Emotions are running high in the debates about Great Britain leaving or staying in the European Union (EU) ahead of the EU referendum on June 23. The controversies also catch the headlines in other European countries, albeit to a lesser extent. So what exactly does this mean for the UK?
The EU is the UK’s biggest trading partner. In 2014, 45% of all goods and services exported from the UK went to other EU countries (£230 billion), and 53% of UK imports (£289 billion) came from other EU member states. Seven out of ten of the UK’s top export markets are part of the EU; the same applies to imports. With this high level of inter-dependence, a “Brexit” seems like economic suicide.If the UK should vote for a Brexit on June 23, the country would have to leave the EU within the legally agreed time window of two years. It would no longer be part of the customs union and third country tariffs would be levied on UK exports to other EU countries.
No longer part of the EU Single Market and effectively considered a “third country”, customs controls would need to be re-established between Northern Ireland and the Republic of Ireland, which could, in the worst case, be similar to those between Belarus and Poland, for example. This could certainly disrupt and negatively impact the important British-Irish trade.
Alternatively, the UK could try to persuade the other 27 EU member states to agree to a new tailor-made free trade agreement (FTA) with the UK. Should this not be successful, the country could attempt to join the European Free Trade Association (EFTA) or be solely a member of the World Trade Organization (WTO).
However, negotiating trade agreements is a time consuming business. When Greenland gained independence from Denmark and thus had to leave the EU, it took three years to reach an agreement on just one point, the fishing quotas, as part of a new trade deal. The EU and Canada have talked about a FTA for seven years, and it has not been ratified yet.
Of course, proponents of the Brexit point out that leaving the EU would also mean that the UK would be free to sign commercial accords of its own with major trading powers such as the US, China, and Commonwealth countries, where, at present, no trade deals with the EU exist. This could save British industries thousands of pounds annually. This assumes, of course, that these countries would be interested in entering trade talks with the UK.
Following a Brexit, the UK would no longer be subject to the 2016 Union Customs Code (UCC) with its over 1000 pages of complicated customs law, endless exceptions and additions, hundreds of annexes, and transitional measures (check out this on-demand webinar to learn more about the UCC). This would be a joy for many. The UK would have an opportunity to thoroughly overhaul its national Customs and Excise Management Act of 1979 with the aim to simplify rules, make customs procedures more business friendly, customs clearance cheaper, and reduce bureaucracy.
What exactly the relationship between the UK and its main trading partners would be, in case of Brexit, however, remains uncertain for quite some time. What is sure is that a stable political environment is important to most companies, especially when taking medium and long-term investment decisions, establishing new enterprises, or contemplating relocation. It comes as no surprise that investors are already moving billions of pounds in currency and assets out of Britain ahead of the referendum.
“BREMAIN” – Remaining in the European Union
If Britain’s electorate should decide to remain part of the EU, British companies would benefit from access to the EU Single Market’s 500 million customers and 21 million enterprises. The freedom of movement for UK businesses means seamless supply chains and the liberty to establish subsidiaries across 28 member states. Access to Single Market is often seen as a shortcut for company growth, from an SME to a multinational business: A common commercial, trade and customs policy guarantees UK business a level playing field with their EU competitors.
Voting to stay “IN” would ensure that the UK remains inside the EU Customs Union with a modern, harmonized UCC rulebook and an integrated, interoperable, and accessible computerized customs system for handling exports and imports. The EU’s secure supply chain initiative “Authorised Economic Operator” (AEO) would continue to assist UK business in clearing goods faster, due to being internationally recognized as trusted traders. UK businesses would not be charged any customs duties nor would complete customs entries and supporting documentation have to be submitted each time a British business wishes to export to mainland Europe, thus not artificially inflating the price of the UK goods. No customs duty, no paperwork to complete and a green light to go trade in 27 other countries – a no brainer, right? Add more, the uninterrupted access to the EU preferential trade agreements will continue to save British business money on a daily basis.
In conclusion, membership in the EU has both advantages and disadvantages for UK businesses, although, purely form a trade and customs perspective, the benefits appear to outweigh the uncertainty.
After a rigorous and brutal campaign, we near the climax. It is clear that the referendum on June 23 is not just a vote for the future of the UK; it is a vote on the future of the EU, too, and a vote on the type of relationship the UK wishes to have with its 27 neighbors.
And nothing may be the same again…
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This post was published on June 15, 2016 and updated on June 15, 2016.
