Critical Assessment Of The Possible Legal Consequences Of Brexit On The Uk

Introduction

High chances are that the United Kingdom (UK) might exit the European Union (EU) in a few years to come. Worth notable to this paper, the EU ‘Brexit’ brings forth significant legal, economic and political inquiries about the impacts that will be imposed on the UK. Particularly, this paper is concerned with the economic consequences, and precisely, on substantive law connected with trade of goods. It is evident that the existing trade between EU and the UK would definitely be negatively affected, owing to the fact that Brexit would purpose to impose certain trade regulations that would consequently hinder or rather, restrict the movement of trade goods either to or from the UK. The UK would also implement certain tariffs that would restrict efficient and effective trading with other member states within the EU. Significantly, the movement of trade goods, either from or to the UK would affect various UK locations such as Northern Ireland, England and Wales, as well as Scotland. Notably, the UK should ensure that it enforced advanced planning, as well as trade volumes reduction, in order for the country to be able to reduce some of the immediate disrupts, which will be caused, owing to Brexit. However, it should also be noted that there are certain disruptions, which are inevitable. Overall, it is evident that any dealing that any of the EU member states will have with the UK after Brexit would prove to be difficult. This paper thus, purposes to bring forth a critical assessment of legal consequences associated with Brexit on the UK, with focus being on trade of goods.

How Brexit will affect trade between the UK and EU

It is significant to note that Brexit would definitely disrupt the trade that exists between EU and the UK. At present, various EU member states are gaining significant benefits from the single market that EU provides. As such, some of the benefits include lack of quotas and absence of duties from the members of the EU that conduct business within single market. As an EU member, it is evident that the UK has been included in the approximately 40 trade agreements, where all EU members enjoy market access in approximately 70 countries of their preferences. In the event of Brexit, and thus, absence of various replacement, such as rollover deals, the UK is bound to lose preferential access to the EU member state markets and as such, would be forced to export its trade goods through the WTO Most Favored Nation (MFN) tariffs. Whilst it is worth noting that the UK has already purposed to roll over some of such agreements, it is evident that much more negotiations are still ongoing as provided in figure 1 below. In an instance where the agreements will not be included prior to Brexit, then it is foreseeable that Brexit will cost the UK lots of billions in its export earnings in various key markets.

SOURCE

From the above figure, it is clear that as at 2018, the UK’s merchandize export were about USD $450 billion in value. Notably, the EU poses as the UK’s most important trading partner and as such, accounts for about half of the UK’s merchandize exports. Calculations indicate that a lose of the UK’s market preferences, as a consequence to Brexit will result into losses in the UK exports of approximately a value of USD$16 billion, and this represents a loss of about 7% of the UK;s overall exports to the EU. Notably, this poses as a conservative estimate, which is taking into account, tariffs increase from zero to the present levels in the EU MFN. In reality, it is evident that the losses would be greater, owing to non-tariff measures, disruptions from the already existing UK and EU production networks, as well as border controls. Overall, it is evident that the UK is presently enjoying these benefits but they will be short-lived, immediately after Brexit. This is owing to the fact that the costs of trading between the EU member states and the UK will drastically increase and of importance to also note, is the fact that Brexit will as well impact negatively on various fiscal regulations that are trade-based. Moreover, upon Brexit, various global supply chains, which are present within the EU market, will have to be rebalanced and uncertainty will definitely be bound on some trading policies, and particularly those governing the trade between the EU and the UK. Clearly, this would negatively impact on the UK’s supply chain footprints.

Implementation of tariffs

There are various tariffs, which would significantly be implemented on the UK, in restricting their trade, particularly, on goods that enter and exit the country. Notably, upon the exit of the UK from the EU, the EU will be bent on negotiating on certain terms of access in certain sectors, and this will definitely include regulations and standards that will be applicable in such sectors. The Confederation of British Industry (CBI) provided an estimation that with Brexit, 90 per cent of UK’s export goods to the EU would face tariffs. For instance, the current average tariff of the EU is at 3%. However, once it exists from the EU, the tariff will increase, particularly on certain products, which include agricultural products, dairy products, automobiles, as well as animal products. The CBI stresses that upon Brexit, the average tariff on the goods exported from the UK to the EU would be 4.3%, whereas the average tariff on the importation of trade goods into the UK would be approximately 5.7%. Even at this, CBI still indicates that the tariffs on some sectors would be significantly higher. Notably, some Brexiteers make an argument that the UK would survive some of the EU implemented tariffs, and as such, higher tariffs that the country’s exporters would face would significantly be offset by certain favorable exchange rates that would be created through the fall in the pound value. However, others stress that the UK exports had already been damaged since referendum. Moreover, Pro-Brexit economists also provided their estimates, which suggested that the importation tariffs from the member states of EU would generate significant UK revenue. However, a report produced by the UK think-Tank in the changing Europe made it clear that the revenue gains that would be witness would come associated with higher consumer prices.

