What Brexit Did and Didn’t Change on Jan. 31

(Bloomberg) -- Britain’s protracted divorce from the European Union has finally happened. The country left the bloc on Jan. 31, marking the start of a battle over how the separation will work in practice. Virtually all facets of business and everyday life will remain unchanged during 2020 while the U.K. and EU hash out agreements on how they will handle a range of issues from trade to data sharing, fishing rights, and security co-operation. The new deadline for those is Dec. 31, 2020 -- ambitious given that such deals usually take years to hammer out.

1. Is Brexit done yet?

Yes. Jan. 31 marked the U.K.’s legal, irrevocable separation from the bloc. It was a done deal after the game-changing U.K. election on Dec. 12, when Prime Minister Boris Johnson’s Conservative Party won a whopping 80-seat majority and a mandate to get it finished. Parliament then passed legislation that avoided a disorderly or “no-deal” Brexit, and allowed for an 11-month transition period for Britain to adjust to life on the outside. During that time, the U.K. will still trade freely with the EU and be subject to most of its laws, even though it will have no say in making them.

2. What does Brexit look like at first?

The U.K. updated the cover of its passports and issued commemorative coins, but other changes will be harder to see:

• Free movement of EU and British citizens into and out of the bloc remains the same during the transition period; there will be no changes at border crossings or to mobile phone roaming charges.
• A deal protecting the rights of more than 3 million EU citizens currently living in the U.K. and about a million British citizens residing in the bloc has come into force. The agreement allows them to stay where they are and continue to enjoy pensions and access to health care where they live, for life.
• Much of what happens with citizens’ rights after 2020 is still up for negotiation, leading many Britons to scramble to acquire EU passports.
• Britain is paying its divorce bill, meeting obligations it made to the EU while a member. That could total about 33 billion pounds ($43 billion).
• Plans to prevent a hard border on the island of Ireland are being set in motion, though won’t come into force until the end of the transition period.

3. What remains unsettled?

The Brexit legislation doesn’t touch the far bigger question of the future relationship between the EU and U.K. after the end of the transition period in December. In theory, the two sides will have signed a free-trade agreement by then -- but that’s a matter of political negotiation. If you’re, say, working for a Japanese company with a base in London that’s exporting to the EU, you’ve still got no certainty about the terms of trade across the English Channel at the start of 2021. Expect more political wrangling in the months ahead, along with talk that Britain may be trying to transform itself into a low-regulation “Singapore-on-Thames.”

4. What does ‘Singapore-on-Thames’ mean?

It’s code for the post-Brexit U.K. looking more like the “light touch” regulatory regime found in the Asian city-state. Johnson moved the U.K.’s commitments to abide by EU standards on tax, labor rights and the environment out of the legally-binding portion of the Brexit deal and into the separate, non-binding political declaration. That will give him greater freedom to diverge from EU norms -- but it could also make a comprehensive trade deal with the EU much harder. Brussels is hardly going to allow the U.K. access to its single market of 450 million people and, at the same time, let it undercut the competitiveness of its members.

5. What if they can’t reach a deal by the end of 2020?

EU negotiators have warned the December 2020 deadline is unrealistic. Johnson has ruled out prolonging the transition period -- although he has changed his mind before. If the EU and U.K. don’t come to an agreement, the U.K. could “crash out” at the end of the transition period and revert to trading with the EU on commercial terms negotiated in 1995 by members of the World Trade Organization. It would look much like a no-deal Brexit. Better that, say hard-line Brexiters, than being subject to EU laws with no say over deciding them. The crunch moment will come ahead of a July 1 deadline to seek an extension.

6. So what kind of deal is possible?

More likely, Britain could seek to do a quick and dirty deal ensuring zero tariffs and quotas on goods, something suggested by Ivan Rogers, the U.K.’s former ambassador to the EU. Because the EU enjoys a goods surplus with the U.K., that might actually help German car manufacturers. But a deal on goods that excludes services, where the U.K. has a big surplus with the EU, could hurt the City of London’s financial industry in particular. London’s fight to remain a global financial hub rests on a once-obscure regulatory process controlled by politicians in Europe known as “equivalence.”

The Reference Shelf

• The EU’s website on citizens’ rights following Brexit and a Guardian Q&A on what we did and didn’t know as of Jan. 31.
• The U.K.’s future access to Europe depends on how much it agrees to abide by the bloc’s rules.
• Businessweek explains why the EU is going to miss the U.K. when it’s gone.
• Bloomberg Opinion’s Therese Raphael outlines why a no-deal Brexit is still a real possibility.
• Ivan Rogers, the U.K.’s former ambassador to the EU, warns that the worst is yet to come.
• QuickTakes on why the U.K. voted to leave the EU, the potential “cliff edge” in 2021 and regulatory “equivalence.”

To contact the reporter on this story: Edward Evans in London at eevans3@bloomberg.net

To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Guy Collins, Leah Harrison Singer

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