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The Key Information on Brexit

16 September 2020

Brexit negotiations have moved to the future trading relationship; read more about what has been agreed and what to expect.

The UK officially left the EU at the end of January 2020, and is now in a transition period, where there are no significant changes to trade and regulations. This transition period was part of the EU/UK Withdrawal Agreement, and will last until the end of 2020.

Withdrawal Agreement

The UK Government reached a revised agreement with the EU on 17 October 2019 and this was formally approved by MPs in parliament following the UK’s general election.

The Agreement comes in three parts.

Firstly, the Withdrawal Agreement itself which covers everything from citizens’ rights, the financial settlement, data protection and the length of the transition period.

Secondly is the protocol on Ireland/Northern Ireland and thirdly a political declaration on the future relationship. All of these documents are available here on gov.uk^.

Transition period

Under the terms of the Agreement, a transition or implementation period began after the UK left the EU and will end on 31 December 2020.

The idea is that this will give the UK time to introduce a new immigration system and means that businesses should only have to plan for one set of changes in the nature of the relationship between the UK and the EU.

The implementation period guaranteed that trade would continue on “current terms” – in other words the UK will not have left the Single Market or Customs Union until the end of this period. But the UK is able to negotiate its own trade deals – including any future trade agreement with the EU.

The UK must continue to adhere to all existing EU regulations during this period, including the “four freedoms” of movement of goods, capital, services and people, but no longer has any representation in the EU’s political institutions, including the Parliament, Council or Commission

There is provision in the Agreement to extend this transition period, which would require the consent of both the UK and EU. The deadline to do so is set at 1 July.

Irish border

The unique status of the UK’s only land border with the European Union has throughout Brexit been one of the defining debates. The EU and the UK have been seeking to find a solution that respects both the peace process and the integrity of the EU’s Single Market, and settled on what has been called the Protocol on Ireland/Northern Ireland.

The UK has recently published their approach to the Northern Ireland Protocol, setting out how the UK will meet its obligations.

Businesses in Northern Ireland will have unfettered access to the rest of the UK market – meaning that trade going eastwards from NI to Britain will face no restrictions or additional checks.

The government has renewed a commitment that there will be no new border or customs infrastructure at UK or NI ports, with any processes on goods moving from Great Britain to Northern Ireland kept to an absolute minimum so that the integrity and smooth functioning of the UK internal market is protected.

The Northern Irish Assembly at Stormont will maintain the right to self-determination by voting every 4 years after the transition period has ended on whether to continue with the protocol..

Future relationship

The UK and the EU published a political declaration on the future relationship^ which states, among other things:

  • The goal of agreeing a comprehensive Free Trade Agreement with no tariffs across all goods sectors and a liberalisation in the trade in services “well beyond the Parties’ World Trade Organization commitments”;
  • An aim to ensure fair competition after Brexit, by maintaining common standards on areas like state aid, competition and employment rights;
  • A commitment to form a broad partnership in the area of security, including physical and digital security.

Key dates

The Covid-19 pandemic has drawn attention away from Brexit negotiations in the short-term, however with the UK Government clear that they do not plan to extend the transition period, there is still a lot to play out in these negotiations. Here are some key dates to look out for:

  • September - UK-EU Joint Committee meeting
  • 30 September - Deadline for equivalence decision
  • 15-16 October - European Council Summit
  • October-December - Conclusion and ratification of agreement
  • 26 November - Deadline for Free Trade Agreement to be presented to European Parliament
  • 10-11 December - European Council Summit
  • 31 December - Transition period ends
  • 31 December - End of EU Multilateral Financial Framework
  • 1 January 2021 - New EU-UK relationships begins

Trade agreements after Brexit

Alongside the negotiations with the EU, the UK has been working on introducing continuity agreements with countries around the world that aim to replicate existing EU arrangements.

Such agreements have been concluded with at least 20 countries or trading blocs, including Switzerland, South Korea, Iceland and Norway, and the Southern Africa Customs Union and Mozambique trade bloc. These are set to come into force at the start of 2021.

The UK has also reached mutual recognition arrangements (MRAs) with the United States, Australia and New Zealand. These agreements mean the two countries are happy to recognise the results of conformity tests on various goods, making trade somewhat simpler.

The first major new trade deal for the UK was announced in September 2020 with Japan. The agreement is understood to particularly benefit the tech sector, financial services businesses and creative industries. There are provisions to enable tariff-free access for specific food and drink like English sparkling wine and Welsh lamb. The deal has not yet been finalised, but the UK Government is hopeful that it will herald a step towards joining the revised Trans-Pacific Partnership of 11 nations (TPP-11). 

The 11 nations who form the TTP. Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

TPP-11 notably excludes the United States, who withdrew from the original trade deal in 2017.

Trade talks between the UK and US officially began in May 2020, and are expected to continue in 2-week blocks every 6 weeks. Evidently, the course of US elections in November could prove crucial. But the will to get a deal done will be significant.

As a single country, the US represents Britain’s largest export market, while the UK has been for many years the single largest investor into the US, with figures from the US-UK Business Council putting British companies’ stateside investment at over US$540bn, accounting for more than 15% of all inbound foreign direct investment.

