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Brexit: what do other governments think?

Tuesday, 17 July 2018
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Friday, 10 November 2017

As we await the promised publication of the UK government's Brexit impact assessments, what do other countries think the impact of Brexit will be?  In this article, we look at three papers published or commissioned by governments elsewhere in the world which provide an insight into how Brexit is seen from outside the UK.

Japan

Following the Brexit vote in June 2016, Japan was fairly quick off the mark in setting out its concerns in a 15 page paper issued in September 2016. It pointed out that the UK has been a leading destination for Japanese investment, highlighting the role of these companies in establishing "value chains across Europe" and commenting that "we strongly request that the UK will consider this fact seriously and respond in a responsible manner to minimise any harmful effects on these businesses."  Among other things, the Japanese paper expresses concern over:

  • loss of tariff-free trade between the UK and the EU;  it calls for new rules on cumulation of rules of origin (this is explained at Qs 8 and 9 of our Q&A on Customs arrangements).
  • administrative burdens arising from customs procedures;  it calls for use of the Authorised Economic Operator system and other measures to simplify customs controls following Brexit (these measures are explained at Q10 of our Q&A on Customs arrangements).
  • loss of the financial services passport system; it highlights the risk of Japanese firms concluding that they may need to relocate their UK operations to the EU.
  • disruption to EU-UK data flows;  the paper notes that "once the UK is no longer bound by the EU's data protection legislation, the smooth cross-border transfer of personal data between the UK and the EU may become difficult.  This could affect ICT businesses conducting data centre operations based on their establishment in the UK [as well as] transfer of information between a parent company and its subsidiaries."
  • uncertainty over intellectual property rights e.g. in cases where Japanese firms have secured EU-wide IP rights which (unless otherwise agreed by the EU and the UK) may cease to apply in the UK after Brexit.
  • divergence in regulations and standards between the UK and the EU;  for example, the paper highlights the concerns over chemicals regulation which are explained in our paper here.
  • loss of access to workers with the necessary skills;  the paper argues that immigration, whether from the EU or elsewhere, should not be subject to further restrictions.

Sweden

In March 2017, the Swedish Board of Trade published a brief (14 page) assessment of the impact of Brexit on Sweden-UK trade, making a similar point about the disruptive effect of Brexit on value chains across the EU. Key conclusions include the following:

  • In common with the Japanese paper, the Board of Trade calls for early agreement on the use of the Authorised Economic Operator system and other measures to simplify customs procedures for goods. 
  • A distinction should be made between sectors subject to common EU rules and sectors such as financial services or chemicals where much existing trade is dependent on e.g. mutual recognition of authorisations issued by EU member states.  In the case of the latter, the impact of Brexit is likely to be more immediate, as mutual recognition will cease to apply when the UK leaves the EU (unless alternative or transitional arrangements are agreed).  But for sectors subject to common rules "any trade barriers will arise step by step and only if the UK's and the EU's regulatory framework begin to diverge."
  • In relation to services, the report concludes that "the opportunities to mitigate the effects of [Brexit] are greater" than in relation to goods and that overall, the economic implications of Brexit are uncertain because companies can be expected to adapt to opportunities and obstacles. 
  • However, overall, the report concludes that "Brexit will…considerably complicate and increase the cost of trade between the UK and the EU…  It is important to emphasise that this is not a result of political reluctance, but is a direct technical consequence of the UK leaving the EU, the customs union and the single market."

Germany

In June 2017, CESifo, a German economic research institute, published a substantial report commissioned by the German government on the impact of Brexit. Key conclusions include the following:

  • With a UK-EU Free Trade Agreement along the lines of the EU-S Korea deal, the UK would stand to lose 0.6% GDP as against 0.1% for Germany and an average of 0.11% for the EU27;  in a worst case scenario of no deal and WTO rules, the UK would lose 1.73% of GDP, as against losses of 0.23% for Germany and 0.26% on average for the EU27. 
  • The average projected loss for EU member states conceals some wide disparities in impact;  for example, the report suggests that Ireland, Malta and Cyprus would stand to be quite badly affected by Brexit and the Benelux countries, Luxembourg, Sweden and Finland would stand to be more negatively affected than the EU 27 average.

If these projections are helping to shape the thinking of the German government, there would seem to be little prospect of Germany concluding that it has so much to lose from a "hard Brexit" that a deal with the UK must be reached at all costs.  The report also concurs with the view expressed by the Swedish Board of Trade that, whatever the outcome of the Brexit negotiations, conditions of trade between the UK and the EU are likely to deteriorate compared with the current position.  On the other hand, it highlights the potential for at least some EU member states to be more supportive of a "good deal" for the UK, with a view to minimising the impact of Brexit on their economies.  In a recent interview, Hilary Benn, Chair of the Commons Committee on Exiting the EU, suggested that the EU's current show of unity on Brexit was relatively fragile – which would support the view that some Member States are more favourably disposed to the UK than others.

Contact

Rachel Woodburn
Head of Professional Support 
Travers Smith LLP
Email Rachel
+44 (0)20 7295 3221

Jonathan Rush
Professional Support Lawyer, Competition and Commercial
Travers Smith LLP
Email Jonathan
+44 (0)20 7295 3471


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