BREXIT RISKS -
THREATS
OR
OPPORTUNITIES
On 23 June 2016, the Brexit referendum was held and 51.89% in Britain voted to leave the European Union. On 29 March 2017, former Prime Minister Theresa May triggered Article 50 to formally inform the European Union that the United Kingdom wanted to leave the EU.
After a series of political twists and turns, two general elections and a change of Prime Minister to Boris Johnson, the United Kingdom finally ratified the Withdrawal Agreement and officially exited the European Union last 31 January 2020.
Subsequently the UK moved into a transition period during which trade, travel and movement of people remained more or less the same. Now that the transition period has ended last 31 December 2021, and that a new Brexit trade deal has been signed, the UK is now 'free' to chart its own future without the EU.
As of 31 December 2020, the United Kingdom finalised its break-up with the European Union and is now on its own. For some, Brexit is about gaining back UK's sovereignty, while for others, it has been a very messy 'divorce' from the EU.
"Going forward, not only the UK needs to navigate through the uncharted waters and find its bearings, but it must also carve itself a place in the global economy without the backing of the European Union."
The UK is now facing many uncertainties in the short and medium term. The immediate challenge is for businesses to keep operating and have seamless access to the European markets, while at the same time, the British government needs to manage the public health crisis with the coronavirus pandemic. There are indeed massive Brexit risks for both EU and UK businesses.
Going forward, not only the UK needs to navigate through the uncharted waters and find its bearings, but it must also carve itself a place in the global economy without the backing of the European Union. While there are many immediate threats, there are also potential opportunities ahead. But only time can tell us whether Brexit will be a success or a failure.
The City of London is a major global financial centre.
Trillions of dollars in foreign exchange trade pass through London daily. Moreover, it plays a pivotal role for the European Union by being a major clearinghouse for the Euro currency trade. Furthermore, London is the financial centre that has the breadth and depth for all the financial derivatives like interest rate swaps and credit default swaps as well as customised and complex derivatives to be traded.
Many of these financial trades depend on free access to the financial markets and institutions within the European Union. The impact of Brexit on all these financial activities will be enormous and the consequences will trickle down in the years to come.
Post-Brexit Trade
The real effect of Brexit will slowly trickle in now that the United Kingdom is completely out of the European Union. Even if a free trade agreement (FTA) between the EU and UK has been signed, it is no longer like before with new regulatory requirements and new documentation needed for the import and export of goods and services. Confusion is bound to happen in the implementation of all the regulatory requirements at custom borders. Besides the EU-UK trade agreement, it will be a similar situation for every FTA that Britain has signed post-Brexit.
Many industries in UK and the EU depend on seamless travel between the two regions so that their supply chains are optimised and just-in-time. However, new documentation and cargo checks will increase the time needed to travel, thus increasing the costs in operations and supply chains. Trade between Britain and other countries will be similarly affected.
Britain has yet to sign more trade agreements with other trade partners. While previously, these partners traded their goods and services with UK as part of the EU, they will now have to treat it as a 'stand-alone' country outside of the European Union.
If an FTA is in place, business will almost be as usual. Otherwise, instead of free trade, goods and services will be traded on the World Trade Organisation (WTO) terms, meaning that with the addition of taxes, prices of goods and services from these trade partners will increase. Unless the British government is able to iron out all these issues and sign all possible FTAs, Brexit will bring about a lot of supply chain disruption in the short term.
Post-Brexit – Free Trade Agreements
The top 5 biggest trade partners of the United Kingdom is the United States, Germany, China, Netherlands and France.
As a whole, the European Union is the biggest trade partner of the United Kingdom. Everyday, thousands of trucks carrying goods move between the EU and the UK. Moreover, the manufacturing industry in both regions depends on the movement of intermediate goods to eventually complete the assembly into the final products, that are sold to the UK, EU and globally.
With custom borders, the movement of trucks and goods is no longer seamless. This will have an impact on the manufacturing sector. Due to uncertainties, some auto companies have idled their assembly plant in the UK while others are moving their future investments to other regions in the EU.
As for free trade agreements (FTA), the UK has yet to sign a trade deal with the United States and China. The other major trade partners are Japan, Australia and New Zealand. With Japan, the UK has been able to put an FTA and an Economic Partnership Agreement (EPA) in place last year. The UK is also keen to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), that is an FTA between 11 countries, including Australia and New Zealand.
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