Trade agreements between EU and UK
During the year 2016, United Kingdom was voted to leave European Union and United Kingdom officially left their biggest trading partner in the year 2020. Formally, United Kingdom left the European Union in the year 2020 for the vote that was made on the year 2016. During the transition period, the country was benefitted to negotiate into a trade deal between the United Kingdom as well as the European Union. The exit of United Kingdom from the European Union is known as the Brexit and it is termed as the combination of Britain and Exit. On the 24th December of 2020, the United Kingdom and European Union reached or a deal where the two parties tie up for a new relationship (Jackson, Akhtar and Mix 2016). The European Union as well as United Kingdom have set out some rules and regulations in relation to the trade agreements which are; the Trade and Cooperation contract, the information security agreement and the Nuclear Cooperation Agreement. During the year 2016, the British Government which were led by David Cameron held a referendum which resulted in 3.8% favor leading to the United Kingdom left to European Union. Despite of having various countries who wanted to withdraw their vote from European Union, it was evident that only United Kingdom left the European Union. The following section of the analysis will discuss the impact of the exit strategy of United Kingdom from their European Union as well as will discuss various policy conditions which might improve the existing conditions within the country.
During 24th December 2020, the United Kingdom and the European Union struck with a provisional free trade agreement that ensured that both of the sides can trade their products without any amount of tariffs and quotas. Despite of the fact, the future relation between the two countries was uncertain in relation to the trade in service which accounts for the 80% of the economy of United Kingdom. The same has resulted in a no deal Brexit agreement which further has been found to damage the economy of United Kingdom (Zaidi etal 2017). After the exit of United Kingdom from European Union, there was a provisional trade that was approved by the parliament of United Kingdom in the year 2021 and the deal is known as Trade and Cooperation Agreement that allowed the trade in of tariff and quota free goods. However, there are still difficulties associated with the tariffs checks and customs implying that the trade is not smooth as before. The following section discusses the impact of exit strategy of United Kingdom from European Union as well as the policy recommendations associated with the same.
During the period while United Kingdom was within the European Union, the firms can sale their products across the European Union borders and they would not need to pay off any taxes as well as there were no limits on the amount of goods traded. However, after the exit of United Kingdom from the European Union, United Kingdom companies are having a difficult time in trading across the borders of European Union. The freedom of United Kingdom and European Union for the trade deal have come to an end. Despite of the fact, United Kingdom is now free to set up its own trade policies as well as they can negotiate with different countries. It is now evident that there are no taxes that needs to be paid at the border however there can be delays in relation to the trade which can cause significant number of concerns across the country (Baldini and Chelotti 2021). Further, the delay in relation to the paperwork and new policies can poses a serious amount of concern across the business. The business deals are getting delayed after the implementation of the new trade system. In recent times, it has been evident that the European Union will check for new paperwork’s and will carry out checks from day one and if the businesses are not properly prepared, it will result in delays and backlogs.
Difficulty in trading across the borders of the EU
Prior to the exit, the openness of the trade benefits associated with the United Kingdom economy has allowed different businesses to create higher volume trades which allowed them to improve their business condition as well the overall economic conditions. The openness after the exit can significantly increase the competition between different firms and can also incentivize specialization, adoption as well as innovation between the firms. Despite of the increase in competition, these factors can contribute towards the increase in the productivity as well as the long term growth which will allow in improvement of the consumer spending and enhancement of the overall economy (Ruktanonchai etal 2020). Further, it is also evident that significant amount of reduction of the trade volumes might reduce long term growth within the economy if proper policy measures are not taken by the government of United Kingdom.
Researchers have also denoted that the Brexit will make the economy of United Kingdom stronger outside the European Union region. The exit of United Kingdom from the European Union will benefit 1.6% of the total GDP gains of United Kingdom by the year 2030. Further, it is also researched that United Kingdom will be able to maintain predictable amount of growth within the market. However, it is still not clear how European Union will embrace to the reform and what will be the actual outcome of the trade agreement and European Union negotiations. It is also evident that post the exit, if United Kingdom maintains higher level of access to the single market, the GDP will become higher in the year 2030 and it will create best case scenario for the country. Despite of the same, United Kingdom will also have to acknowledge that European Union has become the regional trading hub and there are various members states which trade in goods across themselves. Nevertheless, the Brexit will impact the seven primary sectors across the United Kingdom which are noted below
The financial as well as the insurance sector within the United Kingdom employs about 3.6% of the total United Kingdom labor force and the financial service represents the 9.6% of the total United Kingdom labor force. Further, it has been also evident that the total 9.6% of the United Kingdom exports are destined to the European Union. Further, the total export of United Kingdom has been represented by 4.3% of the insurance sector of which 18% are destined for the European Union.
