Persistent consequences

Monday, 2021-01-11 17:53:53
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NDO – Although the UK has officially "broken up" with the European Union (EU) and the two sides have reached a trade agreement to bring their bilateral relationship onto a new page, the consequences of Brexit still persist within some economic sectors such as retail, finance in particular and the UK economy in general.

After the UK reached a post-Brexit trade agreement and officially left the "European common roof", UK Prime Minister Boris Johnson called 2021 a “hugely important year for global Britain”. The UK government is working to enhance Britain's position by signing dozens of free trade agreements with partners, developing and implementing a new agenda, with a focus on doing well as host country of both the G7 and UN COP26 climate change summit. Analysts say that the UK now has a "golden opportunity" to enhance its global role and position through organising these two important international political events.

However, the UK’s economic situation has not seen as much "smooth sailing" as the foreign affairs field. Two areas currently facing many difficulties due to Brexit are retail and finance. In terms of retail, UK businesses are reviewing their supply chains to the Republic of Ireland and other European markets to find ways to avoid tariffs regulated by the post-Brexit trade agreement between the UK and the EU. Under the above agreement, British goods are still exempt from tariffs and quotas when entering the EU market, but must comply with detailed rules of origin to avoid creating a gap for goods temporarily imported for re-export or manufactured with the majority of raw materials from outside the UK and the EU.

This regulation leaves many UK businesses at risk of still having to pay tax when exporting to the EU. More than 100 UK retail executives held an online dialogue with government officials to address the problem. At the dialogue, representatives of top UK businesses said at least 50 businesses are facing potential tariffs on re-exported goods. Under the EU–UK Trade and Cooperation Agreement, in order to be eligible for a 0% tax rate, the goods from both sides must be of at least 50% from these two markets. The traceability, and identification of goods' origin to avail of this tax exemption are making it difficult for UK businesses. According to the CEO of New Look, which has 27 stores in the Republic of Ireland that import goods from the UK, the company is in the process of digesting the regulations and how they will affect sales as well as deliveries to the EU market.

The UK financial sector continues to suffer consequences from Brexit, despite the UK and EU reaching a trade agreement. Analysts say that the future of the key financial services sector of the UK is still uncertain as the 1,200-page post-Brexit agreement between the UK and the EU mentions very little about the financial services sector, which, every year, contributes about 150 billion pounds or 7% of the annual economic output of the UK. Currently the UK and EU plan to sign a memorandum of understanding on financial services in March, thereby setting up a new cooperation roadmap. Regarding the financial sector in the EU-UK economic relationship, economists say that the two-way trade agreement signed at the end of December 2020 is just a "starting point", the UK and the EU "have many more months to go". Under the post-Brexit trade agreement, from January 1, 2021, U.K.-based financial institutions lose automatic access to the EU's single market and their "passport" to Europe, a tool that allowed products and UK financial services to be easily sold in the EU. In order for the UK financial sector to maintain its business in the EU bloc, currently, it will need to depend on achieving equivalent regulations in 59 specific areas. The answer to UK financial services issues in the EU will be available only after the two sides sign a memorandum of understanding on financial services in March.

In addition, British people residing abroad will also encounter many problems related to Brexit when their identification papers are no longer valid. According to the British press last week, some Britons residing in Spain were banned from boarding flights to Belarus and Macedonia on the grounds their IDs were no longer valid after the UK officially left the EU. The reason the airline gave was their expired green cards.

The fact above shows that, although the UK has officially left the EU under the expected agreement scenario, the consequences of Brexit on the people, businesses and the entire UK economy still remain hidden and unpredictable. Therefore, in addition to implementing the post-Brexit re-launch strategy, Prime Minister Boris Johnson's government also has to focus on solving a further series of difficulties for "the country of fog".