International / Warwick

All About (Y)EU: What are the Commercial Implications of Brexit?

You’ve probably heard a lot about the possibility of ‘Brexit’ by now. If you’re applying for jobs and may be attending interviews you need to know what all the fuss is about. I asked Dr Ben Farrand, Assistant Professor in the Law School here at Warwick to give me a potted version of what is going on and why it matters. Here’s what he said:

“As you know, the UK and Gibraltar will be holding a referendum on continued membership of the European Union on 23 June 2016. All UK, Irish and Commonwealth citizens resident in the UK are entitled to vote, as well as all UK citizens living outside the UK, so long as they have not been gone for more than 15 years.

eu_referendum250The question that people will be asked is Should the United Kingdom remain a member of the European Union or leave the European Union? The debate is a highly charged one, which has received considerable media coverage. Discussions have focused on issues such as immigration, sovereignty, and security. But what about the commercial implications?

Is ‘Brexit’ even likely?

One of the first questions to consider is whether Brexit is likely to happen. Every new opinion poll results in a flurry of media coverage, with some newspapers often declaring that the UK leaving is a foregone conclusion. However, the result is not nearly as clear as that. One single poll may not tell you much, but a ‘meta-analysis’ of polls can present a clearer picture of trends in voter intentions. Take the following example: –

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As this list of polls demonstrates, the number of polls finding that the percentage of voters intending to vote to remain is significantly larger than the percentage of those indicating they intend to vote to leave. Another point worth noting is that the majority of the polls indicating a ‘remain’ result are conducted by phone, whereas most indicating a ‘leave’ result are online polls. Amongst psephologists, political scientists who study elections, there are debates about whether online polls are less reliable or more reliable than telephone polls. Given the considerable difference between stated opinions and the 2015 General Election result, as well as the fact that figures such as Boris Johnson have announced publicly they will be supporting the ‘leave’ campaign, at this stage it is very difficult to determine what the result will be.

What happens if the UK leaves?

import_export250In terms of commercial implications, in the event that the UK votes to leave the EU, it loses access to the EU’s internal market, at least on its current terms. This means that the rules applying to the free movement of goods, services, capital and workers will no longer apply, which could result in barriers being placed upon the import and export of goods between the UK and the rest of the EU. Supporters of leaving the EU have argued that this fear is overblown, as the UK will be able to adopt a ‘Swiss’ model agreement, or a ‘Norwegian’ model agreement, where specific trade treaties are made between the UK and EU. While this may be the case, these agreements are not guaranteed, and may come with their own conditions. For example, the Swiss agreements focus on only narrow sets of issues, including free movement of people, air traffic and road traffic, which often are negotiated on an individual basis, meaning that access for the UK adopting a similar approach could take many years. Furthermore, the agreements are mutually dependent, meaning that if Switzerland breaches any of its obligations under one treaty (such as the free movement of people), the EU can suspend all agreements, a condition known as the ‘guillotine clause’ . Could the same apply to the UK? If so, what is to stop the EU requiring free movement of people as a condition for access to the internal market for goods and services? Similarly, while Norway does have market access, it is required to meet the EU’s standards and regulations, without being in a position to negotiate the terms of those standards and regulations, a power the UK currently has as a full member of the EU. If the UK depends on trade with the EU for its commercial success, then losing the ability to negotiate those terms would arguably put the UK at a significant disadvantage.

What does business (and the world) think?

Overall, business and industry appear to support remaining within the EU by a considerable margin. The CBI, or Confederation of British Industry, has made clear that 80% of its members support remaining in the EU, on the grounds that it is ‘better for their business, jobs and prosperity’. Similarly, the British Chambers of Commerce also supports remaining in the EU, with its former head John Longworth being temporarily suspended and subsequently resigning over a public statement he made favouring Brexit. It is not only business, however, that has argued that leaving the EU could be economically damaging, both for the UK and the world. The Organisation for Economic Cooperation and Development’s (the OECD) chief economist stated that Brexit would be ‘bad for the UK, bad for Europe and bad for the global economy’. Suggesting that a UK outside of the EU may potentially be economically isolated, after Brexit campaigners stated a desire to make agreements with key international players such as the US similar to the Transatlantic Trade and Investment Partnership (TTIP) that the US is currently concluding with the EU, such designs were rebuffed by the US Trade Representative, who stated that ‘We’re not particularly in the market for FTAs [free trade agreements] with individual countries. We’re building platforms that other countries can join over time […] We have no FTA with the UK so they would be subject to the same tariffs – and other trade-related measures – as China, or Brazil or India’. Could the UK continue to ‘punch above its weight’ in international affairs as a sole trading nation? The US, at least, thinks not.”

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