Policy Implications of Brexit on the Economy

Brexit is referred as the name which is given to amalgamation of the terms “British” and “exit,” created to indicate the event of United Kingdom’s vote to be separated from the EU via referendum on 31st of January, 2020. As at 11 p.m., the United Kingdom voted to leave the EU. It is worth mentioning that the UK and the European Union contracted a provisional FTA on December 24, 2020, confirming that the two sides can trade goods irrespective of presence of any tariffs or limitations. Despite of this, the important aspects of future relationship, like trade-in services accounted for a total of 80% of the UK economy is still unclear. This decision led to the prevention of “no-deal” Brexit, which would have been disastrous for the British economy. On January 1, 2021, the parliament in the UK was seen to accept a provisional agreement on removing the trade barriers (Bisciari 2019). Along with this, On April 28, 2021, the European Parliament accepted the deal although TCA provided the permits “tariff- and quota-free trade” in relation to the goods, U.K.-EU trade is still subject to customs checks, implying that the trade is not as seamless as it was done when the UK was a member of the EU. Brexit will result in a considerable shift in the UK’s relationship with other European countries, perhaps renewing the options to execute different types of negotiations on trade with the non-EU countries. It is worth noting that the various assumptions made on Brexit pertaining to trade barriers are particularly evident with investment, migration and productivity which can have a massive impact on Brexit leaving the EU (Bloom et al. 2019). The purpose of this essay is to analyse the relevant economic policy and discuss the policy analysis associated with the influence of Brexit and the UK companies. The discourse of this essay also enumerates the government’s trade policies in the light of managerial decision-making.

There exists a significant amount of credit policy research especially related to growth in power of multinational corporations and social justice. In addition to this, the majority of the research has been able to focus how trade liberalisation and cross-border commerce have increased consumption of dangerous products, especially energy-dense beverages and foods. Some research has looked at the benefits of trade in terms of greater food security, economic growth and employment. These studies have been able to find that in many occasions, the gains are distributed equally among the societies (Crowley, Exton and Han 2018).

Post-Brexit, the trade sanctions in the UK has been laxed in terms of standardisation and checks. Some parts of the UK are further seen to be barred from any export to the EU especially related to agricultural produce like beef and poultry. However, it is worth noting that the contract exercised during Brexit also does not totally rule out the possibility of existence of future tariff. In areas related to workers’ rights and environmental protection, it is a responsibility of both the parties to stick to the shared rules. In case the UK or the EU make too many changes to its rules, the other side may impose tariffs on specific items. This can be evident in form of application of tariff on car support. Moreover, the local car manufacturers can come up with cheaper variants of vehicles from other countries (Berthou et al. 2020). Based on the latest trade deal in the UK with New Zealand in October 2020, it can be found how the trading partner in the UK has accounted for less than the total of 0.2% of the GDP. In this manner, the deal is unlikely to promote the economy in the UK. Based on the economic policies formulated during the Brexit, the removal of tariffs from items such as machinery and clothing has led to significant amount of red-tapism in the business (Brown, Liñares-Zegarra and Wilson 2019). Based on a report published by the Institute for Government, the overall UK exports in relation to the EU decreased by 40% during 2020 and January 2021. The exploratory statistical analysis suggests how the exports to the rest of the world did not change to a great extent due to Brexit (Instituteforgovernment.org.uk 2022).

Impact of Brexit on the Business

 

Figure 1: UK exports in comparison to the rest of the world

(Source: Instituteforgovernment.org.uk 2022)

Along with this, the EU imports did not get affected as much as the exports to the EU. The figure 2 illustrates how the imports from the EU plummeted by 29% during December 2020 and January 2021. The fall in imports from the rest of the world to the UK is also depicted as a result of the Brexit (Instituteforgovernment.org.uk 2022).