Of significant, the UK will purpose to implement the tariffs of WTO, especially those connected to taxes on various goods, which the EU already places on third parties. In this regard, the UK government has planned to closely monitor the impacts that such tariffs will have on the country’s economy. The regime would thus, be temporary and would apply for close to 12 months whilst full consultation, as well as the review on a permanent approach regarding tariffs, would still be underway. The UK businesses would not have to pay custom duties, especially on most trade goods when importing them in the UK, especially when the country shall have decided to exit the EU fully. Notably, considering the temporary tariff, a total of 87 per cent of all imports into the UK by value will have to be eligible to gain the tariff free access. Of importance, the temporary tariff regime of the UK will not affect that country’s ability of implementing measures associated with trade remedies, in a bid to protecting the UK businesses from practices associated with unfair trading like ‘dumping.’ In this regard, the UK will purposely retain its 43 EU trade remedy measures that involve the application of additional tariffs to imports that would be gotten from other particular countries.

How Brexit will affect trade of goods in Northern Ireland

Notably, however much Brexit would negatively affect the UK, it is significant to analyze various impacts that it will have on particular locations, such as in the Northern Ireland. Of importance to note, Northern Ireland is about 3 per cent of the total population that the UK realizes. As such, it would undergo a great impact, caused by Brexit. Notably, Northern Ireland poses as the most peripheral area within the UK, both politically and also geographically and it is the only location that areas a land border with some members of the EU. In this regard, there is no way predicting exactly the kind of relationship that the UK would have with the EU after it exits from the EU and thus, it is difficult forecasting long-term impacts. However, there are mechanisms, which Brexit could impose on Northern Ireland, which can significantly be assessed and examined, especially areas affecting the Northern Ireland’s economy, which would be most vulnerable to Brexit disruptions. This is in line with various supplementary issues, which include EU funding, cross-border cooperation, as well as Foreign Direct Investment.

Generally, Northern Ireland has had various trade relations with most of the EU member states, especially in the Textiles Industry, transportation, as well as Agri-food. Moreover, it is worth noting that the manufacturing sector in the Northern Ireland has already been skewed towards some other sectors, which have a significant trade relationship with members of the EU, thus making it much vulnerable to Brexit disruptions. In line with this, the wholesale sector and other retail sectors are considered to be Northern Ireland’s biggest employers and as such, they have a significant impact on the labor market, yet Brexit would bring forth their disruptions. Overall, it is also evident that with Brexit, the Northern Ireland would experience a significant strain on its various public finances, owing to it losing CAP, as well as structural funds. However, there are various outcomes, which have a higher possibility in this regard. Of significance to note, the attractiveness of the Northern Ireland, as posing to be destination for Foreign Direct Investment, as well as the sustainability of the All-Island economy impose unique challenge, which can happen to the Northern Ireland upon Brexit.

Finally, it is evident that Northern Ireland’s openness towards trade poses dissimilarity with the rest of the areas within the UK. In this regard, the importance of the trade, which Northern Ireland had with the EU, ought not to be underestimated, owing to the fact that Northern Ireland trade with the EU involved many trade goods as compared to Scotland or England and Wales. The economic integration between Northern Ireland and the EU has risen substantially, especially with the Republic of Ireland, and since the initiation of the Good Friday agreement, there has been increase in cross-border trading, which has significantly been driven by the increased exportation from Northern Ireland into the Republic of Ireland. Due to Northern Ireland’s reliance on EU, it is evident that it is more exposed to the effect of any trade barrier that may emerge and this is inclusive of Brexit.

How Brexit will affect trade of goods in Scotland

Notably, Brexit has significant economic implications for Scotland, grouped into short-term disruptions, and extended disruptions of the supply chains. Brexit critics have purposed to raise the disruption spectra, especially on supply chains, as well as a sudden sharp increase in trade barriers, which poses as another disruption due to the chaotic exit of the UK from the EU. It is hard to predict how the Brexit damage may be, as modern economies have been significant in illustrating remarkable resilience, which faces unexpected natural disasters. In this regard, UK businesses may as well find ways of minimizing the various disruptions, which will be cause by the impediments of trade. Notably, even with certain perishable goods, it is evident that Scotland will have to trade effectively with other non-EU member states, However, the problem arises when determining how costly the adjustments will be, owing to the fact that any cost increment would open doors to competition from other sectors. In this regard, the impacts on the Scottish economy would largely be determined by the manner in which price sensitivity of Scottish exports to the EU are presently. On the other hand, luxury products like malt whisky might be less price sensitive, as compared to other goods and services, especially where differentiation of products poses significant difficulty yet there is a price at which consumers would purpose to seek alternatives.

