Britain’s decision to leave EU has created a lot of controversies and debates in the world. The post Brexit UK-EU trade relations is one of the most comprehensively debated topics at present. It is widely believed that the British companies may not get much acceptance in the EU countries after the Brexit. It should be noted that EU was one of the prominent trade partners of Britain historically. However, the recent developments have raised many question marks about the future of UK-EU trade relations.
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Britain is currently exporting many goods, commodities and services to the EU countries. Among these goods, commodities and services, financial service is an important one for the UK economy. In fact, EU was the largest market for British financial services in the past. There are many speculations and doubts about whether the British financial services would maintain its top position in the EU market in future or not. Some people argue that the British goods, commodities and services may not be welcomed warmly in EU countries after Brexit. This paper analyses the current and future trade relations between UK and EU from a UK financial services firm’s point of view and argues that the UK financial services can still command respect and popularity in EU countries.
British financial services companies should implement suitable strategies in order to retain the popularity of UK financial products in the EU countries. A suitable business model would help the UK financial companies in this regard. According to Buttonwood (2016), there are five ways for UK financial companies to retain their market in the EU. They are: becoming part of the European Economic Area (EEA), negotiating free trade agreements with EU countries, becoming part of a custom union, trading under WTO agreements, and establish unilateral free trade agreements with all EU countries (Buttonwood, 2016).
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The first two options such as becoming part of the European Economic Area (EEA) and negotiating free trade agreements with EU countries may not be feasible for UK to continue its trade relations with the EU countries. It is necessary for Britain to contribute to the EU budget and to obey certain other norms if they opt for these options. In fact Britain decided to exit from EU because of its heavy financial obligations with the EU. It was mandatory for the Britain to contribute heavily to the EU when they were working as part of EU. The British economy suffered a lot because of Britain’s financial obligations with the EU. Under such circumstances, Britain may not apply for a membership in EEA in order to continue its trade relations with EU countries.
The last two options such as trading under WTO agreements and establish unilateral free trade agreements with all EU countries also have some disadvantages from UK’s trade perspectives. EU countries may not show any mercy to the UK while establishing free trade agreements with the EU since UK may not contribute anything to the development of EU in future. It should be noted that free trade agreements are often signed based on long term goals rather than short term goals. The economic growth in the UK is not so good at present and therefore, trade ties with the UK may not be considered seriously by other EU countries. In other words, the bargaining power of the EU countries will be more while UK tries to negotiate any free trade agreements with them.
The third option or becoming part of a custom union seems to be the most appropriate option for Britain to continue its trade ties with the EU countries. While becoming part of a custom union, it is possible for UK to bypass some of the controversial requirements of other options such as the acceptance of free movement of people, budget contributions or being subject to the ECJ etc (Buttonwood, 2016). It should be noted that refugees from other countries are currently causing many problems in most of the EU countries. EU countries such as Germany are facing a lot of problems because of the refugees from countries such as Syria. If Britain opts for any other options, they will be forced to accept even refugees as part of the norms such as the free movement of people.
Almost half of the world’s financial firms have based their European headquarters in London. Moreover, around 1 million people work in the financial sector in the UK (European Union, 2016). It is quite possible that the UK may lose a substantial portion of the jobs in the financial employment sector after Brexit. It is possible that most of the EU financial companies operating in the UK may shift their headquarters from the UK to other EU countries.
Passporting is another area in which the Brexit may create some problems to UK financial companies. Passporting is the process through which British financial companies sell their products and services into the rest of the EU without a license or regulatory approval (Smith, 2016). According to Fleming and Young (2016), UK financial companies which are looking to sell services into the EU may face issue related to passporting rights in future. In their opinions such issues can be solved by adopting Swiss Banking model of operating through subsidiaries. Because of the long term association of the UK with the EU, most of the UK financial institutions have already formulated laws in accordance with the EU standards. Therefore, UK financial companies may not face any legal constraints while operating in EU countries.
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According to Smith (2016), British banks lend around $ 1.4 trillion to EU companies and governments every year. A major share of the above mentioned financial activities were carried out outside London. In other words, EU countries may suffer a lot if they cause any problems to the operations of the UK financial companies in their territories.
To conclude, it is possible for UK financial companies to retain their popularity in EU countries even after Brexit. UK financial companies contributed significantly for the progress of EU countries in the past. It will be suicidal for EU countries to give up the services of UK financial companies in the name of Brexit. Becoming part of a custom union seems to be the most appropriate option for UK financial companies to continue their operations smoothly in the EU countries.
- Armour, J. (2017). Brexit and financial services. Oxford Review of Economic Policy (Brexit Special Issue). January 2, 2017
- Buttonwood. (2016). A trade-off between sovereignty and economics. The Economist. Mar 2nd 2016
- European Union, (2016). Brexit: the United-Kingdom and EU financial Services. Retrieved from http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/587384/IPOL_BRI(2016)587384_EN.pdf
- Fleming, E and Young, D.W. (2016). The impact of ‘Brexit’ on the financial services sector. Grant Thornton. April, 2016.
- Smith, T. (2016). The impact of Brexit on the financial service sector. Retrieved from https://www.toptal.com/finance/market-research-analysts/brexit-and-its-effect-on-the-uk-european-and-global-financial-sector