The Covid-19 pandemic has drawn attention away from Brexit negotiations in the short-term, however with the UK Government clear that they do not plan to extend the transition period, there is still a lot to play out in these negotiations. Here are some key dates to look out for:

  • September - UK-EU Joint Committee meeting
  • 30 September - Deadline for equivalence decision
  • 15-16 October - European Council Summit
  • October-December - Conclusion and ratification of agreement
  • 26 November - Deadline for Free Trade Agreement to be presented to European Parliament
  • 10-11 December - European Council Summit
  • 31 December - Transition period ends
  • 31 December - End of EU Multilateral Financial Framework
  • 1 January 2021 - New EU-UK relationships begins
  • Trade

    Sector-specific challenges

    The way in which a corporate is impacted by Brexit will depend on whether it is primarily a manufacturing, services or trading business.

    Manufacturing businesses
    Although UK manufacturers are currently benefitting from the weak pound, they could find that their competiveness is reduced if the cost of importing raw materials from the EU increases as a result of Brexit. They could also face supply chain pressures, such as suppliers requiring faster payments or delays in receiving supplies in time for manufacturing activities to take place. In addition, customers may start to demand extended payment terms. All these challenges will affect working capital and the amount of financing that a business needs to support its working capital.

    Services businesses
    Some service sectors are likely to be more impacted by Brexit than others. For example, while the EU and the UK plan to ensure passenger and cargo air connectivity through a Comprehensive Air Transport Agreement, it is not clear how Brexit will impact on the telecoms interconnectivity regime. Business services are likely to be affected in some way, but we do not yet know how.

    Financial Services institutions having anticipated the loss of their rights to passport their services throughout Europe after Brexit and have therefore either set up new subsidiaries in continental Europe or made additional investment into existing subsidiaries. Going forwards, Barclays will serve clients in the European Economic Area through Barclays Europe, our fully owned subsidiary, based in Dublin.

    Trading businesses
    Traders could experience a rise in the cost of goods imported from the EU following Brexit. As a result, they need to consider how they could pass those costs onto their clients while fending off competitor threats from other markets. They may also need to renegotiate long term supplier agreements – for example, if they have the exclusive rights to supply a particular EU product within the UK. Brexit-related changes could result in compressed margins for traders, so they should allow for these when doing cash flow forecasts and preparing for the future.

    Due to the potential repercussions of Brexit, some businesses are choosing to postpone their capex and investment plans. It is important that businesses look to seize trade opportunities while managing their risks, however. For that reason, they should be exploring the use of automated supply arrangements and the potential to enter new markets.

  • Financing

    While the full impact of Brexit remains unknown, companies cannot easily anticipate what effects – if any – the event will have on their funding requirements. Encouragingly, however, Brexit-related uncertainty has not yet impacted on UK companies’ ability to secure funding from lenders based either locally or overseas. In fact, despite the uncertainty, the overall availability of credit to the corporate sector in the first three quarters of 2019 remained unchanged, according to the Bank of England’s Credit Conditions Survey.

    Refinancing
    While banks’ ability to lend is unlikely to be constrained post Brexit, many companies have still chosen to refinance or extend their loan facilities early. Some have also switched from uncommitted finance facilities, such as overdrafts, to committed facilities, such as revolving credit facilities. Others have sought greater headroom in their borrowing facilities or more flexible covenants as a safeguard against a potential deterioration in economic conditions

  • Payments

    Assuming that the UK continues to participate in SEPA after Brexit, payment charges should remain on a SHA basis, in line with the SEPA Credit Transfer Rulebook, although some banks may choose to charge additional fees.

    Clients making large volumes of SEPA transactions may opt to de-risk the situation and open accounts with Barclays in Europe. Contact your relationship team to discuss further.

  • FX

    Considerations for Corporate Treasurers

    The following considerations could help you to manage your FX volatility, potentially by using new approaches:

    • Consider hedging sterling-related exposure to manage FX risk. Potential solutions include spot FX, forwards and swaps. For example, Barclays helped the University of Sussex to hedge the FX risk associated with euro-denominated grant payments, and the case study is available on our website.
    • Consider using natural hedges where cash flow allows. It may not be necessary to convert all foreign currency receipts into sterling if there are likely to be expenses in those currencies in the future. FX swaps can sometimes be used to move funds between currencies while managing currency risk.
    • Consider reviewing your supply chain for ways to minimise FX risk. Options include asking suppliers to take payment in the currency of your sales, or switching to sterling-denominated suppliers.
    • When hedging, ensure that your FX hedges are matched to your cash flow and invoices. If necessary, you can effectively adjust the value dates using an FX swap.
    • Review your budget FX rates frequently. Assess them on the basis of timely market information and up-to-date rates. You can view Barclays’ currency forecasts by consulting your FX dealers.
    • Make use of Barclays’ FX tools and services, such as BARX Corporate, which streams real-time tradable FX rates straight to your computer. We can also provide call orders (where we notify you if we hit a particular rate in the market) and market orders (where we will trade on your behalf if the market moves at a particular rate).

Barclays Europe

Following the UK’s decision to withdraw from the EU, we have been taking steps to preserve market access for our clients.

We have expanded our existing subsidiary – Barclays Bank Ireland (referred to as Barclays Europe), which will become the legal entity serving clients in the European Economic Area (EEA), should Brexit result in a loss of relevant market access for the UK financial services industry.

Clients affected by these changes are predominantly European clients – excluding the UK – and will have been contacted.

Detailed information about Barclays Europe and the legal mechanisms that will be used to preserve market access for our clients after Brexit are available on our group strategy website here.

If you have any questions on how Barclays is preparing for Brexit, please speak to your Relationship Manager

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