Updated: 29 June, 2020 |
The last four years have been filled with Brexit uncertainty. The dense, confusing fog that has been sitting over the UK cleared up ever so slightly at the beginning of the year yet there are still so many questions still left unanswered. Let’s have a look at what we do know so far.
As this blog is quite long, here is a short table of contents of what to expect in this blog:
Part 1: Latest updates
Part 2: Potential trade deals
Part 3: What has been the impact of Brexit so far?
Part 4: Buying British goods
Part 5: What changes for UK businesses?
Part 6: Preparing for a no-deal Brexit
The official day has come and gone. The UK is officially out of the EU, but Brexit still isn’t quite complete.
Now that the UK is officially out of the EU, you might ask yourself what this actually means? For now, it means that the UK is not represented in the EU parliament (i.e. no MEPs). In other words, it has no political say in any of the EU institutions.
However, officially, the UK is a transition period. During this time, the UK is still in the customs union and still in the single market (where EU rules still apply).
The coronavirus hasn't made things easier, but the latest discussions between the two parties did seem to pick up some steam. Boris Johnson seems to think that they are "not that far apart" either. Both parties agreed that they want to complete a deal that is in the best interest of citizens.
In the next couple of months, a trade deal should be reached between the UK and the EU in order to figure out how business will continue between the two territories (topics like co-operation on security and law enforcement must also be settled).
This transition period will last until 31 December 2020 and extension can be forgotten at this point.
If no trade deal is reached by the end of 2020, the World Trade Organisation (WTO) rules go into effect, which would mean tariffs on exports to the EU, and customs checks at the borders (and vice versa).
If the four years since the Brexit referendum are any indicator, these negotiations will be very difficult. Naturally, the biggest question when it comes to a trade deal is the question of (dynamic) alignment.
Dynamic alignment refers to what happens in the future if there are changes to the EU’s rules.
With dynamic realignment, the UK would automatically make the same changes in order to keep up with EU regulations and continue fair trading, so that one market doesn’t have a competitive advantage over the other (e.g. labour laws, environmental regulations). This concept is often referred to as a “level playing field”.
Primine Minister Boris Johnson has argued that because the UK is currently completely aligned with EU rules, negotiations should be straightforward.
However, the UK is only aligned with EU rules because it was part of the EU until January 2020. There is absolutely no guarantee that they will remain aligned with the EU in the future (that’s actually the whole point of Brexit, isn’t it?), so it is natural that the EU wants assurances regarding certain rules and standards.
If the UK wants to create new trade partnerships with countries like the US, Japan, and Australia, there’s a good chance the UK will shift away from EU regulations. Statements from government officials seem to highlight the fact that they are not to keen on the concept of dynamic alignment.
It will definitely be interesting to see how negotiations go in regards to alignment, the jurisdiction of the European Court of Justice for trade disputes, workers’ rights, food hygiene standards, and environmental protections.
You’ve probably heard talk of a “Canada-style deal” as a template for the UK-EU trade deal. So, what does it mean exactly?
A “Canada deal” would look similar to the trade deal between the EU and Canada. Currently, they have a free-trade deal which allows for tariff-free trade for the majority of goods.
However, the service industry (like banking), which accounts for more than 80% of UK jobs, is much more restricted.
Also, the fact that the UK is a stone’s throw away from Europe changes the dynamics of a trade relationship immensely.
UK ministers spent a lot of time travelling around the world working on the UK’s other trade possibilities. Secretary of State, Dominic Raab, had been in Australia working on a new deal as the UK is “ready to reinvigorate our ties with old friends”. Trade between Australia and the UK was worth £18.3bn in 2019.
Raab has also been in Japan, Singapore, and Malaysia. Hopefully, these trade talks work out. Dominic Raab recently made headlines by stating that Britain will not be aligning with EU rules, seemingly setting some strong red lines.
Trade minister Liz Truss has also made statements about working with the US on a post-Brexit trade deal. According to Truss, any deal would need to be in UK consumers’ best interests and they are “prepared to walk away if that is in the national interest”.
She settled some fears stating that the UK wouldn’t compromise on its high standards regarding animal welfare, food standards, or the price the NHS pays for drugs. Those topics are “off the table”.
One thing is clear: with Boris Johnson in charge, the attitude of the government seems to be more optimistic.
