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Summary
- The Brexit deal is important to ensure a tariff-free movement of goods to flow across borders as they did before the UK parted ways with the European Union
- Both sides urgently need a deal as it will ensure that the competitive landscape across the continent is maintained and businesses are able to compete with other geographies
- The Brexit talks which were scheduled to have been completed by the end of this year were severely impacted because of the coronavirus pandemic and the ensuing lockdown
Finally, it seems that there is light at the end of the tunnel, the Brexit negotiations which had been stalled recently because of the major difference between negotiators on both sides could well start to progress as the EU seems to have taken a step back on its position. If Minister for the Cabinet Office Michael Gove is to be believed, there has been a change in tone of the negotiations over the past few weeks which has given rise to these hopes. There have been several issues on which both sides had not been able to agree upon, including fishing rights, the role of the European Court of Justice and the rules on state aid. Only last months the EU had softened its stand on the issue of state aid leading the UK to extend its coronavirus stimulus loan programmes to businesses who had been previously left out because of the EU regulations. The conclusion of the agreement with a deal will be a welcome move for businesses and the governments on both sides as they will be saved from massive cost on account of new tariffs that could go online post 31 December 2020.
The Brexit deal
When the United Kingdom decided to part ways with the European Union, there was a massive economic fallout whose magnitude not many had been able to fully comprehend. There were several businesses from both sides who had developed business relations in other countries within the Union and had expanded their business very rapidly over a period of forty-seven years when the UK had been part of the EU. To break away after so long after being together, would not have been that easy without causing massive economic damages on both sides. Thus, after the pullout referendum in 2016, leaders from both sides lobbied hard with their governments to negotiate a deal so that most of the current tariff structures remain intact and there is least amount of disruption of business activities. The negotiation process, however, took too long and until 2019 it had been stalled many times before the present prime minister Boris Johnson came to power promising a withdrawal with or without a deal. The process of withdrawal was completed on 31 January 2020, but additional time was allocated to negotiators on both sides to complete the negotiation process by the end of the year, i.e. 31 December 2020, after which new tariffs would be put into place.
The coronavirus pandemic and other reasons creating obstacles in negotiations
Though the year 2020 started on a positive note for the United Kingdom, but by the month of March, the threat of the pandemic was looming large over the world. When a lockdown had to be imposed to contain the spread of the pandemic, almost all government work had been severely impacted, including the Brexit deal talks. Most of the governments in Europe were now handicapped in terms of how they operated, and most of their resources and thought process were directed towards protecting their people and their economies. However, missing a few scheduled engagements Brexit negotiators on both sides started talks via teleconferencing and have been continuing to do so till now.
Other than the pandemic, there have a lot of other issues also that had been become hurdles in the negotiation processes on which the negotiators were not able to arrive at a consensus. These issues core to the business interest on both sides were stalling negotiations time and again, forcing top leaders of both blocs to directly talk to each other to break the deadlock. The possibility of a new range of tariffs coming up by the end of this year is prompting negotiators on both sides to put extra efforts to arrive at an agreement at the earliest.
The explicit and the implied costs of a no-deal Brexit
There were several industries in the United Kingdom who would see their business curtailed to a large extent if no deal were to be reached. Especially at risk would be the automobile industry, the retail industry, and the hospitality industry. The automobile industry in the UK is highly dependent on the imports of components from other EU countries who are able to produce them cheaply of higher quality than they can be produced domestically. Over the years, these supply sources have helped the British car industry to produce vehicles cheaply and become internationally competitive.
Should new tariffs go online from 1 January 2021 then there would also be several implied cost that would have to born by both sides, The most important of these implied costs would be the additional customs personnel and infrastructure set up that will be required on both sides, leave alone the mountain of paperwork that would need to be processed on a daily basis. This will implicitly add to the cost of businesses and the administrative setup and will push up the cost of doing business significantly.
Conclusion
The culmination of the Brexit deal in time will be a great relief for business communities from both sides. The continuity of business, as usual, will help businesses and the government to concentrate more of their energy and resources in the fight against the pandemic. The entire European continent is in dire economic distress right now, anything that will add to the costs of the businesses will only make the survival much more difficult.
