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Brexit and the GCC – What lies ahead?

Brexit and the GCC – What lies ahead?

With Brexit having come into full effect on January 1, how will the UK’s ties with the GCC evolve?

It was a nail-biting finish, almost.

The saga that was Brexit stretched on to the last minute, with uncertainty about whether the European Union and the UK would strike a trade deal or see an acrimonious ‘no-deal’ split. A historic trade deal was finally signed on December 24, a week before the end of the Brexit transition period, triggering relief on both sides.

The days following January 1, 2021 have been bumpy, with expected issues on the EU-UK borders – especially for freight operators. “As already seems to be the case after the first few days, the new arrangements are not without their challenges in terms of paperwork and red tape,” says Joe Hepworth, director of OCO Global, and founder of the British Centres for Business (BCB).

“It seems that companies had preempted this (as well as a no-deal scenario) by stockpiling ahead of the year-end, so volumes have been relatively low. I would expect to see an increase in issues and frustration around all of the new processing that needs to take place as things pick up again,” he adds.

It will take time to understand how smooth the transition will be, says Stephen Watson, partner at Expense Reduction Analysts, UAE.

“After many years of being tied to an economic union, I am sure there will remain some significant challenges on exit. There are still a number of contentious areas such as rights to fishing and some significant matters not yet addressed such as the role the city of London plays in a banking and finance context. Consequently, it’s likely we are only seeing the tip of the iceberg in terms of next steps for Brexit,” he elaborates.

In a note last month, consultancy PwC also cautioned that it is important to remember that while a deal has been agreed, it is not all encompassing.

“Financial services is largely outside the trade agreement, and firms lose their ‘passporting’ rights to provide financial services to EU clients. A separate commitment has been reached to agree a Memorandum of Understanding by March 31, 2021, which should include arrangements for equivalence which may enable some financial services to be conducted between the UK and the EU. Nor does the deal provide for a comprehensive approach for the mutual recognition of professional qualifications. Other areas have been earmarked for future clarification such as chemicals and data privacy, making it clear that the UK will continue to negotiate with the EU for the foreseeable future,” it stated.

On a more personal note, while those on both sides of the Brexit debate may have valid views, it is key for all parties to be “positive” in the way they view the new UK/EU relationship, opines Helen Barrett, partner at CBD Corporate Services.

“Britain has not left Europe, just the EU. Collaboration in most aspects of trade between the two parties remain unaffected and it is worth noting that the UK is the second largest contributor, after the US, to the western defence alliance, NATO, whose primary function is the defence of European nations, so the UK’s ties to the EU remain strong in more ways than just trade,” she asserts.

The GCC perspective
Moving to this region, the GCC has historically enjoyed close ties with the UK, with the two sides cooperating on several fronts. According to UK government figures, trade between the UK and GCC stood at roughly $55bn in 2019, with the Gulf emerging as Britain’s third largest non-EU export destination behind the US and China.

So will Brexit cause any disruptions to trade relations?

“I wouldn’t necessarily see any insurmountable challenges for GCC countries. Point to point trade I would expect to continue as normal. Complications may arise where trade agreements exist between multiple jurisdictional parties and goods flow through UK and EU territories, but at this stage it’s difficult to be definitive,” says Watson.

“I believe there needs to be further clarity in the financial sector – particularly with respect to UK domiciled banks trading in EU territories.”

On the other hand, the positive impact of Brexit on bilateral relations would be far greater, argue experts. “In the short-term, the impact will be minimal. As there is no EU-GCC trade agreement that the UK has left, the terms of business and trade remain unchanged for both the UK and the EU. In the medium term, the prospect of a bilateral trade deal will obviously become more appealing and it is likely the UK will look to pursue this,” explains Hepworth.

Steve Drake, board director of Strategic Partnerships at British Business Group (BBG) Dubai and Northern Emirates, agrees that ties only look to get stronger.

“Some regional countries have historically been very strong trade partners such as Saudi Arabia and the UAE, the UK’s third largest trade partner. I would expect relations to strengthen and trade to increase as Brexit brings a degree of flexibility to the UK. I think this willingness to increase trade relations was very much endorsed by the recent visit of [Abu Dhabi Crown Prince] Sheikh Mohamed bin Zayed to the UK and his meeting with the British Prime Minister Boris Johnson and international trade ministers,” he says.

Another advantage that Britain now has post-Brexit is that it can fix its own laws, regulations and standards for products and services. “In effect this means that the UK can be more flexible in negotiations with other countries as it no longer has to refer back to the EU for approval,” elaborates Barrett.

Looking to the longer-term, all sectors will benefit from collaboration between the UK and the GCC, she says.

“The UK is a leader in financial services and technology and GCC countries have recognised these as important growth sectors for their economies, so perhaps these are the obvious targets. GCC investment in the UK is both significant and valued by Great Britain. Likewise, UK businesses and entrepreneurs view the GCC states as highly attractive investment markets,” Barrett explains.

With the UK setting its sights firmly on a future path based on science, innovation and R&D – segments the GCC is also focusing on, they offer opportunities for collaboration, opines Hepworth.

“Similarly, the UK has also been making bold pledges in areas such as decarbonisation and electric vehicles (new petrol vehicles will be banned from 2030), so this is another area where you can see skills, knowledge and technical transfer developing,” he states.

BBG’s Drake also asserts that Brexit will provide further opportunities for cooperation between the UK and GCC countries.

“There is more that can be learned and exported between them for mutual benefit. Regional strengths such as freight, logistics and real estate sectors could – for example – participate more in a UK economic context. Similarly, I think UK growth companies with innovation and technology related strengths could be more present in the GCC. So I think an active programme to facilitate such collaboration would ultimately support trade development.”

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