Some thoughts on the political declaration on future partnership (economic bits only). First, it's clear from this document that the UK is heading towards a hard Brexit, with considerable implications for cross-border trade (1)
The agreement removes all tariffs and quantitative restrictions, which we already knew. The key question is non-tariff barriers. (2)
We get more detail on these in the 'regulatory aspects' section. Provisions on technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures are standard in free trade agreements and do not necessarily go much beyond WTO rules (3)
We can therefore expect significant barriers relating to food safety checks, market surveillance checks, and other areas. This will bite particularly hard for heavily regulated sectors such as chemicals, pharmaceuticals, motor vehicles, and agrifood (4)
It's also clear from this section that the UK will leave major EU agencies such as the European Medicines Agency, the European Chemicals Agency, and the European Aviation Safety Agency (5)
The section on customs indicates that, in the context of the future relationship, the UK will not be in a customs union with the EU. This creates further trade barriers relating to rules of origin (6)
The text suggests that the UK could align with EU rules and this will be 'taken into account' in the application of checks on goods. So the UK could end up aligning with EU rules but this will not necessarily reduce friction, and certainly won't guarantee frictionless trade (7)
The section on services again confirms that market access will be provided 'under host state rules'. Despite warm words on finance and digital, passporting for financial services will end and the 'country of origin' principle for broadcasting will no longer apply (8)
On mobility, the political declaration makes clear that freedom of movement will end and that provisions will be limited to issues such as visa-free travel and temporary movement for business purposes (9)
On energy, the text indicates that the UK will leave Euratom, the Emissions Trading Scheme, and quite possibly also the Internal Energy Market. There will instead be various cooperation arrangements. This will have major implications for the UK's energy sector (10)
On level playing field, the declaration suggests that the Withdrawal Agreement will be the basis for discussion. As we highlighted last week, the WA's non-regression clauses for labour and environment are rather weak, but they could be strengthened for future relationship (11)
On governance, it's clear that the mechanisms within the Withdrawal Agreement will provide the basis for negotiations. In particular, dispute settlement will include the option to refer to an independent arbitration panel, as with the WA. (12)
For disputes related to EU law (e.g. where UK aligns with EU on goods legislation), the arbitration panel must refer to the Court of Justice of the European Union, which will issue a binding ruling. This won't be popular among some, but it was always inevitable. (13)
There's also a provision for unilateral safeguard measures - a so-called emergency brake. i.e. under circumstances of significant economic/ societal/environmental difficulties, UK/EU can take safeguard actions. But v risky to do so given possibility of rebalancing measures (14)
Finally, there's nothing in this agreement that suggests backstop will not be necessary. Under current trajectory of negotiations, the backstop - including UK-EU customs union and NI-only arrangements - will come into force. (15)
