How will Brexit Affect UK Exporters
At this stage, we can only speculate on the many possible outcomes of the Brexit negotiations. It’s going to be long time before anyone knows what will happen when, or indeed, if, the UK finally does leave the EU and as the first member state to initiate article 50 and start the leaving process, we are in uncharted waters. International trade is a key point in the Brexit discussion, and we will be keeping a close eye on any developments in this area as the negotiations proceed.
What happens now?
Britain will remain an EU member state until 29th March 2019, two years after the leaving process was initiated by the triggering of article 50. This period will be used to negotiate the terms on which the UK will leave the European Union. During this time, the UK will be excluded from any internal EU discussions and will have no say in the decisions regarding its withdrawal; however, it will still play a normal role in all non-Brexit business within the EU as a full member.
What if an agreement isn’t reached within the two-year negotiation period?
Many experts believe a final Brexit deal will not be reached in this timeframe and could take closer to ten years due to the sheer scale and complexity of forming an agreement between 28 countries on such a huge range of matters. It is possible that the two-year period initiated by Article 50 could be extended if all 28 members agree to do so unanimously. However, if no extension is agreed and a deal is not reached, the UK will leave the EU and the consensus is that we will revert to World Trade Organisation (WTO) rules.
What are WTO rules?
The WTO’s mission is to promote free trade by abolishing customs barriers such as import tariffs. It is the only international body overseeing the rules of international trade, which are enforced with the use of trade sanctions against the countries that breach them. As WTO members, the EU and UK would have to abide by the Most Favoured Nation (MFN) rule, which essentially promotes fairness and equality between trading partners, or as the WTO puts it:
“Each member treats all the other members equally as ‘most-favoured’ trading partners. If a country improves the benefits that it gives to one trading partner, it has to give the same “best” treatment to all the other WTO members so that they all remain ‘most-favoured’.”
There are a few exceptions to this rule, but essentially it means that the EU cannot apply unfair tariffs to UK goods once we leave the union, and vice versa.
What is likely to change after Brexit?
Not a lot of detail has been shared on the government’s Brexit negotiation plans, and with more uncertainty in the government’s strategy following the result of the snap election this month, it is difficult to predict what type of deal the UK will aim for. We do know that the conservatives will not seek to keep the UK a part of the single market and Customs Union, so let’s look at what might happen if this doesn’t change.
What happens if we leave the customs union?
The purpose of the customs union is to facilitate the free movement of goods between EU members. There are no tariffs on goods moving within the EU and common external tariffs are applied to goods imported from the rest of the world. If the UK leaves the customs union, tariffs will apply to goods moving between the UK and EU and they will have to undergo customs clearance. Customs checks and administration will increase costs to UK business, both in terms of time and money. However, no longer restricted by the customs union rules, the UK would be free to forge its own trade deals with the rest of the world, which Brexit supporters believe outweighs the downsides of leaving the union.
What if we leave the single market?
The single market allows for the free movement of the “four freedoms” within the EU. These are goods, people, services and capitol. By harmonising trade regulations across all member states, the single market removes trade barriers. Essentially, there are no regulatory barriers or unfair restrictions within the EU. If the UK leaves the single market we will no longer be restricted by EU regulations and would have control over the movement of people across our borders, which many people see as positive outcomes. However, there would be massive impacts on the trade of goods and services as tariff and non-tariff barriers are reintroduced.
Are there other options for the UK?
You may have heard of the “Norway model”, which many see as a viable option for the UK post-Brexit. This would entail joining the European Economic Area (EEA) alongside Norway, Iceland, Liechtenstein and EU members. It allows near-full membership of the single market; members must adopt most legislation relating to the four freedoms of the single market, with a few exceptions, including the common agricultural and fisheries policies. The benefit of this option is that the likely impacts of joining the EEA can be modelled based on the current members, and at this stage it is suggested that taking this route will be better for the UK economy than arranging a separate free trade agreement with the EU. However, to gain this level of access to the single market, the UK will likely have to accept EU regulations on the free movement of people as well as make financial contributions to the EU budget, which are two of the most popular reasons why the UK voted to leave the EU in the first place.