Brexit Assignment The European Business Environment Guillaume de

 

 

 

 

 

 

Brexit Assignment
The European Business Environment

Guillaume
de Kinderen / 1612

 

 

Table of Content
Introduction. 3
What is the Brexit?. 4
Time schedule. 5
Custom
Union. 5
Customs
formalities. 5
EU
legislation. 6
Duties. 6
Free
traffic of labour. 6
Adversely affected by
Brexit 7
Gain from Brexit 9
Conclusion and future. 10
References. 11
 

 

Introduction

In this paper, I will
identify a company (or any relevant business entity or facility, e.g.
investment fund, port, etc.) that can be expected to be adversely affected by
Brexit. I will propose a strategy for damage limitation and recovery.

 

Then I will identify a
company (or similar, see above) that stands to gain from Brexit and propose a
strategy for taking advantage of Brexit.

 

In both cases, I
explainG1 
what, why, how and when.

 

The choice of the
United Kingdom (UK) to leave the European Union (EU) has shocked the currency
and equity markets and has led to business, economic and political uncertainty.
Some acts are already noticeable, especially in the form of exchange rate
movements, but the consequences in the medium and long term still remain to be
seen.

What is
the Brexit?

Before we want to
discuss which, companies benefit or is adversely affected by Brexit, we must
understand what the Brexit is and means. For companies, it is also important
that the negotiations are over as soon as possible, in this way they will have
certainty and companies need certainty to decide for investments.

 

As we all known, the
UK has decided through a referendum to leave the EU. The general population of
the UK wasn’t satisfied with the policy of the EU, in particular: the
immigration policy and the costs of the EU. They tough the benefits of the EU
weren’t as big as the disadvantages.G2 

 

A vote in which
everybody (or about everybody) of voting age can partake was hung on Thursday
23 June 2016, to choose whether the UK should leave or stay in the European
Union. Leave won by 51.9% to 48.1%. The choice turnout was 71.8%, with more
than 30 million individuals voting.

 

Britain voted in
favour of Brexit, by 53.4% to 46.6%. G3 Wales
additionally voted in favour of Brexit, with Leave getting 52.5% of the vote
and Remain 47.5%. Scotland and Northern Ireland both supported remaining in the
EU. Scotland supported Remain by 62% to 38%, while 55.8% in Northern Ireland
voted Remain and 44.2% G4 

Image Source: Unknown. (2017). EU Referendum
Results. Available: http://www.bbc.com/news/politics/eu_referendum/results.
Last accessed 18 Dec 2017.

 

After the referendum,
the government of the UK itself changed a lot. Britain got a new Prime Minister
Theresa May. The former home secretary took over from David Cameron, who
announced he was resigning on the day he lost the referendum.G5 

 

Normally on 29 March
2019, the UK is planning to leave the EU. There are 3 main subjects that needs
to be discussed. Such as the focusing on how much the UK owes the EU, what
happens to the Northern Ireland border and what happens to UK citizens living
elsewhere in the EU and EU citizens living in the UK.G6 

The UK wanted to talk
about future trade relations and a plan for a 2 year “transition”
period to smooth the way to post-Brexit relations. But the EU said they would
not talk about the future until enough progress has been made on the other
issues.G7 

Now after months of
negotiations, they finally had come to an agreement.

There is a lot going
on in the United Kingdom economy since the Brexit vote.

David Cameron, his
Chancellor George John James Osborne and lots of different senior figures who
needed to remain within the EU expected a direct financial condition if the
United Kingdom voted to go away and it’s true that the pound slouched the day
once the vote and remains around 100% lower against the greenback and V-day
down against the monetary unit.

But
predictions of immediate doom were wrong, with the United Kingdom economy
calculable to possess mature in 2016, second solely to Germany’s among the
world’s G7 leading industrial nations. The United Kingdom economy has continued
to grow at virtually an equivalent rate in 2017. Inflation has up since June
2016, the state has continued to fall, to face at a forty-two year low. Annual
house value will increase have fallen in June 2016, however, were still at
associate inflation-beating five-hitter within the year to August 2017, in line
with official ONS figures.G8 G9 G10 G11 G12 

 

Time
schedule

The British government
must create the capacity to renegotiate trade agreements

replacing the existing
trade agreements of the EU (with 53 countries). It takes time. The UK has not
individually negotiated over the past 40 years

a trade agreement and
the government has the capacity for this G13 and ability to build. The negotiations
that determine the future relationship of the UK with the EU are therefore
expected to last longer than the two years of the exit negotiations. It is
therefore good to see that Brexit is a process is not an action. Against this
background, the EU and the UK are expected to avoid a disruptive break, but
rather strive for a phased process in the implementation of Brexit.

For companies, this
means a longer period of uncertainty. Irrespective of the direct reactions to
the foreign exchange markets, organizations must check immediatelyG14  to think about their risks in terms of
trade and supply chains, regulation, foreign direct investment, the labour
market,

 scale and legal structures and other sector-specific
effects, and to make the necessary adjustments to their value chain.

