Following the U.K.’s decision to leave the European Union (EU) on 31 January this year, an 11-month transition period was given to help both parties decide whether to continue a trade relationship under a new agreement. They will also seek to address a number of issues that would be affected as a result of the new agreement, such as fisheries, data sharing, and responsibility for solving disputes. Although this transition period ends on December 31, a U.K.-EU trade deal is still yet to be confirmed. If no agreement is reached by 31 December, the rules under the World Trade Organization (WTO) will come into force from 1 January 2021. This means that both parties will be subject to paying charges on goods and services being transported across borders.
During the transition period, everything remains the same between both parties until 31 December. This means that U.K.-EU trade still continues without any extra charges and there is still freedom of movement within the EU. However, the U.K. has left the European Parliament and the European Commission, which means that it no longer has any voting rights in the EU. The transition period also gives the U.K. an opportunity to begin trade talks with non-EU members such as the U.S. and Australia.
While the U.K. was an EU member, it was automatically a party to 40 trade deals which the EU maintained with more than 70 countries. According to BBC news, the EU accounted for almost half of the U.K. total trade in 2018 at 49 per cent. After leaving the EU, the U.K. commenced the process of trade talks with countries like Vietnam and Mexico, in addition to non-EU member countries like the United States, Australia and New Zealand. In September this year, the U.K. signed an agreement with Japan whereby up to 99 per cent of U.K. exports will be free from charges, although the trade with Japan only makes up two per cent of the U.K.’s total trade.
What are the consequences of a no-deal Brexit?
A no-deal Brexit is likely to have a severe impact on both parties through a possible depreciation of the pound, travel restrictions to the EU, food price inflation and shortages in some areas, medicine shortages in the pharmaceutical industry in the U.K. According to the Irish Times, analysts predict that a no-deal could cause the pound to lose a fifth of its value against the dollar and euro. On the other hand, the pound could also sink to near parity with the dollar. A no-deal could further cause complications to agreements relating to cross-border activity in the financial services sector like trading shares and sharing data.
Regarding travel, drivers will need to obtain an international driving permit and stricter control measures on bringing pets to the EU. Concerning food price inflation, Tesco predicts that the imports of fresh produce will be subject to EU checks as well as an overall food shortage as items like fresh foods can spoil when being held at the border for too long. Further, the tariffs imposed as a result of a no-deal will increase food prices particularly imports such as butter and feta cheese. Lastly, the pharmaceutical industry in the U.K. is likely to face a delay in obtaining vital medicines, creating a risk to patients due to the shortage of medicines available.
Alternatively, a U.K.-EU trade deal could come into force if ready in the new year. If a trade deal is reached, there are other aspects that also need to be considered such as the future of security co-operation. In addition, there are a number of issues that also need to be addressed before reaching an agreement such as fishing activities. According to BBC news, the EU is pushing for maximum access for its boats operating in U.K. waters while the U.K. says it will prioritize its own boats after 1 January. There are also questions about who will be responsible for solving disputes particularly if one party fails to uphold its obligations if a deal were to be established.
From the examples discussed above, it is clear that both parties are better off under a trade agreement, although there are a number of issues that still need to be addressed. However, time until the transition period ends is limited, therefore it is important that both parties make the best decision on how they can both move forward. Considering the need for economic cooperation as means to help the global community recover from the effects of the pandemic, a U.K.-EU deal is likely to provide better access and opportunities to both parties than a no-deal would.
- EU Climate Goal To Reduce 55% Of Emissions By 2030 - July 20, 2021
- The U.K post Brexit - March 31, 2021
- Brexit News: The Importance Of Continuing A U.K.-EU Deal Once The Transition Period Ends - January 21, 2021