 

Figure 2: UK imports in comparison to the rest of the world

(Source: Instituteforgovernment.org.uk 2022)

Post Brexit in 31 January 2020, the UK-EU trade deal decided to act upon the rules for future trade relationship. This was seen to be important as a result of EU being one of the closest and largest trading partners. Due to months of negotiation, the UK-EU trade deal came into effect on1 January 2021. The relevant conditions of the deal prevented introduction of any form of quotas which may make the trade deal more expensive (Simionescu 2018). However, prior to Brexit, UK also did not need to follow the rules of EU in relation to product standardisation and new system for checks and monitoring. As a result of strict EU norms pertaining to animal products as well, exporting these products to the UK products was also no longer possible. Furthermore, the signing of this deal did not fully remove future tariffs being implemented within the Brexit deal. Prior to Brexit, the UK was automatically seen to be sanctioned for any form of trade agreement which was signed by the EU with another nation. EU had close to 40 trade treaties encompassing more than 70 nations before the UK had departed. Based on the literary excerpts, the UK is ready to negotiate with more than 63 rollover deals from Egypt, Faroe Islands, Georgia, Kosovo, Morocco, Singapore, South Korea, Switzerland and Jordan (Ziv et al. 2018). The present economic policy in the UK is still working on signing rollover agreements with several other countries and agreeing to the existing EU counterpart for proceeding with the trade as per the terms of WTO until the deal would be finalised. In this regard, it is important to note that trading terms of WTO would mean that importers may need to proceed with extra paperwork and tariffs (Simionescu, Streimikienen and Strielkowski 2020).

The Brexit has also led to the UK leaving the customs union. Therefore, in the absence of a trade agreement, non-EU markets are subject to EU tariffs*, in accordance with the WTO’s “Most-Favored-Nation Clause (MFN)”. However, it is important to note how the UK has been successful in securing a trade deal to allow the UK business to run tariff free trade pertaining to the neighbours of EU. Based on the existing economic policies, in order to be fit for tariff free trading, the businesses need to demonstrate that the products are moving as per unit in products (Price 2019). Moreover, such products are either substantially transformed or only obtained. On the other hand, the Pacific transformation outside the EU or the UK is related to the concept of ordination of new products (Gudgin et al. 2018).

On 15 June, 2020, the Australian deal was the first trade agreement which was negotiated from the scratch with the UK government but remained incomplete as a result of incomplete implementation and signing off. As per the position given by the UK farmers, the British products are opined to become cheaper in Australia (De Ville and Siles-Brügge 2019). Moreover, the deal is seen to consist of several types of tariff imports for over a period of 15 years. Additionally, the deal with Japan is seen to be signed in October 2020 and this was depicted as the first EU deal which deferred from an existing EU deal. On a similar note, an agreement with Liechtenstein, Iceland and Norway was declared on 4 June and at the same time, the EU rollover deal came into effect from 1 January (Tetlow and Stojanovic 2018).

The United Kingdom’s separation from the EU presents an unique chance to evaluate an environment in which new trade governance arrangements are being established, as well as the implications of governance structures and choices for social justice and health. The direct impact of economic policies on Brexit can be identified with having a positive impact on the businesses, thereby permitting the businesses to create more freely among the non-EU markets as well (Perez and Olivie 2020). This is evident in both Australia and the US. In addition to this, Brexit has been also conducive for providing good opportunities from emerging markets in Brazil, South Africa and China, thereby increasing the spending each year. The decrease in the value of the pound has made the British products not only more appealing but also cheaper for the international markets. This has resulted in the UK companies to apply for the status of economic authorised operator. As a result, the operators find it easier to transfer goods between countries because they can be considered as ‘trustworthy.’ The important nature of HMRC fundings as a result of AEO recognition take into account different factors like commitment to customs, compliance and records (Thissen et al. 2020).

