Brexit and international trade: negotiations update

8 min read

International

A recent Santander webinar looked at the challenges and uncertainty UK businesses are facing as the Brexit process nears its conclusion.

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The UK’s ability to recover quickly from the coronavirus-related downturn is likely to depend to a significant degree on British businesses’ ability to find new markets, both domestically and on the international stage.

Beyond the immediate impact of coronavirus, UK firms will soon have to contend with a number of changes that emerge when the current Brexit transition period ends on 31 December 2020. The Government didn’t seek an extension to the transition, fulfilling its commitment not to do so. Therefore, from the start of 2021 UK-based exporters and importers, as well as the thousands of businesses in their supply chains, could face new bureaucracy and possible delays in supply chains.

With the UK and European Union still locked in talks over the shape of post-Brexit trading arrangements, we recently hosted a webinar looking at the possible outcomes of those talks, as well as the likely implications of Britain’s formal departure from the single market and customs union at the start of next year.

John Carroll, Head of International and Transactional Banking at Santander, chaired the session. There were contributions and insights from two experts who have been close to the internal workings of Brexit since the EU referendum four years ago - Lord Bridges of Headley, a former Brexit Minister, and Peter Foster, previously Europe Editor at the Daily and Sunday Telegraph and now Public Policy Editor for the Financial Times. Both spoke in a strictly personal capacity.

Below are highlights of the discussion.

 

Uncertainty prevails

A lack of certainty over the UK’s future trading relationship with the EU as well as other international markets has long been a feature of the Brexit process. To some extent inevitably, with negotiations always likely to take many months if not years.

However, with less than six months now until the official end of the transition period put in place last year, British firms still have many questions as regards to the practicalities and logistics of trade with their closest neighbours.

Summarising the current position, Lord Bridges said that while coronavirus has had a huge impact on the UK economy, the fundamentals of Brexit remain the same. ‘The UK has always faced a strategic choice as to whether it wants to retain frictionless access to European markets and remain aligned to EU regulations and its level playing field on tax, employment and environmental legislation. Or whether it wants the ability to take back control over all its laws so its trade with the EU has more friction and costs, but it can do deep, free-trade deals with non-EU countries?’ he explained.

Lord Bridges added that Boris Johnson’s resounding general election victory at the end of 2019 now means that the Conservative Government has much greater freedom to deliver on its promise to turn Britain into a global free-trading nation. However, the ongoing impact of the pandemic on economies all over the world could mean that other countries may not be in a position to prioritise trade deals with the UK in the medium term.

 

The current state of negotiations

Foster said that whatever kind of agreement ends up being struck between the UK and EU, it’s inevitable that large numbers of businesses, especially SMEs (small and medium sized enterprises) are going to be negatively affected, at least to some degree, by restrictions on trade with Europe. ‘Is the Government prepared to marry the practical needs of small businesses with the outcome of these negotiations?’ he said. ‘The gap between the ideological aim to be free-trading and the desire to support those small businesses has still to be bridged.’

Foster added that although the coronavirus crisis has slowed the pace of negotiations, there is optimism that a deal can still be done. However, there are still major sources of disagreement. For example, over the future regulatory framework for issues such as state aid or rules of origin in the UK.

 

Is no-deal still a possibility?

Boris Johnson and his ministers have been at pains to stress that they would rather walk away from the negotiating table than accept a trade deal with the EU that is deemed to be counter to the UK’s interests. Foster said, however, that it was important to bear in mind that any no-deal outcome later in 2020 can only be a precursor to an actual deal somewhere down the line.

Lord Bridges pointed out that the impact of the coronavirus pandemic might reduce the chances of no-deal, given its potential to exacerbate the economic difficulties facing the UK. Foster added: ‘I would have thought that, come the autumn, the Government would be less likely to do a no-deal given the pain that the country is already facing.’

 

Post-Brexit sectoral impacts

Foster said that sectors such as food and drink, retail, automotive, aviation, pharmaceuticals and chemicals are proportionately far more reliant on pan-European supply chains and the channel crossing and are therefore more vulnerable to the immediate impacts of Brexit. Businesses could also face extra costs if the UK is no longer part of European regulatory systems, such as the REACH database for chemicals.

‘The Government also needs to consider the impact of no-deal on areas with high concentrations of manufacturing businesses such as the North-West and the Midlands,’ he added.

Carroll asked whether UK businesses were ready for the new customs arrangements that are due to come into effect in the first half of 2021. ‘The system itself is not impossible because it is docking into a backend that already exists for trade with non-EU countries,’ Foster said. ‘The question is whether the system can be up and running, and businesses can be familiar with it, by July next year when it is fully phased in.’ He added that a number of transport organisations are concerned there’s not going to be adequate capacity in the early stages to deal with the new bureaucratic procedures for channel crossings. ‘These issues will be ironed out eventually, but it is the short-term disruption that is the concern,’ Foster said.

Listen to our Brexit Webinar with George Bridges (Lord Bridges of Headley) and Peter Foster, Public Policy Editor for The Financial Times, speaking in their personal capacity on the latest developments on the negotiations. Listen to the webinar.

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