Credit and caution affirms that, after a long period of uncertainty, the Free Trade Agreement between the United Kingdom and the European Union represents a positive milestone for the business fabric versus the alternative of ending the transitional period without an agreement, which would have meant the entry into force of the trade rules provided for by the World Trade Organization. The agreement provides for a duty-free trade in goodsBut it barely regulates the exchange of services, which accounts for about 80% of the British economy and 45% of its foreign trade. The text, which keeps the Court of Justice of the European Union outside the trade agreementHowever, it does include important British concessions on the recognition of its financial obligations to the Union, the treatment of the Irish border and competition on equal terms. The treatment of fishing rights, where both parties modified their initial positions, has generated strong concern in the fishing sector.
The insurer considers that the new commercial relationship will generate the appearance of additional economic costs and logistical challenges for the business fabric. The greatest impact of this increase in trade barriers will be felt in the United Kingdom, where the effects of Covid-19 together with new trade frictions are expected to cause a sharp increase in insolvencies in 2021. In the European Union, the impact will be less. The highest risk is concentrated in Ireland, for their close ties. In other major trading partners, such as Belgium, the Netherlands or Denmark, the effect on bad debts will be more limited. By industrial sectors, automotive, textile and high technology they can be affected significantly.
And it concludes that, since the first days of January, there has been a year-on-year drop in port traffic. In the long term, logistical concerns remain due to difficulties in accessing transit documentation in a context of review of its software by the UK customs authority. Added to customs delays is the need for carriers to submit a negative Covid test. The complexity of the new context increases the importance of a sound business risk management strategy in business relationships with UK clients.
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