Global Threat Analyst – Europe & CIS
READ OUR FULL SPECIAL ADVISORY
After months of protracted negotiations between the European Union and the UK, a post-Brexit Free Trade Agreement (FTA) was reached on 24th December 2020.
Both sides claim their respective negotiating objectives have been met. However, the impacts of the new arrangements are being felt just one month into the UK and EU’s new relationship.
Negotiations had been effectively gridlocked for months over three main issues:
- The Level Playing Field
- Governance of the FTA itself.
In all three issues, compromises were reached to bridge what – at times – appeared an unbridgeable gap between the UK and the EU.
While avoiding the imposition of tariffs on goods constitutes a major benefit of the Brexit deal, major barriers to trade remain. Non-tariff barriers and other forms of bureaucracy have grown relative to trade between the UK and EU prior to the expiration of the transition period.
A central promise of UK Prime Minister Boris Johnson in the December 2019 general election was to ‘Get Brexit Done’, however the reality appears somewhat different.
Areas not covered by the Brexit Deal
The law of geography in trade and economics – you trade with whom you are closest to – will not be changed by Brexit, regardless of what post-Brexit ambitions the UK holds. Brexit is far from ‘done’ and a number of areas were not covered by the TCA.
The most prominent of these provisions not covered by the TCA is on services.
Recognition of professional qualifications
Absent from the TCA is the mutual recognition of professional qualifications, which allowed UK nationals and EU citizens to export their services in both directions, with comparatively little regulatory oversight. However, UK nationals who plan to service clients in the EU now need to have these qualifications recognised on a state-by-state basis, adding considerable difficulty to cross-border service provisions as mutual recognition provisions vary widely between member states and respective sectors.
Financial services – which account for 7% of the UK economy and 10% of its tax receipts – have been left uncertain over their future status with the EU. These services have now lost their passporting rights, which allowed firms to sell their services into the EU from a UK base, without requiring additional regulatory scrutiny. As a recently departed member state, the UK should in theory be able to meet the criteria for selling services into the EU. However, the EU is typically more defensive towards external financial service providers – which now includes the UK – and the desire to build an integrated European market and onshore a greater proportion of financial activity means it is unlikely UK firms will receive the same level of market access they had pre-Brexit.
Provisions for short-term business trips and temporary secondments will do little to compensate for the UK’s loss of access to the single market in services, which was already comparatively underdeveloped, relative to that of goods.
These unresolved issues set the UK and EU up for future discussions and increases the prospect of the UK-EU relationship becoming somewhat like elements of the Switzerland-EU relationship, where bilateral agreements on separate issues are continuously reached and the relationship is never clearly-defined or finalised conclusively.
The Brexit deal sets the stage for further diplomatic and political wrangling in the years to come. It is certain the UK’s relationship with the EU will change – whether this comes in the form of deeper co-operation or a constant saga of diplomatic disputes remains to be seen.
Navigating a complicated post-Brexit world
We can assist your company throughout this process by offering a range of embedded and monitoring options. By using these services, clients can save time and reduce their longer-term costs by freeing up resources that would otherwise be burdened with the associated workload. Email firstname.lastname@example.org to find out more.