Brexit is back in the picture, as there are talks of a potential trade war between the UK and EU over the coming days after both sides failed to reach agreement on the Northern Ireland protocol. The EU has threatened to impose sanctions on UK exports to Northern Ireland if it fails to implement the terms of the Northern Ireland protocol next month. If things escalate, the pound will also be affected, as it usually falls when concerns around Brexit rise.

EU press conference

On Wednesday, UK and EU officials met in an attempt to resolve any disputes over trade rules for Northern Ireland. In the EU press conference following talks with Lord Frost on Northern Ireland protocol, Maroš Šefčovič, the vice-president of the European Commission who serves as the EU’s lead on post-Brexit negotiations with the UK, said that fundamental gaps remained in the UK’s implementation of the deal. On the Northern Ireland protocol, both sides agreed in 2019 this was the best solution to protect the Good Friday agreement. In December last year some solutions were agreed, including grace periods and exemptions in areas where the UK was not ready to implement the protocol. But he highlighted that “we cannot undo the core of the protocol”, as there are still “numerous and fundamental gaps” in the UK’s implementation of the deal.

He also confirmed that the EU could take retaliatory action. Šefčovič says the EU is a peace project, and, as he said, he did not arrive with a list as he is looking for a solution. But he did confirm that the EU could impose tariffs on some UK goods if the Northern Ireland protocol was not implemented. The protocol is designed to prevent checks at the border with Ireland. So, the EU agreed to let the UK conduct these checks at the GB/NI border. The easiest thing would be for the UK to accept EU SPS standards. Nonetheless, Šefčovič says he has a good and honest relationship with Frost and believes in Frost’s “best intentions”.

How will the pound react?

If the relationship with Brussels breaks this could weigh on Sterling sentiment in the short-term. If the EU does take any retaliatory action, and tensions escalate, then the possibility of the UK losing access to the single market would raise significant risks for the UK economy and hurt the pound.

The Prime Minister’s spokesman said: "The protocol was formed in a spirit of compromise, in challenging circumstances. It was not a finished solution... and we didn't expect the EU to take such a purist approach to it. We are working very hard to resolve these issues consensually. But the Prime Minister has always made clear we will consider all our options in meeting our responsibility to sustain peace and prosperity in Northern Ireland.”

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Prime minister Boris Johnson wants to “get Brexit done,” but with Brexit the unresolved issue of the UK’s future trade relationship with the EU and other countries still remains and is expected to be one of the big concerns at the end of 2020.

If Brexit does happen, the UK will need to negotiate a free trade deal with the EU so it continues to enjoy tariff-free access to its market after the transition period, and will also need to negotiate and sign new trade deals with countries such as the US.

According to Johnson’s withdrawal agreement, the UK will continue trading with the existing terms until the end of the transition period which is due on 31 December 2020. He has already stated that, if he wins a majority, he will negotiate a Free Trade Agreement (FTA) with the EU which will come to replace the current arrangement at the end of 2020. The deadline for next year is considered among economists and politicians a very challenging one, as the time frame is limited and the subject matter demanding and complicated. As it is usually the case, trade negotiations take years, so it is similarly expected that Johnson’s trade agreement will be a difficult task, impossible to deliver as promised. Of course, it will be possible to extend the transition period, but this should be decided by 1 July.

As a Financial Times article notes, it is difficult to see the EU and the UK reaching a deal in as little as five months, especially when there’s legal and translation issues involved. A draft for an EU-Japan deal took four months and 10 days to prepare, “including ‘legal scrubbing’ and translation into 24 official EU languages — and this is viewed in Brussels as an example of the bloc moving at breakneck speed.”

In the case of Canada’s deal with the EU, this took more than five years to complete and another three before it came into force. For some, the UK-EU trade deal will be even more difficult as the two sides will attempt to establish a new relationship that seeks to replace an older one, while for others, the negotiation will be fast and quick as we are already in sync with EU regulations.

What is an FTA?