Some of the important forms of negative consequence of Brexit on the businesses in the UK can be understood in form of tariff associated with British exports, interruption in the supply chain, CE Marking Changes, plummet in the EU workers and confidence among the consumers in the UK. The tariff associated with the British exports is related with how the United Kingdom and the EU have reached to a contract on post-Brexit trade, allowing UK businesses to endure tariff-free trading of goods (Ons.gov.uk. 2022; De Ville and Siles-Brügge 2019). Despite a southern agreement, the different types of exported and imported goods need to meet the TCA’s precise requirements. Businesses are needed to demonstrate that their products are from the UK or the EU. In case, the products are related with agricultural produce, the European or the British need to consider growing the agricultural produce from outside the UK. This is especially applicable if the product has been significantly modified. It is worth mentioning that products which are not able to adhere to the TCA’s rules may be subject to the UK’s common customs duty or global tariff. Even if they adhere to the customs necessities, EU may face unexpected customs formalities at the time of buying goods from the UK. In this aspect, more emphasis is given on preferential tariff rates as businesses proceed to simply make the payment associated with customs fee (Davies and Studnicka 2018).

The problem with the business related with disruption in supply chain is evident among many companies which are associated with stockpiling prior to Brexit. Such companies relied on stockpiling for the purpose of importing EU goods without tariffs. It is necessary to facilitate appropriate levies or tariffs that the UK and EU businesses may pay in order to maintain good relations (Kohnert 2019). In several locations, the logistical issues amidst the Covid-19 pandemic also disrupted the supply chain. The problem related to the CE marking changes is associated with how CE marking is a managerial mark that certifies a product’s conformance to European safety, health and environmental defence regulations when it is marketed within the EEA. However, after the Brexit, the businesses need to take into consideration the factor associated with UKCA marking, prior to using CE marking. In addition to this, the CE label is still valid in the EU (thus if UK companies sell there, CE is still valid), however products sold in the UK can no longer use the CE marking and must instead use the UKCA marking. Such an update is being implemented in stages. Pertaining to the existing restriction of free trade movement among UK and the EU, Brexit has been difficult for the workforce in the UK. This is due to the reason that businesses will no longer be able to work with low-cost labour, and one may need to increase the reserves in traineeships and existing personnel (Cairney et al. 2019).

The problem in the businesses post Brexit can be directly associated with the FTSE 100 share index being highly volatile and negatively impacting the confidence of the business in the UK, thereby making them unstable and unpredictable. Along with this, there may be significant amount of legal service being present as options for the businesses in order to compensate some of the negative impacts due to Brexit (Naumescu and Nicolescu 2018). As a result of some of the businesses deciding to go abroad, MSC Notaries was able to liberalise the corporate documents for using them overseas. In this manner, the MSC notaries are seen to offer professional and streamlined notary service in London for the purpose of wide range of business usage (Vega, Feo-Valero and Espino-Espino 2018).

The businesses are further expected to suffer in terms of productivity growth in the near future due to Brexit (Nakamura, Yamada and Tan 2019). Enterprises that are more productive, predict the impact of Brexit on sales to be more negative in the long run. In case Brexit decides to minimise the output of highly productive farms then there is a possibility of lower average productivity (Dhingra et al. 2022). Additionally, the various types of calculations in relation to the reallocation has led to an eventual reduction in the overall productivity in the UK by 0.5% (Malik et al. 2019).

Conclusion

On a concluding note, in terms of trading, the UK does not need to follow the relevant of standardisation and checks post Brexit. Some of the UK items are no longer possible to export due to strict EU animal product rules. However, the Post Brexit trade agreement also does not totally rule out the prospect of future tariffs. The excerpts of the report show how as per the present economic policy, the UK is still working on signing rollover agreements with several other countries and agreeing to the existing EU counterpart for proceeding with the trade as per the terms of WTO until the deal would be finalised. The various types of negative impact of Brexit on the businesses in the UK can be understood in form of disruption in the supply chain, CE Marking Changes, plummet in the EU workers, confidence of the consumers in the UK and tariff associated with British exports. The relevant issues with the business related with disruption in supply chain is evident among many companies which are associated with stockpiling prior to Brexit. Such companies relied on stockpiling for the purpose of importing EU goods without tariffs. In case, the products are related with agricultural produce, the European or the British need to consider growing the agricultural produce from outside the UK.

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