United Kingdom future and the consequences for EU-27

United Kingdom future and the consequences for EU-27

Thierry Warin https://www.nuance-r.com/principalInvestigator.html (Nüance-R)https://nuance-r.com
06-11-2020

Table of Contents


United Kingdom Future

Political Future

Withdrawal Clause

Article 50 of the Treaty on European Union provides for a mechanism for the voluntary and unilateral withdrawal of a country from the European Union (EU). An EU country wishing to withdraw must notify the European Council of its intention to do so. The European Council is then required to provide guidelines for the conclusion of an agreement setting out the arrangements for that country’s withdrawal. This agreement is concluded on behalf of the EU by the Council, acting by qualified majority, having obtained the European Parliament’s consent. The EU treaties cease to apply to the country in question from the date of entry into force of the agreement, or within 2 years of the notification of the withdrawal. The European Council may decide to extend that period. Any country that has withdrawn from the EU may apply to rejoin. It would be required to go through the accession procedure.(“Glossary of Summaries” 2020)

The Withdrawal Agreement concluded between the European Union and the United Kingdom establishes the terms of the United Kingdom’s orderly withdrawal from the EU, in accordance with Article 50 of the Treaty of the European Union. The Withdrawal Agreement entered into force on 1 February 2020, after having been agreed on 17 October 2019, together with the Political Declaration setting the framework of the future EU-UK partnership.(“The EU-UK Withdrawal Agreement” 2020)

Brexit

Brexit, short for “British exit” is the word used to refer to the UK’s decision to leave the EU. The UK left the EU on January 31, 2020, and entered a transition period. The ratified withdrawal agreement allows the UK and the EU to negotiate their future relationship while in the transition period until December 31, 2020.(“Brexit and United Kingdom-European Union Trade Negotiations: Summary Information for Canadian Companies” 2019)

When the transition period ends on December 31, 2020, unless there is an extension, the UK will no longer be bound by the EU’s treaties with third countries, including CETA. Canada-UK bilateral trade, for exemple, would no longer benefit from any CETA preferences and would be based on WTO rules, including most-favoured nation (MFN) tariffs on goods.(“Brexit and United Kingdom-European Union Trade Negotiations: Summary Information for Canadian Companies” 2019)

Most Favoured Nation Tariff Rate

As mentionned, bilateral trade such as Canada-UK would be based on WTO rules including the most-favoured nation (MFN) tariffs. Under the MFN principle, countries cannot normally discriminate between their trading partners. A country who grants another country a special favour (such as a lower customs duty rate for one of their products) have to do the same for all other WTO members.(“Understanding the WTO - Principles of the Trading System” n.d.)

In 2018, the MFN tariff rate was at 5.6%. In 10 years, the tariff rate has evolved by 2.4%.

Economic Future

The British market is very important for some (usually small) countries, but much less so for the others. The stakes, therefore, are not the same. British exports to many countries are negligible or small for the UK. This would seem to suggest that the UK will not be very concerned by a trade agreement. In fact, as a whole, the EU27 absorb about half of British exports, while the UK is a relatively small market for the EU27. Another consideration is that Britain tends to import industrial goods and to export services. Should the final agreement treat the UK as just another country, WTO rules would apply by default. These rules imply heavy tariffs for traditional industries, including agro-industrial products, which could hit some countries hard. Since the Ricardian model of trade is relevant in many instances, income redistribution is an important factor.(Wyplosz 2016)

Exports of Goods

In 2019, the exports of the United States to the United Kingdom and the European Union are respectively equal to 69.1 and 268.3 billion $US. The same year, the exports of the European Union to the United Kingdom and the United States respectively reached 335.4 and 413.7 billion $US. Finally, the exports of the United Kingdom to the European Union and the United States respectively amounted to 215.3 and 73.5 billion $US.

Imports of Goods

In 2019, the exports of the United States to the European Union and the United Kingdom are respectively equal to 461.6 and 64.1 billion $US. The same year, the exports of the United Kingdom to the European Union and the United States respectively amounted to 342.5 and 67.1 billion $US. Finally, the exports of the European Union to the United Kingdom and the United States respectively reached 198.5 and 280.2 billion $US.

