition period was to allow for negotiations on a free trade deal with the EU and its 27 member nations.

The UK Parliament will be recalled on December 30 to vote on the deal, which will likely pass with support from the opposition Labour party, while EU ambassadors from all 27 member states will meet on Christmas Day to review it.

Mr Johnson could still face a backlash from members of his own Conservative Party, with MPs from the Eurosceptic European Research Group likely to closely examine the deal and take issue with any perceived concessions from the UK side on disputed areas such as fishing rights and business competition.

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                                            <span itemprop="image" itemscope="" itemtype="https://schema.org/ImageObject">
                                                        <meta itemprop="url" content="https://images.indianexpress.com/2020/12/brexit.jpg"/>
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                                                    </span><span class="custom-caption"> <span class="ie-custom-caption">The two sides are attempting to strike a deal to define the terms of their future relationship ahead of a December-31 deadline. (File Photo)</span></span>Following overnight<a href="https://indianexpress.com/article/world/last-minute-uk-eu-post-brexit-trade-deal-in-the-works/" rel="nofollow"><strong> negotiations between the United Kingdom and the European Union</strong></a> at European Commission’s headquarters in Brussels, Britain and the European Union struck a provisional free-trade agreement as part of the <strong><a href="https://indianexpress.com/article/world/uk-and-eu-reach-post-brexit-trade-agreement-7118765/" class="" rel="nofollow">Brexit deal,</a></strong> four and a half years after Britain decided to leave the bloc.

The two sides attempted to strike a deal to define the terms of their future relationship ahead of a December-31 deadline, when the UK’s post-Brexit transition period officially ends.

There is a lot riding on a successful Brexit deal for both the EU and the UK. By striking a zero-tariff and zero-quota deal, they will be able to safeguard the trade of goods between the UK and the EU, which amounts to around $1 trillion annually.

What is the Brexit deal and why is it needed?

After it formally exited the European Union on January 31 this year, the United Kingdom entered a 11-month transition period during which it continued to follow EU rules. This was when the country began negotiating a deal with the bloc to determine key aspects of their relationship — including a viable trade agreement, defence, security and immigration once the transition phase ended.

However, talks stretched on as both sides were unable to agree on major points — fishing rights, governance, and guaranteeing a ‘level playing field’ on government subsidies and regulations.

A level playing field essentially means that in order to trade with the EU’s single market, the UK will have to follow the same rules and regulations to ensure that it does not have an unfair advantage over other EU businesses. But with or without a Brexit deal, the UK will be exiting the EU’s single market and customs union by the end of the year.

The deal is also likely to lay down rules of governance, which will dictate how any deal is enforced as well as the penalties that will be imposed if one party violates the terms of a mutually-approved agreement.

The UK will also have to agree on how it will cooperate with the bloc on issues pertaining to security and law enforcement once it officially withdraws from the European Arrest Warrant on January 1, next year. Further, the two parties will have to finalise agreements on issues like airline safety and information sharing.

But, why is fishing such a big deal?

While fishing is a relatively small part of the economy on both sides of the English Channel (fishing was just 0.02 per cent of the overall economy both in the UK and in the EU), the issue is extremely emotive and its political consequences far outweigh the economic impact on both sides.

For the EU, access for its boats is an important precondition for a trade agreement, while in Britain, the Brexit cheerleaders peddled it as a symbol of sovereignty that needed to be regained.

Even though Britain formally left the EU on January 31, 2020, the country still has to adhere to the EU’s rules until the end of the year, including the bloc’s Common Fisheries Policy. So, till then, the fishing fleets of every country involved have full access to each other’s waters, going well beyond the territorial water that covers the first 12 nautical miles (22km) from the coast. But the volume of fish, depending on the species, are to be claimed by each country as per a complex national quota regime that has been formulated using historical data going back to the 1970s.

The British fishing industry has maintained that it got a raw deal in this quota distribution. That’s why the UK government wants to increase the British quota share significantly, even as EU negotiators have been pushing Britain to continue to allow their fishing crews to have access to its waters.

