How Does Brexit Affect Trade Negotiations Within The EU

Brexit trade and EU -->

With a missing £13.9 billion contribution from the UK, the European Union will have to pull in its members together to not only cover the shortfall in its budget but also to address the far more important concern raising the question of European integration and stability. The UK currently benefits from the trade agreements that EU has negotiated as a bloc with other countries. After Britain leaves the bloc, the EU will lose one of its biggest trading partners. The major concerns of Brexit on EU are its impact on future trade, agriculture, fisheries, and citizens of European nations returning from the UK.

The EU needs the UK’s import demand. Its member countries export figures to the UK constitute an important portion of EU’s trade especially from prominent European nations. The fallout is deemed to affect countries which maintain close proximity with the UK, especially its neighbouring nations.

The UK was one of the driving forces in developing the EU single market and has been an influential player in its policy formation. UK is an important part of the EU supply chain. Even the most Eurosceptic nations were against Brexit. The fallout will undermine the economic and political liberalism of the whole European Union.

Import-export post Brexit

Post-Brexit, trade between the 27 EU members and Britain will be reduced and can become costly. The UK is more dependent on EU for its exports. Nearly 44% of UK exports in goods and services went to countries inside the European Union in 2017, amounting to £274 billion. Also, Britain took in a total of its 55% of its imports from the EU, amounting to £341 billion.

UK runs large trade deficits with several members of the EU. However, a surplus of trade in services outweighed the deficit on trade with goods. Service sector contributed to 32% of the UK’s total exports to the EU in 2017. Post Brexit, EU nations might not prefer Britain as a services destination as tariffs will make it costlier. If there is ‘no deal’ achieved by 29th March, then the government will seek to bring into force bilateral UK-third country agreements from exit day, or as soon as possible thereafter. In the event of a ‘no deal’, EU trade agreements will cease to apply to the UK when they leave the EU. There may be practical changes to how they make use of preferences under these new agreements.

Fisheries and Agriculture

UK would also not like to give up its access to fish in the EU waters. EU based fishing fleets catch eight times more the fish in UK waters than British fishermen do in EU waters. Leaving the bloc means the UK will also have to give up its access to the single largest fisheries market in the world. UK is a net importer of fish products from the EU as much of the fish which land on the UK doesn’t meet the taste of Britons.

On 25th October, the UK government introduced a Fisheries Bill to the parliament that supports the process of moving away from the EU’s Common Fisheries Policy (CFP) and provides a legal framework for the UK to manage its own waters as an independent coastal state. 

Speaking of agriculture, the UK produces 60% of the food it consumes and is reliant on trade for the remaining 40% supplies. It imported some £46 billion of food, feed, and drink in 2017 and exported some £22 billion worth.

Agricultural production is managed at the European level by the Common Agricultural Policy (CAP). The UK currently pays about £6 billion into the CAP while the British farmers receive only about £3 billion in subsidies back from the EU.  A large part of the trade in agricultural commodities remains protected by high tariffs from the EU. The average EU tariff for non-agricultural products was 2.3% in 2014 and 8.5% for agricultural products. It was reported that the majority of farmers voted for Brexit. Post-Brexit, British farmers would lose subsidies from EU, increasing the price of food production so the UK might have to rely more on food imports. Europe remains the most important export zone for the UK while Britain is an important destination for the rest of the 27 EU members for agri-food exports. 

The impact of Brexit on agriculture trade will depend on the future trade framework with the EU. UK’s government also aims to increase trade with non-EU countries through new Free Trade Agreements.

Immigration and Tourism

Immigration to the UK has dropped significantly since the EU vote, with a large no of EU citizens leaving for other countries. This can additionally create political complications among the nations which have displayed anti-immigrant sentiments.  A large no of EU firms based in the UK will have to bear the costs as the tighter border will restrict the access to the workforce from the EU that are important to high-value-added industries.

Brexit will cut a lot of British tourists to other European nations. Spain takes in the largest no of British tourists, who contributed around €14 billion to the Spanish economy in 2015. Travel will definitely become costlier for British travellers as well as to those EU citizens who wish to travel to the UK.  The House of Lords has warned that major sporting events including the cricket world cup are less likely to occur in post-Brexit Britain.

The UK’s immigration system is currently a malfunctioning mess. It’s overly complicated, opaque and weighed down with political and social expectations that cannot be met. And Brexit will only worsen it. The resident labour market test will be scrapped, meaning employers can recruit directly from outside the UK without having to advertise in the UK first. 

A system of new temporary visas will be created that are not tied to a single employer, enabling migrants to move between employers in precarious and flexible sectors of the labour market. At the same time, these temporary migrants will be prevented from renewing their status or continuing their employment even if they and their employers would prefer it.

Airlines, including, most vocally, Ryanair, have been calling for clarity for the aviation sector since the vote in June 2016. The UK’s rulebook is tied in with the EU’s and governs things such as safety and flying rights both within Europe and crucially with a number of other countries, including the United States.

Fortunately, both sides want a “comprehensive air transport agreement,” which would cover “market access and investment, aviation safety and security, air traffic management and provisions to ensure open and fair competition.”

Immigration changes are the worst consequence of Brexit. Here’s how.

Defense and security

UK is the strongest European military power in the NATO which spends 2% of its GDP on defence. A British exit from the bloc will significantly reduce the European defence capabilities. Furthermore, it will also affect the relationship between EU and NATO. Cooperation in terms of security and fight against terrorism will be hampered in Europe which has seen an increase in immigrant involved terrorism.

UK will be the part of EU’s Common Security and Defence Policy (CSDP) until Brexit. Britain’s contributions to CSDP stood at 21% of its total €186 billion budget in 2013. The UK acted as a bridge between the US and Europe, which aligned the EU positions to the US and provide tougher responses to Russia. 

Many of the EU member nations are worried about Russia following its annexation of Crimea in eastern Europe. To strengthen military cooperation in response, the EU started Permanent Structured Cooperation (PESCO) in 2017 to jointly develop defence capabilities for EU. Brexit has been cited as a leading factor for the establishment of PESCO.

Defence Committee report, 8 June 2018 calls for further clarity from the Government on how Britain will co-operate with the EU on the defence issues before and after the Brexit deal.

German dominance over EU

With Brexit, anti-immigrant forces across the EU will strengthen. Many of the member nations face Eurosceptic opposition at home. Brexit will weaken those forces longing for greater integration in the European Union. Some countries might look to force an anti-EU vote.

For example, Grexit which refers to Greece leaving the Eurozone (not EU) and adopting its own currency. Greece’s economy has failed terribly under the euro and people think that adopting its own currency will be better for the country.

Brexit will also make Germany more predominant. Britain had shadowed many member countries under its veto from German influence. EU politicians are worried about the German stand on the Greece bailout and its open immigration policy. After Brexit, EU countries may be tempted to form an alliance against the Germans. This can lead the narrative of the disintegration of Europe.

A number of EU countries already grumble about Germany’s growing dominance. As the EU faces a host of challenges, from migration to Brexit to the faltering relationship with the U.S. From Spain to Italy to Sweden, not to mention Germany, the issue is roiling the political debate. Europe’s indecision and chaotic handling of migration have given populists a huge opening to exploit.

The British exit from the European Union will carry significant economic and political costs to the EU. Member states will be affected in different ways to various extents which will affect British prospects of negotiating a new relationship. Europe will lose its major influence in the world without the UK and anti-EU forces will question the European integration.

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