Brexit – Likely economic fallout
For many businesses in Britain the prospect of the UK leaving the European Union – Brexit – is a major cause of concern. A great deal has been written on the economic consequences of an exit from the EU; some impartial, some partisan. Whilst the most significant impact will be on the UK, there will also be a clear
impact on the EU. Is it scaremongering by Cameron and his EU counterparts, or not? What changes can we really expect to economic trade and growth if we exit?
Well, predictions for post-EU Britain are dependent on the model of our exit deal. Those at the extremes in terms of proximity to the EU are unlikely. The Norwegian model, involving membership of the European Economic Area, would not give the UK the political flexibility required to justify Brexit; we’d follow EU rules and regulations without having a say when the rules are made. In contrast, a much looser model in which the UK trades with the EU on a ‘most favoured nation’ basis would give flexibility but dramatically jeopardise trade and investment. Most likely are either a Swiss-style series of bilateral accords governing access to specific sectors of the single market or a comprehensive FTA. Either would require prolonged negotiation followed by compromises. The Swiss are still carving out their relationship after seven decades and it has not been plain sailing
SO, HOW IS TRADE INFLUENCED BY THESE CHANGES?
- The EU tradition of harmonisation rather than mutual recognition means the choice for the UK is likely to be either to adopt EU standards or for firms to bear the cost of meeting two sets of standards- regulatory divergence adds to the cost of trade and is far more inefficient.
- ‘EU membership accounted for a 55% rise in British goods trade, equal to £130bn in 2013.’ This is not at the expense of non-EU goods trade.
- The single market and supply chains provide opportunities for economies of scale, competition and innovation, which increase productivity. Trade in the EU is not only more efficient, but more productive than non-EU trade.
Post-Brexit outcomes both reduce trade and increase the cost of trade between the UK and the rest of Europe. It will be damaging for both sides. Frankly, the EU is a more important trade partner for the UK than the UK is for the EU. The UK runs large bilateral deficits with several member states. In contrast, only a few EU countries run a trade deficit with the UK, notably Ireland, due to an extremely important bilateral trading partnership with Irish firms exporting into UK supply chains we’re okay with that! A referendum on Brexit is certain. A vote to leave is very possible. The impact of Brexit on British businesses, the UK economy
and wider British interests would be severe. The path and endpoint to any new agreement with the EU would be uncertain and dragged out. Brexit would have a
wider political impact on the EU, both by disrupting internal political dynamics and increasing the risk of political contagion by encouraging disintegrative forces in other member states. Europe would no doubt lose esteem and influence around the world. Are you ‘in’ or ‘out’? If you want my view, it’s all huff and puff, and conjecture is the right thing to do, but we’ll have the good sense to stay in!
WHAT DOES THIS MEAN FOR LEGAL BUSINESS?
would affect lawyers in two ways. The first affects the law directly: changes in legislation will either remove areas of work from a lawyers’ range of activities or (more likely) create work for lawyers who need to explain the changes to businesses and clients. The other set of changes will affect commercial lawyers indirectly, through the consequences of Brexit for UK business.
Ultimately, the UK’s post-Brexit business and legal landscape would largely depend on the nature of our continued relationship with the EU, and the scope and type of changes we decide to make to our legislation. In any permutation, external investment and trade will, as mentioned earlier, enter a state of flux and decrease (at least in the initial 10-year transitional period), as barriers to entry are restored and
boundary lines redrawn.