Article Review –  Bracing ourselves for BREXIT by Simon Fraser

Preface

In an effort to drill down to the details of the BREXIT decision/ramifications I decided to read/research the topic further and come up with takeaways that would help me – and may help others – establish some context away from the politics of it all. It’s more of a reality check if you will to see if the arguments for the Leave camp stack up & the hurdles expected. The takeaway points are based on articles referenced though I put them in my own words and structure them in a way to help simplify digesting them – an attempt in that direction anyway – while including my own comments.

Article Review –  Bracing ourselves for BREXIT by Simon Fraser

 It is difficult to understate to the perplexing decision to leave the EU considering the following facts;

a) The unpicking of the pro-globalisation orthodoxy of the post cold war period comes from 2 of the strongest advocates of free trade; the United States & United Kingdom one through protectionist/nativist policy and the other by turning its back on a market it helped invent.

b) It feels quite ironic when the government suggests pursuing a vision of “Global Britain” while at the same time speeding to leave the most sophisticated international trade/regulatory system without a clear strategy/approach.

BREXIT & the WTO: For BREXIT to be successful one of the pre-conditions is for the UK to defend non-discriminatory, fair competition and an effective enforcement mechanism within the WTO. This has to be seen in the context of a weakened UK position outside the EU both in economic & political terms.

Global Competition: Alone the UK is less equipped to cope with a new/evolving trade environment driven by the United States, China and the weight of the EU. To achieve good trade deals within emerging markets you need stronger credentials/areas of influence.

Trading Points: Here are some facts/figures demonstrating UK trading relationships during the year 2015 to provide some context;

  • Import/Export Figures
    • UK Exports to the EU (44% of exports)
    • Imports from the EU (53% of imports)
  • Trade Figures
    • Trade with 50 countries having EU preferential FTA’s (13% of trade)
    • Trade with the USA (16% of trade)
    • Trade with BRICS countries (Brazil – Russia – India – China  – South Africa) (8% of trade)
    • Trade with Common Wealth states (9.5% of trade)
  • Inward Investments
    • EU 54%
    • USA 32%
    • BRICS 1.6%

The Focus/Pre-occupation with the Wrong Priorities: The fact that we seem to be prioritising – even at this stage – domestic politics over economics is making achieving a strong outcome with the EU all the more difficult. This is clearly reflected in our negotiation approach/planning (or lack there of).

The Inevitability of Less Access/Influence on the EU Market: With a Free Trade Agreement (FTA) as the best possible outcome to EU negotiations this would significantly reduce our access/influence within the EU market which inevitably affect our capability to complete. As such a transitional arrangement probably is one of the key’s for success in the BREXIT negotiations.

Negotiation Complexity & Dependencies: We can’t negotiate seriously until we all know the composition of our future relationship with the EU, which is inextricably linked to our trading relation/power with other countries. So a weakened outcome for the UK’s position will inevitably affect our position in negotiating FTA’s with other major economies.

Importance of EU’s FTA Market’s for the UK: The threat of UK potentially loosing it’s access to the EU’s FTA markets is a big concern unless we continue with these EU agreements or reach new deals.  It is also clear that trade is likely to cost more placing UK businesses at a disadvantage against European competitors;

  • EU/South Korea FTA eliminated 97% of tariffs while EU exports rose to 55% with the UK benefiting more than other EU members from such an agreement.

Putting the potentials gains for the UK from access to BRICS market in context: If the UK was to loose 5% of trade with the EU we would need 25% increase with BRICS countries in terms of trade value to get to square one.

Timespan necessary to Develop FTA Agreements: FTA agreements take time and with the fluid market dynamics and increasing competition it can only add to the uncertainty in the planning for post BREXIT Britain; it took Australia 10 years to agree an FTA with China. We also need not overlook – when consider EU red tape – the bureaucratic & political hurdles in foreign markets we will try and enter.

UK’s Mixed Performance in Foreign Markets: The UK is loosing market share in India to Germany & France, while Germany has 4-5 times more trade than the UK in China.

The Common Wealth Market’s Trade Potential: There are currently 32 countries of the Common Wealth already covered by EU FTA’s or have tariff free access. This means that the UK may end up with worse trading terms than the EU until UK negotiation with these states conclude. It’s also clear that the UK won’t be able to champion these countries access to the EU market which inevitably means a weaker hand when negotiating these deals.

BREXIT Affects on Businesses: Large businesses won’t be driven by patriotism and national identity, rather they will be influenced by profit and shareholder interests. Smaller businesses on the other hand will probably need government help to operate in international markets post BREXIT.

Regulation & Standards are a big Part of the BREXIT Bill (my own additional point here): We really need assess 2 factors here;

a) The cost implications of developing/enforcing our own set of standards/regulations for products & services as opposed to relying on the EU to manage this process.

b) The affect this will have in complicating our negotiating efforts/capabilities in trade deals with other countries particularly where there are discrepancies in this area between UK & EU standards.

Link to the original article here