The Brexit experiment has begun: the UK started 2021 outside the European Union, now independent of its rules and regulations after 47 years of membership.

With few celebrations on either side, both started with the job in hand, which is to see how the new relationships between the UK and the EU after Brexit will take shape. 

But the final destination will take time and possibly even decades as the historic free-trade agreement between London and Brussels at the end of 2020 was mainly on goods and commodities. There will be new negotiations on financial services, data-sharing, security coordination and political arrangements around Gibraltar.

It is difficult to predict how the talks will go, especially on financial services and data-sharing. They are also happening during the Covid-19 pandemic, and a third wave of this led this week to a new national lockdown in the UK.

With Covid-19 infections seen as out of control in the UK, British Prime Minister Boris Johnson decided to postpone a visit to India later this month and focus on the pandemic. This is a setback to Johnson’s Global Britain agenda, as the aim of the talks with India’s Prime Minister Narendra Modi was to strike a free-trade deal with India.

Britain’s services economy – including not only London’s powerful financial industry, but also sectors such as hospitality, law, architecture, insurance and others – was largely left out of the 1,246-page deal, despite the sector accounting for 80 per cent of British economic activity.

London’s financial sector started to feel the effects of Brexit on the first trading day of 2021 when nearly €6 billion of EU equities shifted away from the city to facilities in European capitals.

Trading by banks like Santander and Deutsche Bank moved to EU market places like the Madrid, Frankfurt and Paris bourses, according to data from Refinitiv, a provider of financial market data, an abrupt change for investors in London who have grown accustomed to trading shares in Europe without restrictions.

Although not the city’s most lucrative business, the departure of the share-trading will mean less tax receipts for the UK government. There are also fears that it could encourage companies to list in the EU rather than in London in order to benefit from smoother trading conditions.

The UK’s trade deal with the EU largely omitted financial services, and Johnson admitted the agreement had failed to meet his ambitions for the sector.  During the talks in 2020, the EU had refused to recognise most of the UK’s regulatory systems as “equivalent” to its own, forcing Euro-denominated business to move to Europe.

With the EU having no interest in keeping London at the heart of its financial services, many doubt that the EU will grant the UK equivalence in trading soon. Brussels has also sought greater oversight of Euro-denominated assets and is keen to reduce its reliance on the City of London for finance, an activity it views as strategically important for the EU.

According to the London Financial Times, financial services lobby groups on both sides have urged the EU and UK to quickly build on the trade deal and agree on common supervisory standards. The two sides are trying to draft a memorandum of understanding on future co-operation on financial services by the end of March, although this will not have the same legal force as an international treaty.

Emphasising that the EU and UK were now distinct jurisdictions, EU regulators on Monday withdrew the registration of six UK-based credit-rating agencies and four trade repositories – data warehouses that provide information on derivatives and securities trades. EU companies and investors will now have to use EU-based entities.

The problems do not stop there, as on Tuesday a number of online retailers in the EU decided they would not deliver to Britain because of the new costs involved in sending packages.

European firms have said they are unwilling to register for VAT in the UK. The news comes as problems emerged with the first lorries to cross from mainland Britain to Northern Ireland. Some food shipments did not have the correct paperwork, leading to waits of 10 hours at new border posts. The disruption means that the UK Sainsbury’s supermarket has reportedly lost around 700 product lines in Northern Ireland.

Moreover, the UK Marks & Spencer supermarket said the new trading rules in place since Britain left the EU were delaying deliveries of food to its stores in France, where at least three branches had empty shelves on Tuesday.

Meanwhile, the UK National Federation of Fishermen’s Organisations (NFFO) declared its dissatisfaction with Downing Street’s promise of £100 million to help expand fleets over the five-and-a-half-year transition period.

The industry has expressed its outrage at the Brexit trade deal, which sees only 25 per cent of fish stocks in British waters returned to UK fishermen. Asked if the funding package would help to soften the blow of the trade deal, NFFO Chief Executive Barrie Deas said that “the short answer is no.”

“The fishing industry would much prefer to have our full quota entitlements, which an independent coastal state has the right to expect,” Deas told the UK Independent newspaper. “Unlike agriculture, fishing has never been an industry highly dependent on subsidies.”

Economic activities were not the only casualty, as citizens from the UK and the EU also faced difficulties with the new set of rules. Many UK nationals have been refused entry to Europe since 1 January because Britain is no longer exempt from Covid-19-related restrictions on non-essential travel from outside the EU since it left the bloc.

A Dutch border force spokesman confirmed on Monday that up to 13 British citizens had been turned away at Amsterdam’s Schiphol Airport since Friday because their trips were not necessary and third-country coronavirus regulations now applied to UK citizens.

The news came after British citizens living in Spain were barred from boarding flights in the UK because the airline said their pre-Brexit residency papers were no longer valid, while others were refused entry to Germany.

There were also reports of passengers turned away from KLM flights from UK airports to the Netherlands because they did not have a negative coronavirus test, their journey did not qualify as essential, or they could not show proof of Dutch or EU residency.

Only a handful of countries with low coronavirus rates are exempt from EU rules barring non-essential visitors from outside the bloc. The UK was removed from the list at the end of the Brexit transition period.

Britain has departed the EU, but its exit is only the beginning of a high-stakes experiment to unstitch commercial relations across the continent. The challenge now for Johnson is to make Brexit a success. Otherwise, the cost will not be only economic but also political, with nationalists in Scotland waiting for the Brexit experiment to fail, which could lead to the disintegration of the United Kingdom.

*A version of this article appears in print in the 7 January, 2021 edition of Al-Ahram Weekly.