On 23 June 2016, the people of Britain voted for Brexit- the Britain exit from the European Union (EU) in a historic referendum. Though Britain’s vote to leave the EU is not legally binding, and theoretically it could be blocked or overturned yet it would be seen as political suicide to go against the referendum of the people.

But what happens now?

New Picture 111Brexit: Trade within Europe

  • The impact on the UK trade with Europe would depend on the negotiations between the UK and the EU after Brexit. The newly appointed Secretary of State of UK has told that Article 50 should be triggered before or by the beginning of 2017. After triggering Article 50 of the Treaty of Lisbon, according to which the UK would formally notify the EU its intention to withdraw, the exit process would initiate officially. As per the EU trade Commissioner there would be no trade talks until full Brexit after which it would take a minimum of five years.

EU supply chains are important to the UK

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Gross exports divided by value-added exports by destination

 (Source: OECD)

British Goods Exported at Different locations (%)

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      (Source: woodfordfunds)

 

  • EU trade matters more for the UK than UK trade for the EU. The UK runs large bilateral deficits against EU member states (€66bn in 2013 which is equivalent to 0.6% of the GDP of the EU member states, including UK). One tenth of EU exports are to the UK, whereas half of UK exports are to the EU. Only a few EU countries run a trade deficit with the UK.
  • After Brexit, the UK need not compromise with other EU countries for negotiating trade deals. However, if it does, it would have less bargaining power as it is a smaller market compared with the EU. The UK would also have to bear the cost of rebuilding its capacity to undertake trade negotiations.

 

 Brexit: Pound Pain Sets New Record in 31 yrs

  • On 7th July 2016, post the announcement of Brexit result, the British pound fell to a 31-year low against the dollar ($1.291). Consequently, the British pound has been depreciating further due to an increase in uncertainties about Britain’s economy.
  • British pound also suffered a tumble against the Euro by falling down more than 10% since the Brexit vote. On 23rd June, £1 was worth €1.30; however, on 14th July it was worth €1.17.

 Pound against Dollar and Euro

New Picture

(Source: Reuters)

 Brexit: India’s trade market

  • UK has always been the traditional jumping pad for Indian companies to access the European companies because of its resurging economy, a robust legal system, the English language and ease of doing business. India has to face a plethora of separate trade negotiations with all the EU member states and the UK.

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  • However, on the other hand, India is the third largest source of foreign direct investment (FDI) for Britain and with UK looking forward to attracting FDI without stringent EU regulations, Indian investors are expected to benefit from a less regulatory as well as freer British market for trade and investment.

 Brexit: Impact on European Patent

  • There will be no consequence either on the membership of the UK to the European Patent Organization or on the effect of the European Patents in the UK, since this system is governed by the European Patent Convention (EPC), an agreement which is independent of the EU.
  • In contrast to the existing EPC, the Unitary Patent System would be implemented by the Unified Patent Court Agreement, which must be accededby the EU. As currently drafted this agreement makes participation in the Unitary Patent System contingent upon being a member of the EU, so, a priori, the UK will be ineligible to participate in the Unitary Patent System.

 Summary of Impact on Brexit

Brexit

 New Picture (7) New Picture (8)

New PictureTrade

Possible to negotiate trade agreement with little impact on EU export

Leaving EU could result in trade barriers, red tapes and fees

New Picture (1)Economy

Best case scenario, according to Think tank open Europe, would be1.6% increase in GDP per year by 2030 Worst case scenario, according to London School of Economics, would be9.5% reduction in GDP

New Picture (2)Employment

A boom in employment as business are free from EU regulations Job losses when firms move operations to low-cost EU member countries

New Picture (3)Membership Fees

This would save billions by ending the hidden tariffs on the EU exported goods Savings countered by hidden cost in red tape on trade and skilled labor

New Picture (4)Taxation

UK would be able to set its own tariffs and create the type of goods & services subject to a charge. More susceptible to tax evasion.

New Picture (5)Sovereignty

The sovereignty of British Parliament is going to re-establish. Now British Parliament will be constrained by British, not by Brussels UK sovereignty will not be absolute as it would still be bound by membership of NATO, the UN, the World Trade Organization, and various treaties and agreements with other nations.

New Picture (6)Defence

No need for UK to contribute to the EU army. The country could have an independent military force

More susceptible to threats from Russian resurgent and ISIS