This attitude may very well be justified. Whereas Theresa May was trying to limit the disruptions and the inconveniences of Brexit, the new prime minister sees it as a big opportunity to change how business has been done regarding the UK and the rest of the world.
Only time will tell what kind of trade deals will come!
Pressure is mounting as more businesses are losing patience and fears of a no-deal Brexit have caused companies like Airbus to consider moving their UK operations to the mainland, putting thousands of jobs at risk.
Although Airbus has basically committed to keeping the thousands of jobs in the UK safe after Brexit, the coronavirus exposed that the UK would be more vulnerable to permanent job cuts than France or Germany.
Sony has already announced the transfer of its European HQ to the Netherlands to avoid Brexit disruptions.
Although some companies have decided to move to the mainland, some companies like Fujitsu have reaffirmed their intentions of staying in the UK.
There are so many issues left unresolved and so many industries that want answers. Whether it’s the haulage sector’s need for driving permits if a no-deal situation happens, auto-parts manufacturers closing factories, or the ever-challenging Irish border issue, it seems that a smooth Brexit is the farthest thing from people’s minds.
Recently, famed Tesla CEO, Elon Musk, recently announced that Brexit uncertainty played a role in the company's decision to build a new factory in Germany rather than in the UK.
Experts have been warning that the NHS should expect over 50,000 nursing vacancies by the end of the transition period in 2021. That number is expected to grow to 70,000 workers by 2025. At least the NHS is working on recruiting as they are even advertising on the news sites that are reporting these alarming statistics.
The video in the top-right corner of this NHS article is a nurse recruitment ad.
Statista released some survey results earlier in the year. Over 1,000 UK healthcare professionals were asked if they had experienced one of the following situations due to Brexit:
While SMEs may have felt some of the positive (and immediate) impacts of the Brexit vote due to the weaker-than-usual sterling, some of the industry titans have been making (or not making) moves based on the vote.
As the sterling kept fluctuating, some retailers such as John Lewis warned that prices may increase.
Supermarket giant, Sainsbury’s, has been trying very hard not to pass the increased import prices over to their customers, but some items will inevitably cost more. With a no-deal Brexit seemingly on the horizon, supermarkets will be one of the first and obvious places where the effects of the vote will be felt.
After all, 79% of imported food in UK supermarkets comes from the EU.
Companies like Vodafone and Visa have strongly considered relocating offices (and jobs) to mainland Europe. Other companies have delayed big projects as a direct result of the vote, including Nissan, who planned on investing in their Sunderland plant, or Siemens, who have delayed their investments in wind turbines and want to rethink their strategies.
On the other hand, HSBC has ruled out moving out of their London offices even though it was under consideration initially following the vote.
So, what about the people selling British products and what impact will this new economy have on their jobs?
Urban centres across the UK have been focused on selling to the EU for years. According to the think-tank Centre for Cities, about 46% of exports from British urban centres go to the EU, while 15% go to the US and only 4% go to China.
These numbers are sure to change once the UK officially leaves the EU and Britain is free to make entirely new trade agreements with countries around the world. Since the UK will be free to make their own trade agreements, arranging them as quickly as possible is imperative to the British economy.
As you probably know by now, neither side of the negotiating table wants to punish citizens already living in each other’s lands. Therefore, they have agreed on a reciprocal arrangement that allows everyone to basically stay where they are. The agreement also ensures the same rights regarding employment, housing, education and social security.
If you’re a British national living overseas, you can find more information here.
EU workers already living in the UK will need to apply to the EU Settlement scheme.
As stated above, a top priority for both parties was not disrupting the lives of citizens who live in other territories.
EU citizens living in the UK can learn more about applying to stay in the UK here.
Check out our free whitepaper, the UK E-commerce Market Analysis!
Although initial polls following the first Brexit referendum didn't strongly point to renewed feelings for independence, the last election definitely shows a clear indication of how Scotland feels about Brexit (and the EU).
Will Scotland leave the UK? The answer might not be so obvious.
Even though Scots were clearly in favour of staying in the EU in the first Brexit referendum, leaving the UK is another story. Leaving the UK is a much bigger question of national identity.
Brexit has also become somewhat “normalised”. In the months following the vote, things have remained relatively calm and it seems that everyday life hasn’t been disrupted very much, so many people may be unwilling to shake things up with another dramatic vote too quickly.
Despite these being valid arguments for why Scotland might stay in the UK, the election results showed enormous support for the SNP, so it will be interesting to see what will happen in the coming months.
