Brexit: The Winners and Losers Following the Deal

The United Kingdom officially left the European Union (EU) on Jan. 31, 2020. A June 2016 referendum marked the beginning of the end of their 47-year relationship. But there were a lot of details to sort through before the deadline. When both parties announced their trade agreement on Dec. 24, 2020, officials, business leaders, and private citizens were relieved. This meant they avoided the worst possible outcome: a no-deal Brexit in which the U.K. departed the EU without a trade deal. But like any other deal, some come out on top while others end up struggling. The following is a list of some of the winners and losers of Brexit.

What Happened Post-Brexit?

Brexit certainly presented challenges for the British and EU economies as both jurisdictions faced new administrative burdens and uncertainty due to unresolved issues. When the deal was announced, the pound rose on the U.K. market by approximately 0.47% against the U.S. dollar and 0.46% against the Japanese yen. 

But markets already took the expected cost of Brexit to the British economy into account. To some extent, this included the possibility of a no-deal outcome. This was less a bullish rally than markets partially rebounding after having expected the worst. It is expected that it will take years for the British markets to overcome Brexit’s adverse economic effects.

The economic impact of the COVID-19 pandemic and its accompanying restrictions on trade in the U.K. and the EU likely outweighed Brexit. This means determining the actual impact of Brexit on different sectors of the British economy may be difficult. However, some sectors are definitely likely to be more or less affected by Brexit.

The Winners

The overall upshot is that there are few winners from Brexit, and not all them are in the U.K.

Specialized Machine Part Manufacturers

Certain manufacturers, including automakers, rely heavily on other regions of the world for parts to finish their products. Requirements for new product origin (or content source) for qualifying as U.K. or EU products meant certain manufacturers had to make some adjustments.

These businesses were likely to seek alternative European or British sources for such parts so that their products contain the mandatory content-source percentages for treaty benefits. With some companies, such as Nissan and Toyota, likely looking for qualified sources for parts from Asian countries, local U.K. and EU manufacturers might enjoy new sales opportunities.

But nothing about the rules means that the manufacturers need to be specifically British, so it is ambiguous whether these rules of origin will help the U.K. or the EU more.

U.S. Bankers

Losing free access to the EU market meant London-based banks had to decide whether to establish new branches or offices in the region to continue their operations. But because U.S. banks never had that free access, they already have passporting rights. Some also operate registered companies that have offices in the U.K. and EU.

This situation leaves U.K.-based financial services firms at a disadvantage until they can fully re-establish themselves in EU markets. As such, U.S. financial firms may be able to draw away business and clients from U.K. firms in the meantime.    

The Losers

Brexit certainly impacts U.K.-EU cross-border relationships in every sector with new administrative and regulatory burdens. New requirements, such as local licenses, visas, border checkpoints, and personnel relocation, among other things, affect all types of businesses ranging from agriculture to finance. Many sectors of the economy found themselves unprepared for the new regulations and are concerned about the costs of compliance.

Fishing Industry

Despite only making up 0.1% of the U.K. economy, negotiations around the U.K. fishing industry were one of the largest obstacles to reaching a trade deal. On the surface, the trade deal seems to be a win for the U.K. fishing industry.

According to the U.K. government, the quotas for British fishermen increase over five years by an amount equal to 25% of the value of the EU catch in U.K. waters, which is estimated to be worth £146 million ($205 million). However, to call this an unalloyed victory ignores two major factors:

1. The U.K. fishing industry expected far greater concessions from the EU. Industry representatives said the deal cannot be considered a success because its relatively modest gains fall so far short of what the pro-Brexit campaign promised them. The National Federation of Fishermen’s Organizations, a fishing industry group, published a letter to Prime Minister Boris Johnson saying that they considered the trade deal to be a failure as far as fishing is concerned.
2. The second factor is that the majority of seafood caught in the U.K. is exported to the EU, and the new nontariff barriers that have sprung up in the wake of Brexit make things especially hard for exporters of perishable goods.

Food and Agriculture

Regulations and border controls affecting agricultural imports and exports create issues for everyone in the EU and the U.K. This includes farmers, distributors, grocery store chains, restaurants, and consumers. In advance of Brexit, retailers and consumers in the U.S. stockpiled food, resulting in shortages and supply chain problems. This prompted warnings about panic buying. 

Because the U.K. relies on deliveries of fresh food from or via the EU in the winter, delivery delays immediately created problems. Scottish exporters complained about delays in the transport of fresh seafood at border controls in Scotland and France. Sainsbury’s supermarkets blamed the new and complex arrangements affecting Ireland for their need to obtain alternative sources of goods. Tesco supermarkets ran into shortages, leaving shelves empty.

