On 23 June 2016, the UK held a referendum on its membership of the EU. The question facing voters was: ‘Should the United Kingdom remain a member of the European Union or leave the European Union?’ 51.89% of voters voted to leave the EU. The UK left the EU on 31 January 2020.
‘Brexit’ is the name given to the United Kingdom’s departure from the European Union. It is a combination of ‘Britain’ and ‘exit’.
With the withdrawal from the EU in 2020, the UK was faced with concerns over trade regarding imports and exports- the key issue lying within supply chains. As a member of the EU, supply chains- networks of producers, manufacturers and buyers were integrated with those of the EU. This meant no additional paperwork was needed when initiating trade, however, since the UK’s departure- those supply chains have been affected, meaning UK businesses now had to fill in far more paperwork to move goods between two trading blocks. This has left many UK businesses short of demand as the trading process has become lengthy and more complex- posing a threat to markets in the long run.
The European Union (Withdrawal) Act 2018 discontinues the source of European law in UK legislation by repealing the European Communities Act 1972 and removing the capacity of European Union institutions to legislate for the UK. With this in practice, the UK is now under fewer EU restrictions when it comes to international trade as businesses can now distribute exports and undertake imports more freely with non-EU countries. This can be seen as a fundamental improvement for businesses providing service internationally and therefore showing Brexit arguably allows businesses to expand trade worldwide.
Contrary to this however, goods trade to and from the UK has substantially decreased- studies by ESRI show reductions in UK to EU goods trade by 16% and trade from the EU to UK by 20% relative to the scenario in which Brexit had not occurred. The comparison scenario is that trade with the UK should have been expected to heighten at a similar pace to that of the same products being traded with other EU partner countries around the world. While goods trade between the EU and UK recovered most of its previous level in value terms following the sharp fall in the early months of 2021, this recovery leaves it well below the levels that would have been expected if it had performed on a comparable level with other trade partners. This therefore highlights the potential harm Brexit has caused regarding the efficiency of trade and the overall market stagnation following the years of leaving the EU.
One of the negative effects of Brexit is tariffs for British exports:
While the UK secured a post-Brexit trade deal with the EU, allowing UK businesses to continue tariff-free trading, imported, or exported UK goods have to meet specific terms the TCA set out to qualify. Businesses need to show and highlight goods originate from either the UK or EU. If they’re agricultural produce, they need to have grown in British or European soil to be considered originating. If they’re from outside, they need to have been ‘significantly changed’.
This arguably complicates the trading process, delaying the arrival of goods and therefore minimising the efficiency of said process.
One of the positive effects of Brexit on UK businesses is the potential for growth:
Emerging markets like China, South Africa and Brazil are accounting for more consumer spending every year. The fall of the pound makes British products cheaper for international markets, which could make them more appealing.
With the UK not constrained by the EU’s trade agreements, the government has been negotiating new deals with countries such as Canada and Japan. For business owners who may have traditionally focused on EU markets for their products or services, Brexit may be the incentive they need to tap into new markets. Exploring international markets has proved successful for many British products.
For example, Scotch Whiskey has seen significant growth due to growing demand from Asian and African countries.
Many experts believe that being able to set its own laws and regulation will allow UK companies more scope to innovate. Indeed, it’s estimated that the most onerous EU rules cost the UK economy more than £33bn a year.
While there is some debate on these estimates, it’s clear that with more autonomy, the UK will be able to incentivise innovation within businesses. This will be particularly needed as we recover from the effects of the pandemic in 2021.
For some businesses however, leaving the EU has had a detrimental effect and they will continue to need support. Perhaps those flexible businesses who can adapt can step in to help those adversely affected by offering needed services or products. Just as businesses came together during the lockdowns to find creative solutions, the same collegiate thinking could be applied to Brexit.
Please note: This article is for general information only and does not constitute legal or professional advice.
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