The EU, meanwhile, wants to divide the amounts of fish that each country’s boats are allowed to catch in a way that will not be renegotiated every year. EU’s chief negotiator Michel Barnier has said in the past that annual negotiations with the UK would be technically impossible because so many different types of fish would be involved.

What is the political trigger for the fight over fish?

During the 2016 Brexit referendum campaign, Boris Johnson was among the faction of Conservative leaders who had pledged that if Britain were to leave the EU, they would get back control over their national waters. Now, with Johnson at 10 Downing Street, Britain feels obligated to make an unambiguous assertion that any new agreement on fisheries has to be based on the affirmation of “British fishing grounds” being “first and foremost for British boats”.

According to a Financial Times report, the issue of control over fishing jurisdictions is resonant in France as well, especially given that President Emmanuel Macron faces an election in 2022. French fleets, in particular, depend on fish caught in British waters.

Where does the deal stand now?

After months of arduous negotiations, UK PM Boris Johnson is expected to announce the final Brexit deal later today. Officials in Brussels are believed to be finalising the details of the deal that will come into force on January 1, 2021, BBC reported.

According to reports, the two sides have agreed to a largely tariff and quota-free trade arrangement, but this does not necessarily ensure frictionless trade as businesses had hoped.

“Brexit work would continue throughout the night. Grabbing some sleep is recommended to all Brexit-watchers at this point,” Eric Mamer, the chief spokesperson for European Commission President Ursula von der Leyen, tweeted on Wednesday night. “It will hopefully be an early start tomorrow [Thursday] morning.”

But even if a deal is reached and it gets support from all 27 EU leaders in the European Council, it will still have to be ratified before the transition ends. In the UK, MPs are on standby as they may be recalled to parliament once the deal is ready to be approved.

The agreement will then have to be ratified on the EU side, where it otherwise takes several months and sometimes even years to clear a trade deal. To work around this, leaders may decide to apply a deal provisionally before the European Parliament holds a formal ratification vote next year. Depending on its contents, it may even have to be approved by national EU parliaments, BBC reported.

What is at stake?

Failure to strike a deal before the December 31 deadline would result in a no-deal Brexit, which could have far- reaching ramifications both domestically and internationally. No deal is also likely to sever the already-tense relations between the UK and EU for some time.

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Negotiators finalized the accord, which will complete Britain’s separation from the bloc, on Christmas Eve, days before the country is due to leave the bloc’s single market and customs union.

The agreement will allow for tariff and quota-free trade in goods after Dec. 31, but that won’t apply to the services industry — about 80% of the U.K. economy — or the financial services sector.

Firms exporting goods will also face a race to prepare for the return of customs and border checks at the year-end amid warnings of disruption at Britain’s ports. The deal comes after three days of chaos at the main crossing between Britain and France offered a reminder of how quickly blockages at the border can choke international trade.

More than five turbulent years after a general election set off a chain reaction that would transform British politics and the country’s connections to the rest of Europe, the deal establishes a new framework for businesses on both sides of the Channel and frees the British Parliament from many of the constraints imposed by EU membership.

For Boris Johnson, the architect of Brexit and the third prime minister since the 2016 vote to leave the EU, it marks another landmark just over 12 months after he claimed a decisive mandate from voters with the promise to “get Brexit done.”

With the electorate divided, public finances battered by the Covid-19 pandemic, and Scots pushing for a split from the rest of the U.K., the prime minister’s next challenge is to prove that the U.K. can flourish outside the EU’s single market and customs union, a status that puts it behind other non-members such as Norway and Switzerland when it comes to EU access.

Businesses will still face border checks for which surveys have shown that they are unprepared, and consumers in Northern Ireland face the prospect of shortages of some goods as firms adjust to the new paperwork.

In a worst-case scenario, Johnson’s government itself has warned of a 7,000-long line of trucks, enough to stretch from the Port of Dover to the Palace of Westminster.

The U.K. got a taste of the potential chaos this week after France closed its border in response to an outbreak of a new strain of the coronavirus in Britain, leaving hundreds of lorries bound for the port of Dover backed up on local roads. To mitigate the risk, the government has built lorry parks and drivers entering Kent will require a permit or risk a fine.

