The RSMR Weekly Broadcast - BREXIT: the problems & the illusive deal

There's no shortage of knowledge and expertise at RSMR! Each week we get our heads together and talk about events in the world and how investments are affected by them. Our broadcast tackles a wide range of topical issues facing investors from liquidity to the future of alternatives to politics and the pound. We like to think of it as cracking content for the financial adviser. Have a read & get clued up...

Technically we’ve already left the EU but the deadline for a deal is still looming. There are thousands of intricacies that we haven’t yet considered since most of the bigger issues remain unresolved. The UK has continued to follow EU rules while negotiations take place but both sides have said an agreement must be reached this month in order to be signed off before the transition period ends on 31^st December 2020.

There’s a lot of posturing and progress is illusive but there’s a consensus in the marketplace that a deal will eventually happen because it would be mutually destructive for this not to come to fruition.  It’s crunch time and egos might have to take a back seat so that an agreement can be reached.

David Frost, the British chief negotiator said that the latest round of negotiations had been ‘conducted in good spirit’. He went on to say that ‘many areas of our talks, although differences remain, outline that lines of agreement are visible’. European Council President Charles Michel has said it is ‘time for the UK to put its cards on the table’ over a post-Brexit trade deal after recent formal talks between the two sides ended without agreement. Let’s hope the summit of the EU leaders in mid-October brings some resolution.

No one said it was going to be simple, there are lots of negotiations and battles going on with many areas to consider. One of the more prominent debates is about whether the French and Nordic countries should be able to fish in our waters and the impact of potential trade policies that would allow sub-par agricultural products to make their way into the UK from America.

When our livestock leaves the UK, they should still come under the same regulations set out by the EU, but cows exported to countries such as Lebanon are currently slaughtered in a non-EU compliant way. There are grounds to stop this happening right now but under EU regulations there will be no more rules to protect these animals from receiving inhumane treatment.

Export and import tariffs are one of the most problematic areas. If deals aren’t forged, we will automatically fall back on the base rules of the World Trade Organisation (WTO) which may not constitute a positive shift.

The leader of the WTO, the Director General, is about to be elected with two candidates left in the race and the WTO will be led by a woman for the first time in its 25-year history. Okonjo-Iweala, is an economist and development specialist and has served as Nigeria’s foreign minister and finance minister. She is focussed on the WTO playing a role in helping poorer countries access COVID-19 drugs and vaccines. Yoo Myung-hee is South Korea’s first female trade minister and pitches herself as an experienced overseer of trade in challenging times. The point is that it’s likely that neither of these candidates will be focussed on Brexit.

Donald Trump’s view that the WTO is not needed is unhelpful and with issues between China and the US ongoing, the picture painted of the default back up setting for trade is very bleak. The WTO is unlikely to place any emphasis on our exit from the EU and since they have to get 168 people to agree by consensus, it would seem unlikely that we’ll receive much assistance from this potentially vital central body.

The Horizon programme is an EU research and grant scheme worth around £80 billion in total. Since we voted for Brexit in 2016, we’ve lost half of our previous fund allocation, but full exit will mean that we receive nothing, impacting on the future of British science. Boris wants to turn the UK into a science superpower, but it’s questionable how we will maintain our standing in this area, let alone develop.

The UK government has clashed with the EU over provisions in the Internal Market Bill which ministers admit would ‘break international law’ by overriding parts of the Brexit withdrawal agreement. They are also locked in dispute with the devolved administrations over what legislation could mean for trade and regulations across Scotland, England, Wales and Northern Ireland from January 2021 and MSPs have voted not to consent to the UK government's legislation to set up an ‘internal market’ after Brexit.

Another knock-on effect of Brexit is the impact on city firms. With no hiring or investment in this area, paralysis is a serious concern. There are so many areas of difficulty, Brexit still needs to be negotiated, agreed and resolved but all our energy and attention is naturally focussed on fighting coronavirus. How will we get a deal when there are so few people thinking about it and working on it? Only time will tell…

QUIZ QUESTION: What was the turnout for the Brexit referendum?

LAST WEEK'S ANSWER: According to the National Bureau of Economic Research the average recession lasts 11 months