The other question is if the EU would admit an independent Scotland into the EU.
In the past, the EU hasn’t exactly sent the strongest signals that it wants Scotland in the EU, so joining (or remaining in) the EU is not even a sure bet.
However, this has arguably changed with recent comments from former European Council president, Donald Tusk. He talked about empathy for Scotland, and enthusiasm from Brussels. He did stop short of making any kind of guarantee, warning that the country would not be accepted automatically.
The Scottish first minister and SNP leader, Nicola Sturgeon, wants a new referendum on independence to be held in 2020. She has been quite vocal about Scotland wanting to join the EU and has quite strong approval ratings, especially in regards to her handling of the coronavirus.
Although it is fairly obvious that the UK, as a whole, relies on the EU as a partner for about half if their trade (about 51%), this is magnified when looking at Northern Ireland.
Northern Ireland trades mostly with the EU. This is particularly true with the Republic of Ireland - about two-thirds of exports from the EU and roughly half of imports to the EU are traded with the Republic of Ireland.
Currently, the Irish backstop issue is one of the biggest barriers to finding an agreement, especially considering the political history between the two countries (Northern Ireland and the Republic of Ireland), and the fact that Northern Ireland does not want to be treated differently than any other country in the UK.
It's no secret that the complicated history between the Republic of Ireland and Northern Ireland, the border issue is very sensitive. Besides that, the question of logistics will prove to make this topic one of the most difficult issues of Brexit.
All in all, Northern Ireland has the most to lose from a bad Brexit deal.
How is the outside world reacting to Brexit? More specifically, are international shoppers still buying British?
Well, it’s no secret that the sterling has taken a bit of a tumble, but that couldn’t have surprised anyone when considering the outcome of the vote. Uncertainty is guaranteed to affect currencies.
If we look towards Europe specifically, the immediate impact showed that no big changes occurred in terms of Europeans buying British. The International Post Corporation released the results of an October 2016 poll recently. Digital buyers who made cross-border purchases in seven major European markets were surveyed.
In the three months since the Brexit vote, we can see that the UK still ranks in the top five for each of those countries. Topping the list was Ireland with 61% and Italy with 24%. France and Germany both hit 18% as well. It seems that as long as the UK is still in the EU, Europeans will continue buying from them.
German online shoppers love buying British goods.
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Expansion to the CEE region and how to handle expansion after Brexit
If you run a UK business that deals in cross-border sales, then there’s a good chance that you’ve seen international sales go up. People have jumped at the chance to buy British goods as the currency exchange has hit points that it hasn’t seen in a couple decades.
Although retailers might be losing out on the exchange rate, they seem to be more than making up for it in volume sales. In fact, PayPal recently announced that small and medium businesses (SMEs) in the UK who sell abroad saw sales go up.
The total amount being spent by international buyers rose 13% per transaction in the 6 months following the Brexit vote. However, UK businesses rely heavily on exports to the EU and it’s anyone’s guess how this will look when the Brexit process is finally completed. A lot of this depends on the negotiations dealing with access to the single market.
Even if we just look at the immediate impact, there is also a negative side to the slide in the sterling’s value to the euro. Sir Isaac Newton said it best with his famous quote: Every action has an equal and opposite reaction. As exports have increased, British businesses have also seen the cost of importing goods naturally go up, as well as the cost of petrol.
With Brexit looming, nations around the world are planning for this Post-Brexit world. Some have already started talks. New Zealand for example is eager to reach a new deal with the UK. They already have a trading relationship worth about £3 billion, while Great Britain is also the second largest foreign investor in New Zealand.
What happens with China will also be crucial. The UK has been seen by China as the backdoor into Europe, but will this still be the case? As China takes a leading role in Pacific trade with the RCEP trade agreement and in Africa and South Asia with the One Belt, One Road policy, will the UK be able to engage in these partnerships by linking in through Commonwealth countries? China is a powerhouse whether we like it or not and getting in on the action is very important in a post-Brexit world.
We can’t forget the EU either. Brexit may seem like a divorce from Europe, but the reality is that maintaining a good trade partnership is in both party’s best interests. The EU has taken a hard-line approach, perhaps wanting to send a message to the other 27 member countries that being a part of the EU is better than being out of it.
It’s clear that the UK relies heavily on the EU for their exports. This will probably change once everything is said and done. The question is just how dramatically things will change because both the UK and the EU will try to get the best deal possible that serves their own interests while also trying to grow. Only time will tell.
