Almost two months after the United Kingdom formally announced its intention to leave the European Union, the EU is ready to authorise the beginning of the negotiations. This should happen on May 22nd, at the General Affairs Council reunion. Yet, the first meeting between the two sides will probably be only in July, after the snap elections in the UK – a surprise move pulled by Theresa May which is going to consume another month of the two years set by the Lisbon Treaty for the exit negotiations. But a deadline that may be modified, if the EU considers it would be the case for an extension of talks.
While Theresa May seems to be headed to a great political victory at home, on the foreign front her plans received a major blow. Besides the divorce itself, Britain is interested in another deal with the EU and, to save time, she hoped the discussions would happen in the same time. But, given the very few specifications Article 50 contains about the exit process, the EU was able to approve guidelines for a negotiation in two phases. Only after approaching the issues about citizens rights, Britain’s bill to the EU and the border with Ireland, there will be discussions about a trade and finance agreement. “Discussions on the framework for a future relationship with the United Kingdom will only begin once sufficient progress has been made in the first phase of the negotiations. It will be for the European Council to decide whether there has been sufficient progress.”, says the recommendation given by the Commission to the Council.
“Sufficient progress” is a vague term and thus, the Commission leaves it to European Council to define its meaning, with Britain having no word in that decision. In the same time, the “divide and conquer” tactical approach that the U.K. hoped to make use of has been ruled out, as the EU leaders pledged to remain united throughout the process and hold no separate negotiations with Britain. In the same time, the principle of “nothing is agreed until everything is agreed” puts even more pressure on the UK. Therefore, London will have to play by the rules set by Brussels, in a game whose length will be decided – again – by Brussels.
Considering the month of April has seen the politics of the UK and the EU both getting mixed in business and creating updates on several sectors’ opportunities that we’ve talked about in previous articles of the “Brexit Means Business” series, we have considered an overview approach on these issues is needed.
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The financial sector is at the center of the Brexit turmoil. And while the UK fights to preserve the power of The City and other countries try to lure banks, bankers seek ways to minimize the damages (or maybe even gain something from this situation, in terms of lower taxes or friendly regulation). The month of April has seen a roll of updates for this sector. First of all, in the letter Theresa May wrote to the EU to trigger Article 50, financial services were specifically mentioned. The British prime minister wrote that she wants a trade deal which would include banks (a desire which goes against other countries’ interests and might delay the negotiation process, which is already very unlikely to fit in the two years established by the Lisbon Treaty). This special mention is clearly a result of the banks’ lobby apparatus and it was echoed by a manifesto released by the British finance industries. The manifesto calls for a trade deal that would ensure both sides with solid access to each other’s markets. As such an agreement is very far fetched, many financial institutions (JPMorgan, Morgan Stanley, UBS, HSBC and so on) continue working on their plans to move a part of their business from London to mainland Europe. Most of them seem to want to create smaller hubs elsewhere. But they recently received a cold shower from the European Central Bank. The ECB warned that only operating from smaller offices in the EU while keeping most of their business in the UK won’t work. “Establishing an ‘empty shell’ company would not be acceptable.”, the ECB report says. Moreover, banks who want to relocate, may have to wait six months for a license. This means that they can’t push the decision until the last moment. They can’t bet on conducting prolonged negotiations with governments and wait for the “best offer” either. Clients are also pushing financial institutions to mainland Europe. HSBC already noticed that some of its largest corporate clients want their businesses to go through the bank’s offices in other EU countries, besides the UK. Feeling pressure from so many sides, it’s no wonder that foreign bankers in the UK are asking to be sent back home, in Dublin, Frankfurt or Milan, as the British press reports.
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There are also important updates on the ”immigration and free movement” front. While the public pressure to curb migration to the UK is very strong (and this has been a crucial issue during the campaign for the Brexit referendum), British authorities receive more and more proof that foreign workers are vital for the labour market. Overall, the Office for National Statistics says that 11% of the UK labor market is made up of non-UK nationals, with 7% coming from other EU countries. National Health System (NHS) relies heavily on migrant workers and the fears of a crisis of doctors and nurses is increasing. Britain’s manufacturing, retail and hospitality industries also employ important numbers of foreign nationals and would be very vulnerable to any restrictions in this area. The financial industry also raises concerns about its access to foreign talent. Lobby group TheCityUK says that about a quarter of the about 360.000 workers in City of London are foreign born. Farmers need migrant workforce as well and have repeatedly warned that fruits and vegetables could be left unpicked in the absence of the Eastern European workers. The scientific organisation The Royal Society says the country faces a substantial skilled shortage and the future immigration policy must ensure that Britain gets most of foreign talent. Britain also needs foreign plumbers, construction workers, nannies or genitors. These are not just concerns for the future, as more than a quarter of British employers already reported a decline in job applications from EU workers since the referendum. Moreover, in many fields, workers already living in Britain have made plans of returning to their home countries. The need for immigrant workforce in more and more clear to the authorities, as they started discussing ideas like free movement extension or limited time visas for foreign nationals. Therefore, in the future, although immigration rules will change to some extent, the access to the British labour market will still be granted in most areas that already have an important percentage of foreign workers. Moreover, due to this uncertainty, the competition for jobs in the UK will likely be lighter.
Here are some new opportunities sources, spotted during this month’s attentive media read on the matter of Brexit:
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Gazprom is also concerned about Brexit and is considering moving its London business operations to Continental EU. Financial Times reported that the Russian energy giant is reviewing the potential impact of Brexit on its operations and fears losing its preferential access to the EU, which is its biggest export market. Gazprom’s London office currently employs about 450 persons working in Global Trading, Global Retail and Global Carbon departments. In the UK, the company has a small office in Manchester. Should the management decide to relocate, the easier option is most probably Paris, as according to its website, Gazprom already has an office presence there. This move means foreing investment and new jobs for France. But it is interesting from a political point of view as well. Gazprom has monopoly over Russia’s gas exports and it is the “national champion”, the model of company through which Moscow pushes forward its interests on the international scene. This company might leave the UK after its “divorce” from the EU, a divorce advocated – among others – by UKIP, one of the extremist European parties Moscow is reportedly supporting.
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Youngsters from other EU countries who want to study in Britain the next year might face less competition. Universities reported fewer foreign applications after the referendum, as they are still looking to get students from abroad. Moreover, the pound depreciation benefits international students, as they’d theoretically depend for paying for goods and services in the UK on a stronger currency. Studying in the UK has suddenly became cheaper.
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The Home Office used the EU tendering services to call for service suppliers offers for the country’s passports redesign. Therefore, under the EU competition rules, a non-UK company may land the contract. A company from mainland Europe might get a great contract form Brexit, getting to design the passports that the UK nationals will use after 2019.