January 04, 2021 | Executive Director Update

BREXIT: Early observations from the British Chambers’ Network

OBSERVATION 1: A FRAGILE ‘NEW START’
While the existence of a UK-EU agreement is, in and of itself, welcome, there is an overriding sense of fragility and potential instability around the TCA. Provisions for review, rebalancing, redress and arbitration are everywhere in the document. There is a 12-month termination clause, which either side could exercise, as well as five-yearly reviews of the whole agreement.

If these are triggered by the parties, particularly for political reasons, it could introduce a degree of long-term instability for UK-EU trade, and could be seen as a sword of Damocles for any risk-averse inward investors to the UK. If, on the other hand, the parties refrain from invoking these provisions, and they are merely there as a ‘backstop’, then the two sides could settle more quickly into a new and more stable equilibrium. I have no doubt that Chamber business communities, exhausted by four-plus years on the Brexit rollercoaster, would prefer the latter for the foreseeable future.

Neither we, nor any of the commentators opining endlessly on the subject in the media and the think-tanks, have any idea which of these two scenarios is more likely to apply. We may, in future, face some divisions in our business communities, between those seeking the stability of a new equilibrium, and those who wish to see the UK government act on what they perceive to be ‘unfair competition’ by actors in the EU. In the meantime, what Chambers can do best is to help UK and EU traders, and encourage the rebuilding of trust between the two sides through strong and enduring business links.


OBSERVATION 2: IT’S COMPLICATED
We now have lots of new, complex institutions overseeing trade between the UK and the EU. A ‘Partnership Council’ of the two sides will take the big decisions, with a wide range of specialised committees providing input on various aspects of trade.

These committees, with their own decision-making processes and institutional logic, are ‘baked in’ to the agreement – and will result in a lot of on-going UK-EU discussions over time. In some respects, this is akin to the EU-Swiss and EU-EFTA relationships, but in others, the complexity in the new TCA is even greater.

We need to work over the coming months to determine where and how the British Chamber Network should seek to be represented, e.g. in the new specialised committee on Customs Cooperation and Rules of Origin, as well as the new Domestic Advisory Group and Civil Society Forum. Our emphasis should be in getting involved in those areas of the TCA’s governance that have the biggest potential impact on Chambers and Chamber members, to ensure that the day-to-day operation of the agreement results in the smoothest possible conditions for both exporters and importers.


OBSERVATION 3: UNFINISHED BUSINESS – OPPORTUNITY OR THREAT?
There are big gaps in the TCA, as has already been noted by the Prime Minister and Chancellor, with services at the top of the list.

If you’re an optimist, you’d say that the Agreement provides a platform to build on – where the two sides construct additional agreements and arrangements to enable trade over the coming months and years. If you’re a pessimist, you see these gaps as areas where the UK has lost a degree of European market access that it is unlikely to recover. One such example would be the audio-visual and broadcasting sector, where a big EU carve-out is unlikely to change soon.

In some cases, we await unilateral decisions from the EU with a huge material impact on our business communities – for example, on financial services and data equivalence. There is little we can do here, beyond British Chambers across Europe and their national governments urging the competent EU authorities to complete their work quickly to avoid disruption to key capital and customer data flows. There is every sign that this will happen in the next 3-6 months, but any further delays could be genuinely problematic.

Yet there are also a range of areas where the two parties have effectively left key parts of the UK-EU economic relationship marked TBD. On matters related to services – such as levels of market access and the mutual recognition of professional qualifications – tortuous negotiations are still to come, sometimes with the EU itself, and at other times with individual member states. The enormous list of EU reservations around mobility for contract services and independent professionals gives a flavour of the patchwork quilt of barriers that UK individuals and companies may face.

And there are also areas where it would make sense for the UK and the EU to go further, but where one side or the other did not wish to do so for a variety of reasons during the recently-concluded negotiations. Key examples here are around mutual recognition of conformity assessment bodies for goods, and a lighter-touch SPS regime for agrifood products crossing between the UK and EU in both directions. The EU has agreed more liberal provisions with other countries in other FTAs in these and other areas, and there is every possibility that post-deal goodwill could bring greater progress over the weeks and months to come. Collaboration with British Chambers and national Chambers in EU markets will be critical here.


OBSERVATION 4: ORIGIN MATTERS FOR ‘GLOBAL BRITAIN’
Much has been made by the Prime Minister and others of the achievement of a ‘zero tariff, zero quota’ agreement. This is true, but only up to a point. Goods must qualify for the zero tariff, zero quota treatment – and in today’s globalised world, lots have inputs from further afield that could fall foul of the Rules of Origin agreed in the TCA.

We’ve already seen the first example of this with the last-minute scramble to agree ROOs for electric vehicles, given the heavy Japanese input to EVs built here in the UK for export to Europe. But there will be other areas, too, from food and drink to textiles to aerospace and more besides, where origin will matter so much more than ever before. There will be trade-offs in the future for some businesses, between increasing globalisation and diversification of supply chains, and whether that has an impact on their access to EU markets.

There is a real opportunity for Chambers of Commerce here, as we are already a ‘trusted third party’ for tens of thousands of businesses when it comes to demonstrating origin. We should, over the coming months, explore how we can help businesses navigate the new ROOs successfully, whilst simultaneously campaigning for the UK and EU to agree ‘diagonal cumulation’, which would significantly liberalise ROOs further for firms on both sides.


OBSERVATION 5: SOVEREIGNTY
Businesses heard a lot about ‘sovereignty’ over the course of these negotiations. The tension between unambiguous UK decision-making and the economic impact of divergence lies at the heart of so many of the trade-offs in the agreement.

Now that agreement has been reached, it is clear that the use of this newly-restored freedom could have real-world consequences for UK trade.

So my question to the UK government is this. Will ministers agree to avoid divergence for divergence’s own sake – and only look to move away from well-established regulatory principles where there is a genuine opportunity for a more agile, independent UK to lead the way across the world? I would propose that we, as a business community, hold ministers’ decisions up to a clear set of ‘divergence tests’. If their ideas increase cost and complexity for business, and if companies do not see material and significant potential advantages in a change of approach, then it should not go ahead. Conversely, if there are areas where our business communities see a real opportunity for the UK to be at the cutting edge – e.g. around fintech – we should push for change to happen.