An FTA is a multinational trade agreement that creates a free-trade area between different states and determines the tariffs and duties on imports and exports in order to eliminate trade barriers, such as trade taxes or tariffs. While a customs union is more encompassing and requires all parties to have the same external tariffs, a free-trade agreement allows countries to establish whatever tariffs they wish, otherwise adopting a preferential treatment system.

If the EU and the UK are unable to reach a trade agreement within the specified time frame, then the UK will revert to World Trade Organization (WTO) terms – which means British exporters would have to face the same tariffs as other countries as the US or China. But even with a trade agreement, the privileges that are currently enjoyed under the customs union will be lost.  A trade agreement will mean more costs and more bureaucratic control for UK companies, which is why economists are warning that Brexit will damage the UK economy.

The UK is also in the process of rolling over the EU’s existing free trade deals with other countries in order to avoid losing tariff-free access to the EU after Brexit. The UK has signed 19 continuity deals with 49 countries. The UK’s biggest trading partners are the US and the UK, with the US being the UK's biggest single trading partner, and the EU accounting for 46% of UK exports. The problem with striking an FTA with the US is the obvious standards in food products, especially when in the US regulations are not as strict as in the EU, with the most obvious examples being genetically modified foods and chlorinated chicken.

At the moment, one of the most important Brexit outcomes is considered to be the resolution of a trade agreement with the EU by the end of next year, as the scenario of leaving without a trade deal will not only result in a political crisis for the government, but also an economic one for the whole of the UK.

Imports and exports

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SEPA Transfers

If you need to send money abroad, the transfer process can sometimes be a bit of headache, particularly if you’re a novice and don’t know where to start.

After all, not everyone is a financial expert and separating acronyms like SWIFT and IBAN can leave many a civilian more than a little befuddled.

That being said, transferring euros throughout the European Union can be a fairly straightforward process, thanks primarily to the introduction of SEPA transfers.

What Are SEPA Transfers?

In a nutshell, SEPA stands for Single Euro Payments Area. A payment initiative of the European Union, SEPA transfers are specifically designed to simplify bank transfers denominated in the currency of euros and improve the overall efficiency of cross-border payments within the EU.

The aim of SEPA transfers is to make an international transfer of euro payments the equivalent to money transfer within your own country. Naturally, this is only applicable to participating countries, predominantly featuring those that comprise the EU, and SEPA doesn’t cover payments in currencies other than the euro.

Essentially, SEPA allows for smooth borderless payment within the Eurozone. For example, you could send money quickly and easily from Paris to Berlin much like you would a payment from Birmingham to Bromley, with no strings attached.

Payments typically take between 1 and 2 working days to complete.

Which Countries Participate in SEPA?

In a nutshell, SEPA stands for Single Euro Payments Area. A payment initiative of the European Union, SEPA transfers are specifically designed to simplify bank transfers denominated in the currency of euros and improve the overall efficiency of cross-border payments within the EU.

The aim of SEPA transfers is to make an international transfer of euro payments the equivalent to money transfer within your own country. Naturally, this is only applicable to participating countries, predominantly featuring those that comprise the EU, and SEPA doesn’t cover payments in currencies other than the euro.

Essentially, SEPA allows for smooth borderless payment within the Eurozone. For example, you could send money quickly and easily from Paris to Berlin much like you would a payment from Birmingham to Bromley, with no strings attached.

Payments typically take between 1 and 2 working days to complete.

Which Countries Participate in SEPA?

