The UK legally withdrew from the EU on 31 January, but in the transition period British firms have still been free to do business without any barriers on the continent, writes Vanessa Glynn.
From 31 December Brexit will be a reality. The negotiations on post-Brexit economic relations between the EU and the UK are entering their final stages and the tension is high. But the wrangling over “deal” or “no deal” obscures the larger picture: Regardless of the negotiations’ outcome, Britain is already headed for a “hard Brexit,” meaning a sharp break in relations with the EU. No matter what, the British and European economies are in for a painful decoupling.
The agreement London and Brussels are currently negotiating would do away with tariffs and quotas for industrial and manufacturing goods as well as food products between the UK and EU. The deal is key for the UK’s agricultural sector, particularly the fishing and food processing industry – very important to Scotland – where tariffs are high. But, on the whole, the deal will be thin.
Here’s the reasons that deal or no deal it’s a hard Brexit:
- With an end to the customs agreement there will be expensive and bureaucratic import/export procedures at the border between the UK and the EU. The UK’s manufacturers often rely on the import and export of intermediate goods in supply chains spread all over Europe. This trade will be badly damaged. The British government expects that trucks might have to wait up to two days to cross the Channel to Europe—a major delay for just-in-time manufacturers. Hence the need for all those lorry parks across Britain.
- Any agreement won’t do away with so-called technical barriers to trade. The EU’s single market has one set of rules, from product to safety standards, and a common framework to enforce them in order to grow free and fair trade. But from January onward, British firms wishing to sell across the Channel will have to pass separate EU regulatory checks and obtain new certifications proving their goods. To do this, many of the firms, for instance in the pharmaceuticals and chemicals industry, will need to open up a subsidiary in the EU. Big corporations can deal with the hassle. But for many of the United Kingdom’s exporting small and medium-sized enterprises, of which 82 percent do business with the continent, access to the EU market will be out of reach.
- The deal leaves the United Kingdom’s all-important services sector with nothing. This major element of the British and Scottish economy, will face a significant deterioration in its EU market access compared with today. Ernst & Young estimates that 7,500 jobs, and the income tax they pay to us, plus $1.55 trillion in client assets have already been moved from the UK to the continent. As of 2021, their European business model depends on the goodwill of the Europeans. Brussels will be able to decide on a whim if it wants to close market access to non-EU countries, including the UK. How’s that for “taking back control”?
- Deal or no deal, on 1 January, the UK will become the European country with the weakest trade links to the 27 EU member states. The free trade agreement under negotiation does not even come close to the arrangements that Norway, Switzerland, Turkey, and even Ukraine have with Brussels. British exporters will have no better access to the EU market than, say, Japanese or South Korean firms. And soy sauce really won’t be cheaper than now – that was UKG misinformation.
- Even with an agreement, British firms will be at a significant competitive disadvantage in the EU’s 448-million-person market compared with their European rivals. Why buy from the UK with all the additional cost and hassle when you can source more easily and cheaply within the EEA?!
Brexit’s wilful economic decoupling will be painful for both parties. But for the UK, whose economy has contracted during the COVID-19 pandemic more than all the major European economies, the coming year will be dire.
(This article draws on the analysis of Joseph de Weck, Foreign Policy Research Institute.)