Brexit trade offs

Paul Lewis
Jun 26, 2017

One year on from the Brexit vote, is the business outlook any clearer now that negotiations have officially started? An inconclusive general election, the rise of a united, hard-left opposition, the emergence of a strong French president and the UK prime minister’s loss of credibility may have changed the negotiating environment. Should companies act now, plan for later, wait and see, or ignore developments?

The FT’s six Brexit scenarios (and this video) provide a useful starting point for consideration. At one end of the scale is the ‘clean exit’ or ‘No Deal.’ According to this scenario, almost every sector and business would face disruption, while leaving residents in the UK and Europe at the mercy of their host country. ‘A self-inflicted wound of historic proportions,’ concludes the FT. A less conflictual, but still hard, Brexit would be the ‘Divorce-only agreement.’ This highly protectionist outcome would require an interim arrangement relying on WTO trade rules, but would allow the UK to negotiate its own non-EU trade deals and devise new state aid rules. A ‘limited tariff-free deal’ would also give the UK freedom to sign trade deals, but would subject British companies to EU custom and regulatory checks, while the financial services sector would lose its ‘passporting rights.’

Far-ranging trade deal would limit UK sovereignty, in particular over immigration, although freer labour movement would also benefit business. A Customs Union arrangement would be smoother, though not frictionless, and be welcomed by manufacturers. However, this outcome would negate a large part of the Brexit rationale of allowing the UK to negotiate its own trade deals outside the EU. Finally, membership of the single market would maintain the regulatory harmony and free labour movement that companies want, but the outcome would feel like the UK had remained in the EU but without a say on policy.

Paul Lewis

Editorial Director at Headspring