What happens now?

What happens now?

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The week in London

The UK has left the EU after almost half a century of membership, setting the stage for 11 months of potentially fraught talks that will determine whether the two sides can avert a chaotic divorce. There were no bongs from Big Ben to mark the moment of Britain’s departure from the bloc, but Prime Minister Boris Johnson still threw a party and a light show, while Brexit supporters held a rally in London’s Parliament Square. After 1,317 days of unprecedented political turmoil triggered by the Brexit referendum, the UK is now legally out.

During the transition phase that lasts until the end of the year, Britain will be able to trade freely with the EU and will be subject to its laws, even though it has no say in making them. Britons will still use the same lines at the airport, be able to take their pets with them on holiday freely, and will still enjoy free data-roaming on their mobile phones. 

Boris Johnson is on course for a significant clash with the EU in trade talks on the future relationship with the bloc, with both sides setting out opposing stances on whether a deal will include alignment on rules. On Monday, Mr Johnson said he was prepared to sever links with the EU without a trade deal if Brussels insisted on tying the UK closely to its standards, in spite of the Government’s own estimates that it could inflict long-term damage on the economy.

Mr Johnson insisted Britain favoured a “Canada-style” trade deal, removing tariffs and quotas on trade with the EU. But the Prime Minister said the UK could “prosper mightily” even if a free-trade agreement was not in place by the end of the transition period on 31 December.

A stand-off between the UK and the EU over fishing rights has triggered alarm in the City of London that Boris Johnson’s approach to trade negotiations with Brussels risks sacrificing its access to the bloc. Recent signals from the EU suggesting its demands for continued access to British fishing waters might be played off against financial services has spooked the sector. The UK and EU are expected to try to forge a deal in financial services through a process known as regulatory equivalence. This is the set of arrangements that allows the EU to recognise UK rules if they meet minimum requirements.

More than 3 million EU citizens and their family members have applied to secure their rights in the UK after Brexit, in what the UK Government has called a “milestone” in its EU settlement scheme. The figure, announced by the Home Office on Thursday, was reached less than a year after the scheme launched in March last year, and means that more than 80% of the estimated 3.6 million EU citizens currently in the UK have applied to stay. 

The week in Brussels

The European Commission wants to bind the UK to strict state-aid and tax rules in the post-Brexit era, calling for the EU to be handed special rapid-response powers if it thinks Britain unfairly upends fair competition. The EU should “have the possibility to apply autonomous interim measures to react quickly to disruptions of the equal conditions of competition,” the Commission said Monday in a draft negotiating mandate for a deal between the UK and the now 27-nation EU.

Brussels also insisted that the European Court of Justice must have a role in settling any disputes that arise in the future relationship over how to interpret EU law. Mr Johnson signed up to this in a political declaration he agreed as part of the UK’s withdrawal treaty with EU leaders last year, but on Monday he rejected any role for the ECJ.

The EU is also demanding access to UK waters for its fishing industry on a similar basis as to now. Mr Barnier said that this issue was “inextricably” linked to the trade talks. Mr Johnson said he was willing to “consider an agreement” on fishing but “it must reflect the fact that the UK will be an independent coastal state”. Britain would also be required to stay in line with EU environmental and labour market rules as they stand at the end of Britain’s post-Brexit transition period.

In exchange, the EU would be prepared to offer the UK what it describes as a “highly ambitious” trade deal including tariff-free, quota-free trade in goods. The EU also said that the trade deal it is offering would cover services, in an effort to minimise barriers in sectors such as telecoms and management consultancy. 

The European Parliament shrank by 6% as a result of Brexit. The UK’s departure from the EU over the weekend led to a reallocation of 27 of the country’s 73 seats in the EU assembly among 14 member nations. The remaining 46 British seats were placed in a reserve for nations aspiring to join the EU.

The Corporate week in Brexit

Nissan has drawn up a plan to pull out of mainland Europe if Brexit leads to tariffs on car exports, but to double down on the UK, where the Japanese company believes it could sell one in five cars. Two people involved in the discussions said the contingency plan, drawn up late last year, would see Nissan close its struggling Barcelona van facility and stop manufacturing in France. Under the scenario, the Sunderland plant in the UK would be maintained as part of an audacious attempt to steal market share from other carmakers.

Nishimura & Asahi has become the first of Japan’s “big four” law firms to set up offices in Europe, choosing Frankfurt over London as Japanese companies reorganise to cope with Brexit and prepare for an expected boom in dealmaking in the EU. Nishimura’s decision to establish its European foothold in the German hubs of Frankfurt and Düsseldorf, said the partners leading the move, was a direct effect of the Economic Partnership Agreement trade pact between the EU and Japan signed in 2018.

BMW has delayed the development of its next generation Mini as it seeks to cut costs and as uncertainty over Britain’s trade relations with the EU make long-term investment decisions harder. The Mini is currently built in Oxford and in Born, the Netherlands, and any next generation car would require investments into the production lines of both factories. But higher tariffs on exports to and from Britain may force BMW to consider shifting more production to the Netherlands.