LONDON – For tired Brexit negotiators on both sides of the English Channel, a Christmas Eve trade deal sealed 11 months of arduous deliberations on Britain’s withdrawal from the European Union, covering details as mysterious as which species of fish could be caught by boats on either side in British waters.
But for many others – among them bankers, merchants, truck drivers, architects and millions of migrants – Christmas was just the beginning, the first day of an unpredictable and high-risk experience to unravel a web of commercial relations across Europe.
The deal, far from closing the book on Britain’s tumultuous partnership with Europe, opened a new one, starting on the front pages with what analysts say will be the biggest overnight change in modern business relationships.
In the four years since the British voted to break half a century of ties with Europe, many migrants have stopped moving to Britain to work and British companies have sent officials to Paris and Frankfurt to establish points of support on the continent. But for all these preparations, seven days is all that remains between business and an avalanche of new trade barriers on January 1.
“We are going to have to learn how to do this as we go along,” said Shane Brennan, chief executive of the Cold Chain Federation, a British group that represents logistics companies. “Let’s hope it is better in the end, but it will be slow, complex and expensive.”
British distributors, spared the calamity of a split without a deal, were, however, struggling to prepare the first of hundreds of thousands of new export certifications to allow their meat, fish and dairy to be sold to the bloc. British foods, previously exempt from such onerous controls, now face the same inspections as European imports from countries like Chile or Australia.
Britain’s service sector – encompassing not only London’s powerful financial sector, but also lawyers, architects, consultants and others – was largely left out of the 1,246-page agreement, despite the sector being responsible for 80% of activity British economic policy.
The deal also did little to calm European migrants, some of whom left Britain during the pandemic and are now struggling to determine whether they need to return to establish the right to settle in Britain before the division ends in 31 from December.
“As of January 1, the landscape changes and the security blanket of the transition period is gone,” said Maike Bohn, co-founder of the3million, which supports European citizens in Britain, expressing their fears that Europeans will be jobs and unjustly refused rented apartments amid confusion over the rules. “There is apprehension and also numbness.”
The negotiators did not formally publish the massive trade agreement, although both sides offered summaries, leaving analysts and ordinary citizens uncertain about some details, even as lawmakers in Britain and Europe are preparing to vote on it in a matter of days.
But it was long clear that the deal would offer the City of London, a hub for international banks, asset managers, insurers and hedge funds, little guarantee for future trade across the English Channel. Britain sells about £ 30 billion, or $ 40 billion, of financial services to the European Union each year, profiting from an integrated market that makes it easier in some cases to sell services from one member country to another than to sell services from one American state to another.
The new trade agreement facilitates the flow of goods across British borders. But that leaves financial companies without the greatest benefit of joining the European Union: the ability to easily offer services to customers 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 securities for a company in Madrid.
This loss is especially painful for Britain, which had a surplus of £ 18 billion, or $ 24 billion, in trade in financial and other services with the European Union in 2019, but a deficit of £ 97 billion, or US $ 129 billion in goods trade.
“The result of the deal is that the European Union retains all of its current advantages in trade, mainly in goods, and the United Kingdom 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 this commercial negotiation is precisely what happens with most commercial agreements: the larger party gets what they want and the smaller party rolls.”
Agreeing to allow goods to cross the border without costly tariffs ensured that the most vital supplies – that is, food and medicine – were accessible across Europe. A commodity deal was also easier to close; given each country’s intricate financial regulations, such as how much money banks must keep, most trade deals bypass service sectors.
But Brexit was not the majority of trade deals: it was raising barriers, not breaking them, within a European market that is exceptionally well connected.
After January 1, the sale of services, once secured, will depend on patchwork decisions by European regulators as to whether Britain’s new financial regulations are close enough to its own to be reliable. While the London experience is difficult to match, putting its financial and services companies in a strong position to weather the storm, some obstacles are inevitable. Britons living in Europe who have bank accounts in the UK have already been told that their accounts will be closed.
“Imagine if you took the UK and moved it to Canada or Australia,” said Davide Serra, chief executive of Algebris Investments, an asset management company with offices across Europe. “This is what it does with services. The United Kingdom has become a third country. “
In announcing the trade deal this week, Britain’s Prime Minister Boris Johnson acknowledged that it offered “not as much” access to financial companies “as we would like”. But he was not as straightforward as the difficulties faced even by British retailers under the deal, analysts said.
Promising that “there were no non-tariff barriers” to the sale of goods after Brexit, he ignored the tens of millions of customs declarations, health assessments and other controls for which companies will now be responsible.
Britain lacks the necessary customs agents to handle these documents, and even veterinarians who carry out health checks, industry experts said. And in recent days, European truckers have received an alarming forecast of destruction caused by delays in boarding for even a few days when they were stranded in British ports because of travel bans related to the new variant of the coronavirus.
“It is a big problem that will cost the industry millions of pounds and euros,” said Alex Altmann, partner responsible for Brexit-related issues at Blick Rothenberg, an accounting and tax practice. “At the end of the day, this will be passed on to consumers.”
Also for European citizens living in Britain, the conclusion of a Brexit deal did little to lessen fears about how the country’s new immigration rules could complicate their lives. Migrants were allowed to apply for so-called “established status” in Britain. But little provision has been made for people who cannot complete the process online, let alone for people who do not realize they need permission to stay in a country where they have lived for decades.
“There is potential for a crisis in the next one or two years for EU migrants who have been here, and have been here for a long time, but have fallen through the cracks in the registration system,” said Robert Ford, professor of policy at the University Manchester.
The limitations of the Brexit deal reflect the fact that, even as financial and other regulations have become more complex in recent years, trade deals have struggled to keep pace, said David Henig, an analyst at the European Center for International Political Economy.
But Britain also limited what it was looking for in the business to a few key areas, making the emergence of a basic deal almost inevitable, analysts said.
Along with a division without an agreement, involving huge border congestion and deep uncertainty for companies, the agreement was a balm. But even with such an agreement, the way forward is uncertain.
“Brexit will always be a long-standing blow to the UK’s competitiveness,” said Kibasi, the analyst. “But the way it will all end up is hurting investment in the UK, so it’s a slow scoop, not a quick drop.”