Consequences for EU-27

Foreign Direct Investment Matters in some Cases

For many smaller countries, foreign direct investment (FDI) is negligible in both directions. In some others, though, it is very important and usually both ways, especially for Luxembourg, Ireland and the Netherlands. Part of these flows may relate to tax optimisation, which stands to divide the EU27 countries. Another part, though, reflects value chain trade. For some of the largest countries (France, Germany, Spain), FDI from Britain largely exceeds FDI to Britain, suggesting that British firms subcontract production to these countries. Keeping these flows open may well be an important objective for the EU27.(Wyplosz 2016)

Inward FDI flows

It represents transactions that increase the investment that foreign investors from the source country have in enterprises resident in the reporting economy, less transactions that decrease the investment of foreign investors in resident enterprises.

In 2018, inward FDI flows from UK amounted to:

Outward FDI flows

It represents transactions that increase the investment that investors in the reporting economy have in enterprises resident abroad less any transactions that decrease the investment that investors in the reporting economy have in enterprises resident abroad.

In 2018, outward FDI flows from the following countries to UK reached:

Contribution to the EU Budget

The UK has been a net contributor to the EU budget, which means that its withdrawal will reduce net transfers to a number of countries. Unsurprisingly, the countries that are net recipient of EU funds (Greece, Poland, Slovakia) worry about the implications of Brexit (as well as Austria, a net donor), and most contributions from the largest countries do not even consider payments to the EU to be an important issue.(Wyplosz 2016)

EU Expenditure





National Contribution







EU Members’ Positions on Key Brexit Issues

The first three columns present Wyplosz’s interpretation of the contributor’s views on how flexible their countries are willing to be on the three core issues of trade, FDI and labour mobility. The fourth column indicates when the contribution mentions kinship with the UK on promoting a liberal economic order and the last columns does the same for concerns about the loss of the British contribution to the EU budget. Beyond the lack of unanimity, the table shows that the countries that share the UK’s liberal economic order orientation are typically more prone to display some flexibility on the Single Market rule, especially when they are also concerned about the British contribution to the EU budget.(Wyplosz 2016)

Country Flexibility on Trade Flexibility on FDI & financial services Flexibility on Labour mobility Kinship on liberals views Concern about UK’s budget contribution
Austria Yes Yes Some
Yes
Belgium No No No
Finland No No No Yes
Germany No No No
Greece Yes Yes Yes
Yes
Hungary No No No
Ireland No Yes No
Italy No Some No Some
Netherlands No Some Yes Yes
Poland Yes Yes No Yes Yes
Portugal No Yes No
Yes
Slovakia No Yes No Yes Yes
Spain Yes Yes No
Sweden No No Yes Yes
Source: What To Do With the UK? EU perspectives on Brexit.

Tools

This section provides access to the resources that were used to create this article.

“Brexit and United Kingdom-European Union Trade Negotiations: Summary Information for Canadian Companies.” 2019. Government of Canada. https://www.tradecommissioner.gc.ca/united-kingdom-royaume-uni/information-brexit-renseignements.aspx?lang=eng.

“Understanding the WTO - Principles of the Trading System.” n.d. World Trade Organization. Accessed June 26, 2020. https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm.

Wyplosz, Charles. 2016. “New eBook: What to Do with the UK? EU Perspectives on Brexit.” VoxEU.org. https://voxeu.org/article/new-ebook-what-do-uk-eu-perspectives-brexit.

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Citation

For attribution, please cite this work as

Warin, "Data Science for International Business: United Kingdom future and the consequences for EU-27", ds4ib.org, 2020

BibTeX citation

@article{warin2020futureUK,
  author = {Warin, Thierry},
  title = {Data Science for International Business: United Kingdom future and the consequences for EU-27},
  journal = {ds4ib.org},
  year = {2020},
  note = {https://ds4ib.org/posts/2020-06-12-future-uk/},
  doi = {10.6084/m9.figshare.12485789.v1}
}