Nearly 6 months after the British public voted narrowly in favour of Brexit it still seems to be unclear exactly what we hoped to achieve in voting to leave the European Union (EU). Hardly a day goes past without Brexit featuring in the news in some context or other and yet we are none the wiser when it comes to understanding what our future relationship with the EU will be. Theresa May has promised to trigger Article 50 (the section of the Lisbon Treaty which needs to be invoked for us to leave the EU) by the end of March 2017, but even this is subject to a legal challenge which may delay the process.
Once Article 50 has been triggered, we have two years to negotiate our exit from the EU, after which if a deal has not been reached we are out anyway! Not exactly a strong negotiating position. In addition, the process of the EU ratifying any agreement on the terms of our exit will take approximately 9-10 months, so we actually only have 14-15 months to reach agreement on the terms of our exit agreement. Many civil servants and some ministers have pointed out that this is an impossible task in the timescale and have been roundly criticised as “Remainers” who are simply trying to thwart the will of the British people.
At the start of January, Sir Ivan Rogers (the UK’s ambassador to the EU) resigned from his post. The official reason was that his term of office would otherwise come to an end part way through the Brexit negotiations and that it would be better to step down now and let his successor settle into the job before the negotiations start. However, his resignation email to his staff suggested a slightly different story; one in which one of our most experienced and respected Brussels based civil servants became tired of having his advice ignored by Downing Street. Sir Ivan’s email talked of a lack of objectives on the part of the UK government, a lack of negotiating experience in the UK civil service and muddled thinking that seems to believe that free trade just happens when it is not thwarted by the authorities. On the contrary, Sir Ivan knows (as do most of us involved in exporting businesses) that free trade depends on the deals that we strike and the terms that we agree. So, what kind of trade deal should we be looking for on exiting the EU? There is much talk of single markets, free trade zones, customs unions and World Trade Organisation terms but what is the difference between these options?
This is the most ambitious type of trade co-operation. It allows completely free movement of goods, services, capital (ie money) and people between all member states free of tariffs, quotas or taxes. It is the situation we enjoy now as a member of the EU and makes selling goods and services into the EU far cheaper and easier than exporting to most other countries. However, the EU is clear that access to the single market in goods and services will not be available to the UK unless it continues to accept the free movement of people post Brexit, a position unlikely to be acceptable to the UK government.
This would allow goods and services to move between countries with no tariffs or taxes being applied. However, the negotiations to establish them tend to take many years and some industries are likely to be exempted. Goods would need to comply with the laws of the country they are being sold in, so there is no escaping compliance with EU laws if exporting to the EU as part of a free trade area. However, it probably would not require free movement of people as part of the deal.
This is where groups of countries reach a common agreement on the tariffs that they will apply to goods and services coming in from outside the union. Once goods have cleared customs in any one country in the group, they can circulate freely to others in the group without further tariffs. Countries exporting goods to the union will have to comply with what is known as rules of origin for their goods to prove that they qualify as originating in that country and are therefore eligible for any preferential import duty that may apply.
World Trade Organisation Rules
This is the back-stop position. It provides that each member applies the same tariffs to all other countries unless they have a free trade agreement with them. It is what will prevent the EU 27 from imposing higher tariffs on goods from the UK post Brexit than are applicable on goods from other countries, but gives no preferential treatment either. Exiting from the EU on these terms would substantially increase the cost and complexity of UK exports to the EU.
From what it is possible to glean from the little Theresa May has revealed of her strategy, it seems unlikely that the UK will remain a member of the single market post Brexit so probably the best we can hope for is to negotiate a free trade agreement with the remaining 27 EU member states which enables goods and services to move freely from country to country. If this enables the UK to retain its trading position with the EU and to impose some control on immigration, which seems to be key to the majority who voted to leave the EU, then it may enable a peace of sorts to be reached between the “Brexiteers” and the “Remainers” and be a practical way forward. However, this will not be achieved in the two-year time frame for negotiating our exit from the EU and time scales of up to 10 years post exit have been suggested for this. There will therefore be a requirement for transitional arrangements which will apply between us leaving the EU and a full trade deal being agreed. One thing is for sure, the unravelling of 43 years of integration between the UK and the EU will be keeping civil servants and lawyers busy for many years to come while businesses do their best to deal with the inevitable uncertainty that such drawn out negotiations will bring. In the meantime, the UK government’s advice to exporters appears to be to build closer ties with countries outside the EU. Norbar has been exporting its products to the EU and beyond for more than 50 years and will continue to do so. We are also working more vigorously than ever on reducing costs to ensure our products remain competitive for customers in the EU (and elsewhere) even if tariffs are applied to them in future. We will do all we can to assist our employees from the EU to remain in the UK post Brexit and to recruit and retain the best skilled people both in the UK and in our overseas offices going forwards. While there is little we can do to influence the course that the Brexit vote has set for us, we can and will prepare for the worst outcome and hope for the best.