The Virgin Islands government would be squandering precious time if it tried to make separate trade deals with the European Union after Brexit, which United Kingdom professor Dr. Peter Clegg considers will probably not be possible (as explained in the article “VI braces for Brexit after Tory sweep in UK” in the Dec. 19 edition of the Beacon). Instead, the VI government should be seeking to protect our economy from any aftershocks if the UK crashes out of the EU without a deal in 11 months’ time, devaluing sterling and reducing the benefits of the loan guarantee and influx of British tourists. A good start might be made by regulating the VI’s cryptocurrency market, which reputedly is the second largest in the world.

The Tories’ large majority in the Commons was won under the first-past-the-post system, on a minority of the popular vote. To achieve it, Prime Minister Boris Johnson appears to have painted himself into a corner with two conflicting promises: that trade between Great Britain (England, Scotland and Wales, also known as GB) and Northern Ireland (NI) will be frictionless after Brexit; and that the UK (GB plus NI) will leave the EU on Dec. 31, even without a trade deal.

 

Withdrawal agreement

The UK’s newly elected House of Commons easily passed the Withdrawal Agreement Bill (WAB), which the previous parliament had prevaricated over since the referendum. Among some important amendments, it does the following:

  • states how the new customs and regulatory border between NI and GB will work in practice;
  • repeals the European Communities Act, which took the UK into the EU, but immediately reinstates it until the end of 2020; and
  • bans any extension of that transition period, even if a free trade deal isn’t ready.

Among provisions removed from the WAB were the workers’ rights protections, which the government says will be included in separate legislation. It is now a draft international treaty to effect Brexit, which has to be ratified by the European Parliament by tomorrow.

 

Transition period

Nothing will change for 11 months. The UK will still follow all the EU’s rules and regulations and remain in the single market and the customs union, with free movement of people, while the UK government negotiates deals with the EU on trade in goods and services, security and every other aspect of their new relationship. Talks will not formally start until March, and the EU thinks it unrealistic to expect to agree on so much by Dec. 31.

 

Irish border checks

The PM promised NI business leaders his WAB would provide frictionless trade across the Irish sea, but the EU and Irish government say it is obvious that there would have to be checks on goods coming from GB to NI — which would continue to follow the EU customs code, including customs declarations — and insist they would be needed to protect the Irish border. Breaching the withdrawal agreement in 2021 could result in the European Commission taking the UK to court.

 

Disunited kingdom

Remainer parties won large majorities in Scotland, reviving calls for a second referendum on Scottish independence, and in NI, where parties more favourable towards a reunited Ireland won a majority of seats for the first time ever. After the election, the PM helped to persuade NI parties to restore power sharing between the republican and unionist parties by offers of cash, but during the opening session of the NI Assembly there was a symbolic rejection of the WAB across the entire political spectrum.

The PM wants a wide-ranging free trade deal with the EU and freedom to strike new trade deals around the world, but non-alignment with EU regulations once Brexit has become official. However, the EU says the UK won’t get good access to its market unless it agrees to alignment on environmental and employment standards, in case the UK aims to become the bloc’s low-regulation, low-tax competitor.

 

Financial services

EU leaders have warned that if the PM attempted to exempt the UK from EU laws it would block the City of London’s access to European clients. Financial stability requires both sides to agree quickly an equivalence framework and level playing field with appropriate governance.

The EU commission will make a unilateral decision by June on equating the UK’s regulatory alignment with its access to the single market, highlighting 40 areas where it may judge the UK’s systems to be “equivalent” but liable to be withdrawn or restricted. That includes assessing whether British regulations and supervisory bodies are effective enough for the EU’s financial services sector to continue to work for EU-based clients. Otherwise, British banks, traders and insurance firms would lose their automatic rights to work for EU clients after Dec. 31.

An EU offer to prolong the transition period until 2022 would give the PM a choice between making another climbdown over Brexit or the UK facing a “no-deal” Brexit at the start of 2021, disrupting trade with the EU, its biggest trading partner, and the UK government having to return to austerity measures. Neither choice would please his recently won blue-collar supporters who voted to leave the EU.

 

‘Disastrous’ UK decisions

The EU is unlikely to favour any VI appeal for aid to mitigate the knock-on effects of the UK government’s disastrous decisions while it can accuse our own financial services industry of benefiting from such activities as the recently reported move to the VI from Malta of a large cryptocurrency exchange to escape the EU’s new Fifth Anti-Money Laundering Directive, which requires crypto firms to implement know-your-customer measures and report any suspicious customer activity.

The exchange reportedly claims that traders on it would have had to appoint compliance officers and train staff members in anti-money-laundering requirements, which would impose unsupportable regulatory and financial burdens on most of its traders. However, since even our churches are required to do as much under the Non-Profit Organisations Act 2012, the government should be taking swift action to forestall EU criticism by regulating crypto exchanges here.


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