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The Christmas Eve EU-UK trade deal is welcome development in that it avoids the chaos of no deal. It contains some explicit trade-offs between sovereignty and market access in an interdependent world that could inform other future trade deals. The dissolution of a five-decade long customs union and a single market will entail disruption and pain.
The Brexit trade deal was the amicable end to a long drawn-out divorce negotiation. The economic impact of the deal will be considerable and felt over the course of implementing the new norms that will regulate trade across the Channel. The immediate impact is estimated at about 1% of national income. The agreement, governing £650 billion worth of trade, covers technical aspects of key sectors including autos, chemicals, pharma, retail, food, logistics and fishing.
The zero tariff and quotas on all goods and trade facilitation measures provide some relief. However, it will be more expensive to trade and invest for both sides. The choice was between sovereignty, that is, retaining control, and market access. The UK chose sovereignty. The inclusion of adherence to comparable environmental standards and labour laws and the right to impose tariffs in case businesses are at an unfair disadvantage can well become a feature of all trade agreements.
With the UK-EU trade deal done, India should actively work to finalise a free-trade agreement with both markets. India and the EU should find compromises that can serve as landing zones for an effective and workable trade agreement. Similarly, with the UK. India should explore opportunities in the services sector. Brexit is bad for globalisation, besides being corrosive for the UK’s unity. Minimal disruption is what we can hope for.
This piece appeared as an editorial opinion in the print edition of The Economic Times.