One thing to keep in mind, though, is that supply chain and logistics challenges extend beyond agriculture to all industries.

Manufacturing Sector 

Logistical challenges also affect the manufacturing sector. Because modern manufacturing uses complex supply chains that stretch across different nations, even nontariff barriers to goods can significantly complicate manufacturing.

Even before the deal was concluded and tariffs were officially avoided, significant companies in automobiles, aerospace, and industrial supplies had to cut jobs and close plants in the U.K., including Honda, Nissan, BMW, Toyota, and Jaguar Land Rover. Panasonic and Sony planned to move their European headquarters from London to Amsterdam. Almost two years earlier, Dutch conglomerate Phillips closed its only U.K. factory. 

The agreement imposes substantial controls on goods transported between the EU and the U.K. It establishes rules of origin mandating that goods generally contain more than 50% of locally sourced content to qualify for free trade and other benefits of the deal. Larger manufacturers with complex products containing parts acquired from other areas of the world likely will need to make sourcing adjustments.

While this may potentially benefit some specific local manufacturers down the road, sorting out rules of origin placed enormous administrative burdens on businesses in both regions, which have not made sufficient preparation and auditing to establish the origin of goods. This emerged as one of the largest impediments to trade post-Brexit.

Financial Services Industry

Financial services companies recognized that Brexit likely would require the relocation of significant operations and personnel from London to EU locations and would mandate local registration and licensing to conduct business in the EU. 

Major banks, including JPMorgan, Morgan Stanley, NatWest, Goldman Sachs, Bank of America, UBS, and Credit Suisse, moved hundreds of employees and large quantities of assets from London to other European cities before the deadline for a trade deal. London-based insurers also set up EU locations, including Lloyd’s of London in Brussels and Aviva in Ireland. 

Brexit ended the passporting rights of U.K. investment houses, which permitted companies registered in one EU market to operate in others. To conduct EU business following Brexit, U.K. investment banks require equivalence rulings that recognize regulations in a company’s home country as sufficiently similar to those of the EU. European firms can use London clearinghouses until June 2025. This was extended from the original June 2022 deadline. The European Commission also agreed to consult on clearing activities in the EU.

Most core banking businesses, such as deposit-taking, retail investment services, and other lending services, are not included in the equivalence system. This means U.K. banks must establish EU offices to continue these activities with EU clients. While London will always be a major financial center, its status may be affected, especially if equivalence rulings are not forthcoming and clients turn to institutions in other countries that already have the rights and ability to operate in the EU.  

Pharmaceutical Industry

Pharmaceutical companies are concerned about potential differences in EU and U.K. standards for medicines. In anticipation of diverging rules, U.K. pharmaceutical firms AstraZeneca and GlaxoSmithKline established parallel labs in the EU.

For medicine, the imposition of border checks and dispersion of manufacturing will likely cause delays in distribution. Both the EU and the U.K. reported drug stockpiling in advance of Brexit because of concerns about prompt access to medications.

Transit, Transport, and Freight Industries

There are also legal and logistical challenges for travel and shipping post-Brexit. Both the EU and the U.K. allowed a six-month grace period for flights between and within the two areas under licensing and safety qualifications. After that period, flights within the EU, across and within member states’ borders, became restricted. Only airlines that are majority-controlled by the EU, the European Economic Area (EEA), and/or Swiss nationals will be allowed to fly between EU airports. 

But a special provision allows U.K. airlines that are controlled by a combination of EU and U.K. shareholders—for example, the Madrid-based International Airlines Group that owns British Airways—to continue to operate in the EU. 

The movement of people and goods, whether by air, water, or Channel Tunnel, entails time-consuming procedures. Passport requirements apply to travelers between the EU and the U.K., and business personnel, students, and others who stay abroad for a period of time will need visas. For instance, the EU only authorized 2,000 permits for 2021 while 10,000 were needed—a challenge for many U.K. freight haulers wanting to operate on EU roads. Furthermore, permits and border checks require copious amounts of paperwork each year and thousands of customs agents.   

The Bottom Line

Britain officially left the European Union in January 2020. Known commonly as Brexit, the country's departure left a lot of uncertainty. Some of these issues were smoothed out after the two regions struck up a trade deal. Even with the agreement, there are clear winners and losers that arose following the move. But only time can tell just how deep the impact will go.