However, it is evident that the insurance industry in UK is more globally oriented hence the exit strategy will not impact the insurance industry of UK. Further, the financial service sector is the most exposed sector across the UK and the negotiation will be hardest in here. Britain will have to select between the third country or any single market without which the growth within the insurance sector will not be evident. Currently, EU is focusing on tightening its rules as well as regulations across the third country’s access to the financial services (Bradford 2020). Further, it is also noteworthy to mention that within EU, UK gets a consideration named ‘financial passport in which the UK financial firms get the rights to sale its financial services as well as establish rights within EU without the interference of other countries. After the Brexit, UK firms will not be able to enjoy their right within the insurance sector. Further, if there are any liberalization of trade in service when the competitiveness of UK is high within Brexit, it will also reduce after the exit of UK from EU.
Openness of the trade benefits before and after Brexit
The automotive sector of UK has been also found to employ 0.42% of the total UK labor force and it represents 4.9% of the total UK exports from which 35% are destined towards EU. Further, it is also evident that post the Brexit agreement while UK exists EU, the tariffs of cars will be 10% which can affect the automobile sector in UK negatively. Further, it can be also noted that the chemical and pharmaceutical sector within UK will be also affected by the exit negatively. Researchers have found that the chemical and pharmaceutical sector employs 0.52% of the total labor force of UK and represents total 9.9% of the share of which 57% are destined for EU. After the Brexit, if EU and UK does not initiate a new deal, the tariffs on the chemicals will be amounted to 4.6%, affecting the chemical industry significantly (Bradford 2020).
After the Brexit, the aerospace sector within UK will be also affected. It is found that that the aerospace sector employs 0.34% of the total UK labor and it represents total 2.3% share of the total goods exported to UK. It is evident as per research that the total 45% of the total amount of foods are destined for EU. There will be significant amount of market disruption after the Brexit if the EU and UK fails to sign to a proper policy measure. The overall UK Aero, space, security and the defense sector will have to face 7.7% of tariffs if after the Brexit. Further, the capital goods and machinery sector within the industry will be also affected since the sector employs 0.61% of the UK labor force as well as represent an 8.6% of the total UK exports. 31% of the total capital goods as well as machinery are destined to get exported to EU. Therefore, it is noteworthy to mention that if EU and UK cannot be able to negotiate for a deal, the tariffs of machinery will be 1.7% and 4.5% (Martill and Sus 2018).
Further, it has been also evident that the food, beverage and the tobacco sector across UK will be also significantly affected due to Brexit. The sector employs 3.7% of the labor force in UK and it represents 3.7% of the total exports from which 61% are exported to EU. After the exit of UK, if there are no deals in relation to the same, the tariffs related to the processed foods will be 15% and therefore the tariffs for other products will be significantly increase till 30%.
The impact of Brexit on the professional service sector will be also significant. The professional service sector employs 11.6% of the total UK labor force and it has been found to represent 9.9% of the share of the total UK exports of which 29.8% will get exported to EU. If there are no deal between the EU and UK, the barriers will significantly affect the market regulations and tariffs within the industry (Sampson 2017).
Another indicator of EU-UK interdependence is the 1.4 to 1.8 million UK nationals who live in the EU permanently and would be most affected by a Brexit. In the event of Brexit, a large number of retirees will return to the UK to consume NHS services, significantly taxing a system that is already at or near capacity. The existing model, under which persons receiving UK state pensions are eligible to healthcare in other EU countries, which is subsequently covered by the UK, will be phased out. In addition to trailing the right to live, work, as well as own property in other EU countries, UK nationals would also lose the right to vote in municipal elections in their EU place of residence. As per the outlook report, the UK’s Office for Budget Responsibility (OBR) discovered that net migration benefits the British economy. As per their calculations, the high migration scenario would raise the UK’s budget surplus by roughly £4.5 billion by 2019-20, while the low migration scenario would decrease it by the same proportion (Sabat etal 2020). In other terms, the “high migration scenario” would stimulate economic growth by 0.8 percent, but the “low migration scenario” would reduce economic production and the level of economic activity by 0.8 percent. If the UK leaves the EU, reliant on the deal reached with the EU, it may be able to limit this type of labor migration from the EU. However, it is difficult to imagine a situation in which the UK will not be required to adopt freedom of labor regulations in order to preserve access to the EU’s Single Market under a post-Brexit arrangement. Furthermore, it is worth noting that, in terms of total migration streams into the UK amid 2005 and 2015, additional amount of non-EU migrants arrived than EU migrants.
Effect of Brexit on UK economy
Based on the above section of the research, it is evident that the Brexit will cause serious concerns for UK. Different sectors across the country will be severely affected if the country fails to negate the impact of the exit strategy. The following recommendations should be adhered to in order to improve the overall situation in UK.
