LONDON – For weary Brexit negotiators on both sides of the English Channel, a Christmas Eve trade deal sealed eleven months of careful deliberation on Britain’s exit from the European Union, which included details as arcane as the species of fish that could be used to catch the boats on either side of the British Waters.
For many others – including bankers, traders, truckers, architects and millions of migrants – Christmas was just the beginning, day 1 of a high-level and unpredictable experiment on how to unravel a tight web of trade ties across Europe.
The deal, far from closing the book on Britain’s turbulent partnership with Europe, has opened a new one, starting on its first pages with what analysts say will be the biggest shift in modern trade relations overnight.
In the four years since the British decided to sever half a century of ties with Europe, many migrants have stopped moving to the UK for work and British firms have sent employees to Paris and Frankfurt to settle on the continent. With all these preparations now, there are now only seven days between companies and an avalanche of new trade barriers on January 1st.
“We have to learn how to do that,” said Shane Brennan, executive director of the Cold Chain Federation, a UK group that represents logistics companies. “Let’s hope it gets for the better in the end, but it’s going to be slow, complex and expensive.”
British traders, spared the catastrophe of a no-deal breakup, nevertheless endeavored to prepare the first of hundreds of thousands of new export certifications so that their meat, fish and dairy products could be sold to the block. British food that was once exempt from such onerous controls is now subjected to the same controls as European imports from countries like Chile or Australia.
The UK service sector, which includes not only London’s powerful financial industry but also lawyers, architects, consultants and others, was largely excluded from the 1,246-page deal, despite the fact that the sector accounts for 80 percent of the UK’s economic activity.
The deal has also done little to reassure European migrants, some of whom left the UK during the pandemic and are now struggling to determine if they need to rush to establish a right to settle in the UK before the split on Dec. December is completed.
“As of January 1st, the landscape is changing and the transition period security blanket is gone,” said Maike Bohn, co-founder of the3million, which supports European citizens in the UK, voicing her fears that Europeans will be unfairly denied jobs and rental homes of confusion about the rules. “There is concern and also numbness.”
The negotiators have not officially published the extensive trade deal, despite both sides offering summaries, leaving analysts and ordinary citizens unsure of some of the details, even as lawmakers in the UK and Europe prepare to vote on it within days.
It has long been clear, however, that the deal would offer the City of London, a hub for international banks, asset managers, insurance companies and hedge funds, few assurances of future trade across the English Channel. The UK sells around £ 30 billion or $ 40 billion in financial services to the European Union each year and benefits from an integrated market that in some cases makes it easier to sell services from one member country to another than services from one member country to sell American state to another.
The new trade agreement smoothes the flow of goods across British borders. However, financial firms don’t have the greatest benefit of being a member of the European Union: the ability to easily serve clients across the region from a single base. This has long allowed a bank in London to lend to a company in Venice or to trade bonds for a company in Madrid.
That loss is particularly painful for the UK, which had a 2019 surplus of £ 18 billion or US $ 24 billion in financial and other services trade with the European Union but a deficit of £ 97 billion or US $ 129 billion from trading in goods.
“The result of the deal is that the European Union retains all of its current advantages in trade in goods, especially goods, and Britain loses all of its current advantages in trade in services,” said Tom Kibasi, former director of the Institute for Public Policy Research, a research institute. “The result of these trade negotiations is exactly what happens with most trade deals: the larger party gets what it wants and the smaller party turns around.”
After January 1, sales of such services will depend on European regulators deciding that the new UK financial rules are close enough to their own to be trustworthy. This process excludes some common banking activities and leaves other policy considerations open. British residents living in Europe who have bank accounts in the UK have already been notified that their accounts will be closed.
“Imagine taking the UK and moving it to Canada or Australia,” said Davide Serra, general manager of Algebris Investments, a wealth management firm with offices across Europe. “That’s what this means for services. Great Britain has become a third country. “
When announcing the trade deal earlier this week, UK Prime Minister Boris Johnson admitted that it does not give financial firms “as much” access as “we would have liked”. However, according to analysts, he was not as straightforward about the difficulties even UK retailers were facing as part of the deal.
When he promised there would be “no non-tariff barriers” to the sale of goods after Brexit, he ignored the tens of millions of customs declarations, health checks and other controls that businesses will now be responsible for.
The UK lacks the customs brokers needed to process these documents and even the veterinarians to do health checks, industry experts say. And in the past few days, European truckers have received an alarming preview of the chaos caused by shipping delays of just a few days when they were stranded in UK ports due to travel bans related to the new variant of coronavirus.
“It’s a massive problem that will cost the industry millions of pounds and euros,” said Alex Altmann, partner for Blick Brexit issues at Blick Rothenberg, an accounting and tax practice. “Ultimately, that’s passed on to consumers.”
For European citizens living in the UK, the conclusion of a Brexit deal did little to allay fears about how the country’s new immigration rules could complicate their lives. Migrants were allowed to apply for so-called “settlement status” in the UK. However, little provision has been made for people unable to complete the process online, let alone people who do not know they need permission to stay in a country they have lived in for decades.
“There is a risk of a crisis in the next year or two regarding EU migrants who have been here and have been here for a long time but fallen through the cracks in the registration system,” said Robert Ford, professor of politics at the university from Manchester.
The Brexit deal’s limitations reflect the fact that despite the increasing complexity of financial and other regulations in recent years, trade deals have struggled to keep up, said David Henig, an analyst at the European Center for International Political Economy.
However, the UK also limited what it was aiming for in the deal to a few key areas, making the emergence of a bare bones deal almost inevitable, analysts said.
In addition to a no-deal split, which brought enormous blockages at the borders and deep insecurity for companies, the agreement was an ointment. But even with such a deal, the way forward is uncertain.
“Brexit has always been a long-term blow to the UK’s competitiveness,” said analyst Kibasi. “But the way it’s going to turn out is to ruin investments in the UK. So it’s a slow flat tire, not a quick crash.”