As of November 2019, the list of SEPA countries is as follows:

  • Åland Islands
  • Andorra
  • Austria
  • Azores
  • Belgium
  • Bulgaria
  • Canary Islands
  • Croatia
  • Cyprus
  • Czech Republic
  • Denmark
  • Estonia
  • Finland
  • France
  • French Guiana
  • Germany
  • Gibraltar
  • Greece
  • Guadeloupe
  • Guernsey
  • Hungary
  • Iceland
  • Ireland
  • Isle of Man
  • Italy
  • Jersey
  • Latvia
  • Liechtenstein
  • Lithuania
  • Luxembourg
  • Madeira
  • Malta
  • Martinique
  • Mayotte
  • Monaco
  • Netherlands
  • Norway
  • Poland
  • Portugal
  • Réunion
  • Romania
  • Saint Barthélemy
  • Saint Martin (French part)
  • Saint Pierre and Miquelon
  • San Marino
  • Slovakia
  • Slovenia
  • Spain
  • Sweden
  • Switzerland
  • United Kingdom 

Are SEPA Transfers Free?

Transfers between banks accounts in different SEPA countries should cost the same as domestic transfer and incur no inflated fees, despite the international nature of the exchange, as per EU regulations.

For more information on SEPA transfers or to make an EU transfer with Universal Partners FX, why not drop us a line today? Call now on 020 7190 9559 to speak with one of our expert advisors or get in touch online by clicking the button below.

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With the EU asking for more concessions from the UK, the pound fell against both the dollar and the euro. Despite optimism that Britain and the European Union will be able to come to an agreement and strike a Brexit deal this week, the pound was hurt by the realisation that there’s still a long way to go.

On Monday, the PM's official spokesman told journalists that "Talks remain constructive, but there is a lot of work still to do." Similar were also the comments by Ireland's Tanaiste (deputy prime minister) Simon Coveney: "A deal is possible, and it's possible this month," Mr Coveney said. "It may even be possible this week. But we're not there yet."

Last week, Sterling rose higher on the possibility of the UK and EU finding common ground. However, the outlook is now more measured and expectations on Brexit negotiations are constrained, something that has helped to pull Sterling back down. With EU leaders fearing that Johnson will not manage to pass Brexit in Parliament, uncertainty will remain.

Getting Brexit done

In the meantime, in Brussels, both sides are trying to reach a Brexit deal before Thursday's summit of European leaders, despite the "big gaps" as senior EU official Michel Barnier called the existing differences between the UK government and EU. 

On Thursday (17 October), the two-day summit of EU leaders will begin in Brussels and is the last meeting scheduled before the Brexit deadline. On Saturday (19 October), there will be a special sitting of Parliament. In case there’s no Brexit deal approved by MPs and no agreement about the UK leaving with no-deal, Saturday will also be the day that the PM will have to ask the EU for a delay to Brexit under the Benn Act.

Both sides are willing to agree a deal before the EU summit on Thursday and Friday, and, hopefully, that will enable the government to introduce a withdrawal agreement bill to be voted in a special Parliamentary session next Saturday. However, many remain pessimistic, including EU officials, with one senior figure describing the possibility of reaching a deal at the summit "ambitious." According to Tony Connelly, Europe Editor for Irish state broadcaster RTÉ, "Following two days of intensive talks the two sides are still far apart on customs. The EU side continues to have grave concerns about the UK proposals to keep NI in the UK customs territory, with Theresa May's old Customs Partnership idea being recycled and adapted for NI.”

Before the European Council summit starting on Thursday, markets will be waiting to see the developments before commenting on the pound’s future. Markets remain hopeful as long as there are ongoing talks. However, both sides would need to come to an agreement on the issue of the Irish backstop, ideally avoiding a hard border with Ireland. 

According to The Times, EU negotiators have requested more concessions from the UK, with the EU’s Chief Brexit negotiator Michel Barnier, describing Britain’s proposals unacceptable. Barnier told David Frost, Britain’s chief negotiator, that “Mr Johnson would have to give further ground on a customs agreement for Northern Ireland,” if a deal were to be struck.

Boris Johnson needs more backing for Brexit deal

In order to pass a new Brexit deal through parliament Boris Johnson will need support from both Eurosceptics and pro-deal Labour MPs. He will need to win over all the 28 Tory “Spartans”, as well as get help from the DUP or Labour backbenchers.