Of importance to note, is that the trade relationship between the EU and Scotland would be impaired, owing to the fact that there would be significant drop of the exports from Scotland by almost 10 to 20%. It is significant to note that the imports absorbed into Scotland from the member states of EU would also fall and as such, it may force various Scottish companies to have a re-focus on most of their domestic markets. Additionally, there would be a high rate of heightened economic uncertainty in Scotland, owing to Brexit, and consequently, this may result into reduced investment in business by almost £1 billion. Finally, analysis indicates that Foreign Direct Investment in Scotland will be bound to fall by about 20 per cent in the coming years after Brexit.

Notably, a chaotic Brexit often has significant implications, especially for contracts that are arranged with other businesses operated with EU member states. Clearly, businesses operating within the EU countries would not be able to make special arrangements with Scotland, with the aim of facilitating trade with it, as that would be considered as a breach of the WTO rules, which stress that all third countries ought to be treated in equal measures. In this regard, it is worth noting that without the trade agreements with the EU, Scotland would have to charge similar tariffs on its imports from the EU countries. Notably, Scotland’s businesses preferential access to the EU markets would have to risk the WTO prosecutions, and this can be foreseen to be too daunting, owing to the lengthy delays on the WTO processes.

How Brexit will affect trade of goods in England and Wales

It is evident that the economy of England and Wales has a strong orientation, especially when considering their imports, and as such, it is evident that Brexit would disrupt such kind of orientation. Notably, beyond trade disruptions, there stands a chance for re-introductions of numerous customer borders that would purposely impose newer costs, and lost time to numerous cross-border transactions. Clearly, England and Wales are considered the largest trading partners to EU and in putting into consideration, volume and even proportion of the exports and even the imports, Brexit would bring changes, which definitely, would interfere with the significant trading relationship between the EU member states and England and Wales. It is also significant to note that England and Wales pose as the most popular destinations for many UK investors that are coming from most of the EU member states. In this regard, it is evident that Brexit would purpose to potentially remove most benefits, and most importantly, the single market that it provides for England and Wales.

Brexit experts denote that overall, Brexit would hurt England and Wales’ trade, owing to the fact that their economy is significant and yet, deeply integrated with the rest of other EU member states, and as such, the impacts of high trade barriers would be substantial. Accordingly, it is worth noting that for every 1 per cent reduction in the England and Wales’ export to the EU, there would be a significant loss of 0.5 per cent in the England and Wales’ GDP. Moreover, a report that was made by the Institute for Fiscal Studies indicated that the reduction in trade activity, as well as the resulting economic stagnation would negatively cost England and Wales to approximately £25billion, more, as compared to its savings in the EU membership fees. However, newer trade deals would as well not be expected to be able to make up for the differences. Notably, even with the weak pound, it is evident that the increase in the production cost would outweigh the more competitive prices of various trading goods.

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Finally, it is notable that England and Wales’s agricultural industries would face negative consequences, owing to Brexit, because largest part of the EU budget is often deducted to farmers; subsidies. Recently, approximately 60 to 65 per cent of England and Wales’ agricultural exports and approximately 65 per cent of their agricultural important were traded with other member states of EU. Notably, this indicates that England and Wales and the EU has a strong trade integration, especially in the EU’s agricultural market. However, with Brexit, it is evident that farmers in England and Wales would definitely lose the subsidies that they are used to getting from the EU and as such, they would face increased costs of food production, as well as the price levels would increase.

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Conclusion

Overall, based on the above provisions, it is evident that indeed, Brexit would cause economic consequences to the UK and this includes all its locations, which include England and Wales, Scotland, and Northern Ireland. Substantive law is connected with trade of goods and it is evident that the existing trade between EU and the UK would definitely be negatively affected, owing to the fact that Brexit would purpose to impose certain trade regulations that would consequently hinder or restrict the movement of trade goods either to or from the UK. This will force the UK to implement certain tariffs that would restrict efficient and effective trading with other member states within the EU.

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