- It is recommended that the government will need to use the freedom properly and seize the opportunities and competitiveness. Further, the government will also have to proactively reduce any pointlessness and painful divergence where changes within the structure will only provide some sort of benefits however will raise the costs significantly.
- Further, it is also recommended for the government to develop a proper regulatory policy that will provide significant amount of opportunity for the UK and design control regime for the digital markets. The need of the domestic policy across UK should be also needed to be understood and there must be some sort of regulatory reformation system that is guided by the wide economic objectives. Further, the government must always ensure that the changes made by the regulatory systems are contributing towards the long-term economic benefit for the country (Wallace etal 2020).
- The government will also have to undertake an independent assessment of the future strategic changes as well as will also have to understand how they will be able to adopt to the post Brexit situation and what sort of reforms are required to make it more suitable towards the future timeframe. Further, it is also essential for the government to conduct an audit which will pervert any sort of divergence. The future of the EU single market can possess a significant amount of impact on the regulatory preferences hence UK will have to follow voluntary changes which will ensure that it is preventing any friction from the single market.
- Further, the government of UK will have to consider a clear strategy focusing on the future regulatory reform systems across the country. The government will also have to focus on creating a more balanced approach which will ensure that it is maintaining proper amount of divergence across the internal market of UK. It is also noteworthy to mention that the government of UK will also have to set out clear priorities in relation for UK.
Conclusion
On a concluding note, it can be understood that the exit strategy of UK from EU will come with different consequences. During the era when the United Kingdom was a member of the European Union, enterprises could sell their products across European Union borders without paying any taxes, and there were no limitations on the volume of goods transferred. However, following the United Kingdom’s withdrawal from the European Union, UK firms are finding it harder to trade beyond European Union boundaries. The independence of the United Kingdom and the European Union to negotiate a trade deal has come to a close. Despite this, the United Kingdom has become free to establish its own trade policy and to negotiate with other nations. Prior to the leave, the flexibility of the trade benefits linked with the UK economy permitted many enterprises to develop bigger volume trades, allowing them to better their business circumstances as well as the general economic conditions. The banking and insurance sectors in the United Kingdom employ around 3.6 percent of the entire United Kingdom labor force, while financial services employ 9.6 percent of the overall United Kingdom work force. Furthermore, it has been shown that 9.6 percent of the United Kingdom’s exports are headed for the European Union. Furthermore, the United Kingdom’s overall export has been represented by 4.3 percent of the insurance industry, with 18 percent headed for the European Union. It is suggested that the government use its independence wisely in order to capitalize on possibilities and remain competitive. Furthermore, the government will have to aggressively eliminate any unnecessary and unpleasant divergence when modifications within the system would only bring some form of advantage while dramatically increasing the expenses. Furthermore, the UK government will need to develop a clear policy concentrating on future regulatory reformation schools across the world. The government will also need to work on developing a more balanced strategy that ensures a sufficient degree of divergence within the UK’s internal market.
References
Baldini, G. and Chelotti, N., 2021. The Brexit effect: Political implications of the exit of the United Kingdom from the European Union. International Political Science Review, p.01925121211026522.
Bradford, A., 2020. The Brussels effect: How the European Union rules the world. Oxford University Press, USA.
Jackson, J.K., Akhtar, S.I. and Mix, D.E., 2016. Economic implications of a United Kingdom exit from the European Union (pp. 1-18). Congressional Research Service.
Martill, B. and Sus, M., 2018. Post-Brexit EU/UK security cooperation: NATO, CSDP+, or ‘French connection’?. The British Journal of Politics and International Relations, 20(4), pp.846-863.
Ruktanonchai, N.W., Floyd, J.R., Lai, S., Ruktanonchai, C.W., Sadilek, A., Rente-Lourenco, P., Ben, X., Carioli, A., Gwinn, J., Steele, J.E. and Prosper, O., 2020. Assessing the impact of coordinated COVID-19 exit strategies across Europe. Science, 369(6510), pp.1465-1470.
Sabat, I., Neuman-Böhme, S., Varghese, N.E., Barros, P.P., Brouwer, W., van Exel, J., Schreyögg, J. and Stargardt, T., 2020. United but divided: Policy responses and people’s perceptions in the EU during the COVID-19 outbreak. Health Policy, 124(9), pp.909-918.
Sampson, T., 2017. Brexit: the economics of international disintegration. Journal of Economic perspectives, 31(4), pp.163-84.
Wallace, H., Pollack, M.A., Roederer-Rynning, C. and Young, A.R. eds., 2020. Policy-making in the European Union. Oxford University Press, USA.
Zaidi, S.H.A., Wang, X.Y., Ahmed, S., Rehmen, S.U., Sajid, M., Foroozanfar, M.H. and Ali, M.A., 2017. Brexit: A review of impact on future of United Kingdom outside the European Union. International Journal of Modern Research in Management, 1(1), pp.14-33.
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