In a loyal address after the Queens speech on Monday, Lee Rowley, a Conservative MP expressed his position on Brexit and how it was necessary to get it done: “If there is light at the end of the tunnel later this week, and heaven knows I hope there will be, we have a fundamental responsibility in this place to try and resolve this most vexed of problems and allow our despairing country to move on. For the health of our democracy and to restore faith in this most venerable of institutions, in my view we simply must get Brexit done.”

Eurosceptic Steve Baker, was positive of a deal as he said, “Boris has had a dramatic shift towards a free trade agreement that would leave us a self-governing nation … So now really, the devil is in the detail … I am really looking forward to being able to vote for a tolerable deal but, until we get the text, I cannot tell you what we are going to do.”

Others expect to see more in order to vote for a deal, including reassurances on Northern Ireland, workers’ rights and environmental protections.

Whether a deal is possible, it will be obvious within the next few days. The government will have to table a motion by Wednesday if it wants MPs to debate an agreement on the Saturday sitting. If the UK agrees to make concessions to the EU, there is the risk of the deal not passing through the House of Commons with the DUP and Brexit hardliners not supporting it.  

It is within this context, that foreign exchange analysts are not hopeful that a deal could easily pass in the House, something that will lead to another Brexit extension and a snap General Election.

Markets are now cautious as they await proof that the new Brexit deal can pass Parliament before bidding Sterling to rise higher.

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On Monday, Tony Lloyd, the shadow Northern Ireland secretary, said that Boris Johnson was pursuing a Brexit that was either “disastrous” or a “fantasyland wishlist.”

Lloyd was responding to a letter that the prime minister had written to the EU about reopening the Irish backstop issue and suggesting its replacement by some form of commitment that would guarantee the prevention of a hard border between the UK and Ireland. Johnson’s new position contradicts his previous support of Theresa May’s deal. As Tony Lloyd said: “Boris Johnson seems to have forgotten that he voted for Theresa May’s deal including the backstop. Whichever Brexit outcome he pursues, whether it’s a disastrous no-deal or this fantasyland wishlist, Boris Johnson clearly has no qualms about putting jobs, rights, prosperity or peace in Northern Ireland at risk.”

While Johnson believed that the EU will be receptive to his proposal, on Tuesday Donald Tusk rejected his request. As a response, a Downing Street spokesman said: “that unless the withdrawal agreement is reopened and the backstop abolished there is no prospect of a deal. It has already been rejected three times by MPs and is simply unviable as a solution, as the PM’s letter makes clear.”

Johnson has stated on more than one occasions that he is willing to crash out of the EU without a deal on 31 October, despite warnings that the UK will face food and medicine shortages.

The letter

Johnson’s letter is an attempt at negotiating with the EU which appears as a regressive move, bringing up again the controversy around a hard border with Ireland that the EU and many in the UK and Ireland are clearly against. Before meeting European leaders, Johnson addressed the four-page letter to the President of the European Commission Donald Tusk saying that the backstop is “anti-democratic and inconsistent with the sovereignty of the UK.” He added that there could be different customs arrangements at the Irish border within the two-year transitional period after Brexit. However, having some general commitments in place that would prevent a hard border until the proposed system was agreed, was also a solution, Johnson noted.

But the EU does not wish to renegotiate the withdrawal agreement and the backstop. According to Guardian sources: “There was a two and a half year negotiating process in which the EU compromised, including on the question of the backstop. The withdrawal agreement is not open for renegotiation and the backstop is not open for change. A legally operable backstop to avoid a hard border remains central to the withdrawal agreement for the EU27.”

Johnson said: “I propose that the backstop should be replaced with a commitment to put in place such arrangements as far as possible before the end of the transition period, as part of the future relationship. I also recognise that there will need to be a degree of confidence about what would happen if these arrangements were not all fully in place at the end of that period. We are ready to look constructively and flexibly at what commitments might help, consistent of course with the principles set out in this letter.”

In the letter, he claims that the backstop is anti-democratic because it could force “the UK potentially indefinitely into an international treaty which will bind us into a customs union and which applies large areas of single market legislation in Northern Ireland”.

