The Ramifications and Consequences
Great Britain’s departure from the European community will fundamentally change how Britons live. To what extent that is will only be known if Great Britain can work out a deal with the European Union.
Had a Deal Been Made?
No deal was reached during Britain’s withdrawal period from the EU, which ended on January 31, 2020 after a period of extension. Transitional arrangements for Britain’s departure from the EU end on December 31, 2020. Despite elaborate discussions, no deal has been reached throughout the transition period.
Why Has No Deal Been Reached?
There are three contentious issues that have prevented a deal being made: fishing rights, governance and rules around competition. Fishing is a major issue. Britain view their current position with the EU regarding fishing as harsh and it has become a major political point for those in favour of Brexit in Britain. The EU, particularly France, has no inclination to concede any more fishing rights to Britain though because in the zero sum game, it will be France that loses.
When it comes to governance, the EU distrusts Britain’s ability to respect a deal and international law. Britain refuses, naturally, to allow the European Court of Justice to be the arbiter. Regarding competition laws, both the EU and Britain are mindful of state support subsidising industries that have the potential to undercut the other.
Can a Deal Still Be Made?
It is certainly in the interests of both Britain and the EU to reach a deal prior to the end of the transition period or the relationship between the two bodies will default to WTO trade rules. This will be a particularly expensive and cumbersome result for Britain as tariffs and quotas would be charged and enforced from January 1, 2021. It is estimated this could impact up to 650 billion pounds of trade annually between the UK and the EU. This would have major economic ramifications, particularly around inflation and employment. There will also be significant strain added at border checkpoints as additional checks and tax collection will be required. It is certainly in the interests of the United Kingdom, in particular, to strike a deal with the EU.
Is a Deal Close?
No. The UK and the EU are still a long way apart on key issues. EU commission president Ursula von der Leyen says a deal is unlikely before December 31. Downing Street are also pessimistic of a deal being struck. Both sides have agreed to continue talking but the gap on key issues remains wide.
What Will No Deal Mean for the UK?
Rising inflation and increased unemployment are potential serious consequences if a deal cannot be reached. Food prices will almost certainly rise while electricity and gas may surge. Food shortages are expected, at least early in 2021. Businesses, particularly those relying on a real-time supply chain, will face increased costs and notable delays. With the COVID-19 pandemic still bearing a heavy impact across the UK, failure to strike a deal could deepen the economic woes even further.
UK citizens, regardless of any deal, will lose freedom of movement across Europe while EU nations will be subject to border checks. This will be a major issue on the Ireland-Northern Ireland border. Political unrest is sure to follow such significant social and economic upheaval. There will be a reduction in flights from British-owned airlines. The Channel Tunnel will likely be shut down until an agreement is reached between the UK and France.
The festive season is shaping to be anything but a celebration for the key parties, and the new year may not bring about the new beginning that UK citizens were seeking when they voted for Brexit almost four years ago.
What Happens Next?
Several questions remain unanswered leading into the transition deadline date of 31 December 2020. For in-depth analysis on how to trade around Brexit, follow our special webinar series.
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