Brexit and Lithuania: some decisions could lead to significant success, but it is also related to major risks

London. By Dylan Nolte from Unsplash
London. By Dylan Nolte from Unsplash

The worst-case scenario has been avoided, but at least in the near future, there will be little good news. This is how the EU-UK economic Brexit agreement could be described, announced.

While there is no more free movement of goods, one of the negotiators’ greatest achievements is that trade will continue without quotas.

Customs offices will function, but this will mean that exporters and importers will simply have to take longer to file various documents. Meanwhile, massive taxes, which would have arisen if no agreement was reached and which could have increased production prices by even 50-fold, were avoided.

What does all this mean for our country? The Bank of Lithuania previously performed an analysis and found that in the case that the UK would have left the EU without any agreement, our country’s GDP would grow by 0.8% less over the coming three years. But this was avoided and so, major shocks should not occur.

Nevertheless, over the coming half a year, metrics for trade with the UK should be vastly poorer than before. This country is among Lithuania’s ten most important trade partners – our country’s companies supply significant quantities of goods under British brands, numerous products, especially food, are exported (mostly to shops frequented by emigrants) under Lithuanian branding as well.

Interesting changes could be seen last year.

Take how in January-August, Lithuania exported 671.6 million euro in goods to the UK, which, compared to the same period in 2019, was a decline of over 10%, despite overall exports falling by 7.2%.

However, the situation began quickly changing. In January-November (the Department of Statistics is due to announce yearly data later), the combined export volume declined by 4.9%, but only 0.2% fewer goods were sold to the Brits than a year ago. This combined for a total of 1.052 billion euro.

It is likely that December might have been even more fruitful.

This was namely due to uncertainty over Brexit. Clients in the UK, uncertain as to what trading regime is to come into play with the new year, sought to fill their warehouses, which led to rapid growth in exports.

Thus, a downturn is undoubtedly on the horizon now. Firstly, the Brits themselves imported sufficient quantities of Lithuanian gods and thus, in the near future, they will not need more.

Secondly, transport companies are hesitant to send their trucks across the English Channel.

As P. Drižas, the director general for the International Transport and Logistics Alliance, conceded recently, in January, there has been a vast reduction in the volume of trucks arriving in the UK, but nevertheless, there have been ample obstructions in performing customs procedures.

As such, hauliers are simply unwilling to act as lab rats and, if they are able to avoid shipments to the UK, they do just so.

Of course, such circumstances are temporary, but they will definitely lead to poorer mutual trade metrics. It could be that this won’t last long if the customs and other services quickly get accustomed to operating promptly and both sender and hauliers will be able to adapt to vastly increased quantities of paperwork they haven’t faced for many years.

Of course, this will all incur extra costs, even if they might not be vast. Also, with European goods certificates no longer applying in the UK, extra costs will also be incurred.

This is particularly important for food produce exporters who will have to have British documents. Nevertheless, at least the largest manufactures were already aware of this ahead of time and have taken it into account.

From January onward, the free movement of services has also fundamentally disappeared. As V. Viešiūnaitė, managing partner for the attorney office Trinity Jurex, explains, the UK’s doctors, architects, authors and other service providers will require certification in the EU and vice versa.

Most financial companies operating in London took to moving to Frankfurt, Paris and other European financial centres already a few years ago. While Lithuania is known as its region’s fintech leader, it is not the most appealing centre of gravity at the continental level.

Despite this, the controversial British start-up Revolut, for whom the Bank of Lithuania has issued a specialised banking license, transferred around 10 million new accounts to our country, with massive volumes of cash passing through them.

This is a major success for Lithuania, but it is also related to major risks. The Financial Crime Investigation Service (FNTT) admits this.

“Already a few years ago, we cautioned that the impact of Brexit, when fintech companies will seek countries offering favourable conditions to transfer their business, will also be felt in our country’s financial system.

This will also involve significantly greater risks of money laundering and terrorist financing, the management of this will require more than putting in some extra effort, we require a state approach and investment,” FNTT chief A. Mikulskis stated.

Thus, the now complete Brexit means that both businesses and state institutions will have to constantly prepare far greater homework assignments than up to now.

One way or another, major shocks have been avoided thus far; we will thus have to get accustomed to new rules of the game. Whoever gets used to it first will win out.
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