Read More: Isolated U.K. Seeks to Reopen Trade Route After Days of Chaos

Outside the EU’s single market, U.K. financial services firms will be deprived of the passport that allows them to offer their services across the bloc and face a wait to see if the EU will grant them access — something that is still far from certain and, even if granted, could be withdrawn at any time.

That has allowed Dublin, Frankfurt, Amsterdam and Paris to start chipping away at London’s dominance as Europe’s financial center. Firms from JPMorgan Chase & Co. to Goldman Sachs Group Inc. are among the companies that have already shifted about 7,500 employees and $1.6 trillion of assets out of the U.K. because of Brexit.

The deal mitigates some of the immediate economic costs of leaving the EU, even if Britain’s long-term growth is set to be stunted. A no-deal Brexit would have cut 1.5% off U.K. gross domestic product in 2021, according to Bloomberg Economics. But growth is still forecast to be 0.5 percentage points lower every year for the next decade than what it would have been had Britain stayed in the bloc.

Against the dollar, the pound is still trading below its level before the Brexit vote. The U.K.’s benchmark FTSE 100 index is one of the worst-performing Western European benchmarks this year.

For the EU, reaching a deal avoids poisoning relations with a key diplomatic and commercial neighbor for years, and provides a basis for further cooperation in future.

Unlike other similar trade deals, the agreement will establish frameworks for common standards in aviation, business subsidies, labor rights and the environment, as well as law enforcement.

The agreement’s wide scope made negotiating it all the more complicated: Britain resisted EU calls to align its rules on business subsidies with those of the bloc, while France pushed for continued access to British fishing waters.

With the two sides at loggerheads on those two issues — and any wider agreement impossible until they were resolved — the negotiations quickly became bogged down.

After the coronavirus stopped the negotiators from meeting in person, Johnson refused to extend the post-Brexit transition period beyond the year-end. That put the squeeze on the teams, with officials working around the clock as multiple deadlines were missed. At one stage in October, the prime minister threatened to walk out without a deal.

Now that he has one, Johnson faces the challenge of governing without the Brussels bogeyman to blame for setbacks, knowing that he and his Conservative party will be judged on how the country fares as an independent nation.

(Adds context in second paragraph.)

For more articles like this, please visit us at bloomberg.com

©2020 Bloomberg L.P.

Four years and six months on from the referendum that defined an era of British politics, the U.K. and European Union have agreed to a historic new trade deal on Thursday to define their relationship after Brexit.

The U.K. will complete its final exit from the 27-member bloc on Jan. 1. A no-deal Brexit could have caused a market shock, hurting some investors and impacting both U.K. and European consumers and companies.

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“We have finally found an agreement. It was a long and winding road, but we have got a good deal to show for it,” European Commission President Ursula von der Leyen said.

British Prime Minister Boris Johnson said that the U.K. “will be your friend, your ally, your supporter, and indeed never let it be forgotten, your number one market.”

He added that the deal, which comes into force on January 1, was the biggest trade deal signed by either side, covering trade worth £668bn in 2019 and guaranteeing tariff-free trade on most goods. Johnson said the deal will allow U.K. companies “to do even more business with our European friends.”

A key sticking point of the negotiations had been EU fishing rights in U.K. waters, but Johnson said that Britain will have “full control” of its waters for the first time since 1973.

Essential reading: A Brexit Trade Deal Has Finally Been Struck. Here’s What It Means for Markets and Investors.

The announcement on Thursday afternoon came later than expected, after what Ireland’s foreign minister Simon Coveney said was a “last-minute hitch” relating to language over fishing rights.

Johnson and von der Leyen had been in close contact over the past three days in a bid to strike a deal in time for ratification before the end of the year deadline.

   Von der Leyen said that “competition in our single market will be fair, and remain so. The EU rules and standards will be respected. We have effective tools to react if fair competition is distorted and impacts our trade.”

   The U.K. left the EU on Jan. 31 but the two sides had to reach a deal over their future trading relationship before the transition period ends at the end of this year. A post-Brexit deal drew a line under nine months of protracted negotiations and multiple missed deadlines. EU member states will now have to ratify around 2,000 pages of legal text. 

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