Post-Brexit Tensions Reignite as UK/EU Trade Drama Continues
It may have been over one hundred days since the end of the Brexit transition period, but tensions between the UK and European Union (EU) continue to make headlines. Red tape and confusion over new post-Brexit trading rules caused havoc for businesses during the beginning of the year, as reports reveal goods exported from the UK to the EU fell by 40% in January. The drop is the most significant decline on record as EU imports to the UK also fell by 28.8%.
Following the reduction in cross-border trading, UK/EU relations have been further aggravated by disagreements over coronavirus vaccination supplies as well as disputes concerning the Northern Ireland protocol. Chief EU Brexit Negotiator Michel Barnier also recently attempted to provoke UK Prime Minister Boris Johnson, revealing plans to release a book detailing their private Brexit discussions.
Since the beginning of the Brexit referendum, tensions between the UK and the EU have run high. The pressure was quickly exacerbated in 2017 following comments from Danish Finance Minister Kristian Jensen. Mr Jensen stated that the UK was not aware that it was a small nation and was not in a position to bully EU member states during Brexit negotiations.
Despite these comments, Ireland’s deputy Prime Minister, Leo Varadkar, recently stated that “the European Union without the United Kingdom is a weaker and poorer place.” Mr Varadkar also pleaded for the EU to cut red tape to solve the ongoing issue of the Northern Ireland Protocol.
Northern Ireland Protocol protests to resume
Protests against the Northern Ireland protocol are set to continue in Bangor and Newtownards this week. Protestors have described the protests as a means of ‘registering the concerns of the community’. While those involved have labelled the protests as peaceful, there has been an increase in violence across loyalist Irish areas.
During Brexit trade negotiations, it was agreed that there would be no new checks on goods traded between the UK and Northern Ireland (NI), acknowledging the importance of upholding the Northern Ireland peace deal, also known as the Good Friday Agreement.
The Northern Ireland Protocol was established on 1st January 2021 to cover the EU’s requirement of goods needing to be inspected upon entry to the single market. However, the EU has accused the UK of being in breach of the Northern Ireland Protocol. The accusations result from the UK’s decision to extend its grace period with NI without permission from the EU. British Trade Minister Liz Truss has denied that the UK has acted unlawfully, stating, “these are temporary easements, and it’s perfectly common practice whilst deals are being implemented to have temporary easements in place.”
Catherine McBride, an economist at think tank Centre for Brexit policy, has criticised the EU over their actions surrounding the Northern Ireland Protocol and urged US President Joe Biden to ‘see through the EU’s schemes’ in a bid to strengthen the UK/US special relationship.
Regardless, the EU has launched legal action against the UK. However, Ireland’s foreign minister, Simon Coveney, has commented that legal proceedings could ‘wither on the vine’ if the UK comes back into compliance.
It would not be unusual if the EU did drop legal action, given that trading rules post-Brexit appear to be constantly changing.
Brussels will accept British shellfish
Brussels prompted UK frustration post-Brexit when they declared a ban on shellfish caught in Class B waters, which make up the majority of Britain’s surrounding seas. A member of the UK Government believed the decision was an attempt from the bloc to punish the UK for leaving the EU.
However, the EU has since stated that they will accept British shellfish as the waters have now been upgraded to Class A by the UK’s independent Food Standards Agency. Oysters, mussels, clams and cockles from these waters have also been approved for exportation to the EU.
The initial decision to ban the export of British shellfish to the EU was met with anger as a UK government source commented that the verdict was lacking any scientific justification. It has also been remarked that the Food Standards Agency upgraded the waters surrounding the UK purely to evade the ban.
The upgrade to the classification of the British waters will undoubtedly provide a significant boost to the UK fishing industry, with more produce now eligible for export. The UK fishing industry has been particularly impacted by Brexit, with Prime Minister Boris Johnson setting up a GBP 23 million fund to provide support to the industry.
The financial services sector has also undergone significant changes since Brexit began. With trade negotiations sparking intense uncertainty since the referendum, UK banks have been making amends to operations.
Banks shift GBP 900 in assets from UK to EU
Data compiled by think tank New Financial has found that over 440 UK banks have relocated to the EU, transferred employees or established EU entities due to Brexit regulations. UK banks have also moved over GBP 900 billion worth of assets to the EU, the equivalent of 10% of the UK banking system.
The report reveals that Dublin is the most popular location, with a quarter of firms relocating to the Irish capital. Paris is the second most popular location, with 19% of firms opting for the French capital, including Goldman Sachs and HSBC.
William Wright, managing director of New Financial, said that “given the limited equivalence deals in place, over time we expect there to be a drip-feed of business and activity from the UK to the EU.”
New Financial outlines that over 7,400 employees have been transferred to the EU since the Brexit referendum, and it’s thought that this figure will continue to rise over the coming years. Whilst the UK and Brussels signed a Memorandum of Understanding last month, there is still no equivalence deal in place.
New petition calls for France to leave the EU
A new petition calling for a French referendum, also known as Frexit, has gained more than 15,500 signatures. Supporters of the petition have highlighted that France’s financial contributions to the EU have now increased by EUR 5 billion per year and that the people of France should be able to have their say and vote on such matters.
The European Union has come under intense pressure this year, mainly due to its delayed response to coronavirus vaccinations, with the EU currently experiencing a third wave of COVID-19 infections. Despite the EU’s struggles during the coronavirus pandemic, the British pound to euro (GBP/EUR) exchange rate fell to a two-month low last week as UK non-essential businesses reopened. At the start of the new trading week, the British pound to euro (GBP/EUR) currency pairing is trading 0.71% higher at EUR 1.162.
The British pound’s (GBP) course against its currency competitors is likely to be driven by UK composite purchasing managers index (PMI) data released later this week.