But an EU source described the letter as “a total moving of the goalposts on an issue of great importance and sensitivity that affects the lives of people on the island of Ireland.”

What happens next?

Johnson has also been accused by Tory MPs who have written a letter saying that the prime minister is preparing for a no-deal Brexit as his demand for the abolition of the backstop is simply impossible.

According to No 10, the prime minister has been clear: “there cannot be any actual negotiations unless the backstop goes; that’s the message he has delivered to leaders in his phone conversations and he will do that face to face. We have been clear that what the EU needs to understand is unless the withdrawal agreement can be reopened and the backstop abolished, there isn’t any prospect of a deal.”

Johnson will be meeting Merkel in Germany on Wednesday and on Thursday Macron, but the eyes of EU leaders will be on the UK, Tory MPs and opposition leaders as they attempt to block a no-deal Brexit on 31 October.

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UK exports to Europe

Brexit has caused a lot of uncertainty for UK importers and exporters. The difficulties facing many British companies trading overseas have become an inseparable part of Brexit debates. For many, the issue lies with the UK’s decision to leave the EU.

In an article on the Guardian, Gareth Stace, director general of the trade association UK Steel, argues that leaving the EU has the potential to cause a great deal of damage to exports and weaken the sector more.

British Steel

In an attempt to present his views and the general steel industry’s position when it comes to its current issues and Brexit uncertainty, Stace admitted:

“There can be no doubt that the ongoing Brexit uncertainty has contributed significantly to British Steel’s problems. Unable to decipher what the UK/EU trading relationship will be in just five months’ time, planning has become fiendishly complicated for both UK exporters and their EU customers.” He also added that things have become more complicated with the EU’s recent measures seeking to prevent steel imports surging, a move that reflects a more general protectionist turn seen elsewhere.

As Stace wrote, “Post-Brexit, UK steel exports to Europe will be restricted by these measures, with a disorderly no-deal Brexit affecting them particularly badly.”

No deal Brexit is bad, but what about an orderly Brexit?

Stace elaborated on the question of whether a well-organised Brexit would improve things for steel exporters. For example, he questioned those who claim that with the UK being outside the EU, the government would support extensively the steel industry. As he argued, “the UK steel sector has no interest in operating under the support of state subsidies (we are vociferous critics of this practice in places such as China).”

He emphasised that the UK’s ability to provide state support was restricted nonetheless, due to its WTO membership, “which bans certain subsidies outright, and allows others to be counteracted by other WTO members with the imposition of ‘anti-subsidy duties’ – effectively closing off important export markets.” He also pointed out that the EU has already aligned itself in terms of state aid rules, so any agreement between the UK and EU would not be beneficially better. Similarly, other countries such as the US would also want to align themselves with the current provisions when they strike trade agreements with the UK, so the UK would not, in essence, enjoy any special treatment.

“Brexit would not provide greater trading opportunities”

The Brexiters’ mantra has been, since the beginning, based on the premise that the UK’s withdrawal from the EU would come with the promise of striking limitless deals. Boris Johnson used this slogan in many occasions, but the “freedom to do our own trade deals,” as many Leavers have proclaimed, is not an easy fit. This is also the case for the steel industry. Stace clarified that Brexit would not come with the opportunity to strike many deals. As he said: “WTO tariffs on steel in developed countries are already zero, and the EU’s expanding list of FTAs is providing tariff-free access to many others. There is little advantage any new UK FTAs could offer.” Additionally, as UK-produced steel “qualifies as EU steel under complicated rules of origin within the EU’s FTAs,” this means that any European country can use it, whereas, after Brexit, UK steel “would be classified as UK not EU, reducing the attractiveness of it to EU manufacturers.”

In essence, Stace explained, “Brexit will not improve the situation for the steel sector but it has the potential to cause a great deal of damage.” For him, the biggest priority is to secure a withdrawal agreement as soon as possible. And this is what most businesses are also demanding.