Another big question is what will happen with the USA? There is an obvious potential for a big trade deal between these two countries with a long, history. With recent revelations that Boris Johnson might sell out parts of the NHS in a trade deal with the US, British voters were justifiably worried.
In Boris Johnson's victory speech, he assured citizens that the NHS was a top priority for him and vowed that "Yes, we will recruit 50,000 more nurses and 6,000 more GPs, and we will build 40 new hospitals.”
Currently the EU market covers 28 (-1) countries with 500 million potential customers. Not being part of the EU would most likely eliminate the privileges of free trade, free movement of goods and services (and people), and with it cuts off direct access to a massive pool of prospective buyers.
Along with Germany and France, the UK belongs to the strongest markets in the EU. But in the event of a Brexit, the internal market will be harmed. The UK will lose it's most important trading partners (excluding the US and China) with neighbouring countries like Germany or upcoming markets including Spain.
The exact impact cannot be predicted yet, as this will mainly depend on what kind of relationship the EU and the UK negotiate for each other.
According to Art. 50 of the EU Treaty which sets out the process of withdrawing from the Union, the UK must negotiate its new relationship terms within two years, but that has already proven impossible (multiple times). At this rate, even four years seems impossible.
Leaving the EU in the first place puts the UK in the position of a third county (i.e. a country that is not a member of the European Union). Depending on the outcome of the negotiations, this might be dealt with differently. However, if the status remains the one of a third country, this will have major effects.
In the current situation, it is doubtful if any of the four freedoms will continue to be applicable for the UK. For e-commerce, this would mean that goods from the UK to the EU won't be sold in the internal market, but from a third country to the EU.
Therefore, customs duties might apply, making EU trade more expensive for UK retailers, especially for those in fashion who have succeeded in selling to countries like Germany, and could now struggle to remain competitive as EU consumers are attracted to more affordable offerings from other Member States (where no additional charges apply).
Particularly for small and medium size retailers, the cost of exporting to the EU will hinder their capacity to thrive, especially given that they will not be able to form strategic partnerships or retail co-operations easily, as some of the bigger brands can. As a result, imports to and exports from the UK will suffer.
The internal UK market might remain strong – because of its size, it could technically survive. Yet, this is only beneficial for those retailers focusing solely on the UK and will inhibit future opportunities for cross border commerce.
The laws relevant for e-commerce are mainly harmonised. The Consumer rights directive recently harmonised a lot of consumer protection laws and the even more recent UK initiative, the Consumer Rights Act 2015, made sure that the overhaul of the consumer protection landscape was in line with EU law.
Competition law is also harmonised. Harmonisation also means that the jurisdiction of the European Court of Justice is accepted. Simplifying the laws and harmonising them was a big step to offer greater internationalisation opportunities.
A Brexit will probably lead to a situation where the current laws are not repealed, however, eventually the interpretation of legislation will change, when English courts will not be required to consider the rulings of the ECJ.
A Brexit is not just a one-sided loss for the UK. The EU also loses an influential market. Particularly given that European consumers look to the UK for branded items and electronic goods, despite the fact that new trends and innovations arise in the US.
Ultimately, without the benefits of the internal market, customers can't be expected to embrace the UK, but will look for alternatives and even if British retailers are happy with their results on home soil, they should be wary of the growth opportunity a Brexit would deprive them of.
HMRC (Her Majesty’s Revenue and Customs) has released instructions for businesses that trade between the UK and the EU-27 (or with the rest of the world) in preparation for a no-deal Brexit. Simply answer a few questions and the site will provide you with information specific to your situation.
They’ve also prepared advice for businesses that:
Gov.uk has even prepared a site to help you
For a detailed look at more advice, check out ICAEW’s page that give advice for importers, exporters, high volume traders, companies that temporarily import or export goods to and from the EU.
You can also sign up for HMRC videos, webinars and email alerts.
However, most experts would advise you to keep close contact with your supply chains to figure out what they are doing to ensure continuous service.
Similarly, it might not be a bad idea to try stocking up on your most important products as long as the UK is still an EU member.
Either way, it's important to stay up-to-date on the newest developments as they happen.
Although it may have been a sad day for Remainers, it appears that progress is being made to moving ahead with Brexit once and for all. Only time will tell if it will benefit the UK or not.