 

Custom Union

The EU member states
together form a customs union, which means that the

EU is treated as a
single area for customs purposes and in principle the same rules and tariffs

apply in each Member
State. Once goods are in ‘free circulation’ (i.e. all import duties have been
paid and all import formalities have been fulfilled) a Member State, they may
be freely transported to the other Member States without further payment of
customs duties or further customs formalities. In addition, the EU member
states apply the same external rates to third countries. As such, all Member
States are benefiting from the preferential rates agreed in the context of the
EU’s free trade agreements.G15 

 

Customs formalities

When the UK becomes a
third country after the withdrawal from the EU, customs duties will be due for
the trade of goods between the EU and the UK. This has potentially great
consequences international trade, but these will only become clear when the
Brexit negotiations are progressing and a trade agreement is within reach. In
doing so, the UK will want to take the opportunity to negotiate preferential
trade agreements throughout the world.

At the same time
ensuring that cross-border trade with the EU continues as smoothly as possible.
It remains to be seen to what extent the EU is prepared to agree to this.
Furthermore, regardless of the type of trade agreement eventually agreed, all
goods crossing the EU/UK border must be declared and cleared by customs.

This process involves
costs, additional administrative procedures and possible delays.

 

EU legislation

Another sector that is
affected is the EU’s legislative system on customs licensing that applies to
border crossings. When such a permit has been granted and is being managed in the
UK, it is required that this license is transferred to one of the remaining 27
EU Member States to keep it. However, this requires that the company has
sufficient size in that Member State to support the administrative processes
and allow the customs authorities toG16 G17 

the right way to
check. In line with this, a practical consequence may also be that customs
regimes of the EU (on tariff classification binding tariffs and binding origin information)
are no longer binding.

 

Duties

We note that although
excise duties are national which is basically imposed in the country in which
the goods are consumed, there is nevertheless an EU directive to ensure that a
uniform system is applicable within the EU for the movement of excise goods
between the Member States under excise duty suspension. When the UK leaves the
EU, the UK can be excluded from this system and excise goods may be deemed to
have been exportedG18  from the UK and imported into the EU and vice
versa. A consequence of this may be that additional formalities and possibly
the provision of additional guarantees are required.G19 G20 

 

Free traffic of labour

After the UK’s
intention to leave the EU internal market, Brexit would mean that the current
free movement of persons from the EU is coming to an end in the UK. This would
have consequences for European citizens looking for work, studying, or simply
moving to the UK and also for it British citizens who want to move to the EU or
want to live and work in the EU. It also has consequences for companies’
ability to recruit high and low educated people in the UK and to deploy them in
the EU, and vice versa.

A possible new
agreement between the UK and the EU may give partial access and allow a certain
free movement of persons.

 

For companies, it is
important that the 4 freedoms will remain the same.

 

Adversely
affected by Brexit

The
Scottish whisky manufacturers are going to suffer from the Brexit. They risk
losing margin with trade barriers. They can also lose the protected name of
Scotch whisky.

 

Whisky
is a very important export product from the UK. It is being manufactured in
England, Wales and Northern-Ireland. But the majority comes from Scotland,
which is a region where most people voted against the Brexit.

 

The
Scotch Whisky Association (SWA) says that Brexit is an opportunity and threat.
I personally believe that is more likely to be a threat. A very important issue
is that the name Scotch Whisky is protected by the European Union. So, this
protection will drop.

With
regard to intellectual property rights, it is uncertain whether, after Brexit,
registrations in the EU will also provide protection in the UK and vice versa.
Parallel registrations in the UK may be advisable in order to protect
intellectual property rights in the UK.

Another
issue is the low tariffs that the EU discussed with countries like South-Africa
and South Korea will no longer be applicable to the Whisky manufacturers.

 

Each
year more than 4 billion euro of Whisky is being exported. 1/3 is going to the
European Union. So, if there will be tariffs for export to the EU, then this
will damage the sector.

There
work over 20.000 people in this sector.

 

I
believe that the first thing the SWA should do is to protect their name.
Because the USA is already asking to lower the protection of this name, so that
there could be more competition from other players in the USA. If they lose
this name, they will lose an important advantage.G21 G22 

The
SWA should ask the UK government to protect this name and to help the sector.

 

The
UK should keep the current tariffs between the European Union so that 1/3 of
the production will stay safe without higher costs of export to the European
countries.

 

What’s going to happen
to all or any the EU laws operative within the UK?

The Conservative
government has introduced the European Union (Withdrawal) Bill to Parliament.
If passed, it’ll finish the importance of EU law within the United Kingdom of
Great Britain and Northern Ireland. This “Great Repeal Bill” because
it has been referred to as, is meant to include all EU legislation into United
Kingdom of Great Britain and Northern Ireland law in one lump, once that the
govt. can decide over an amount of your time that components to stay,
modification or take away. the govt. is facing claims from stay supporting MPs
that it’s giving itself sweeping powers to vary legislation while not correct
Parliamentary scrutiny.

 

The
union ensures EU member states all charge similar import duties to countries
outside the EU. It permits member states to trade freely with one another,
while not onerous customs check at borders, however, it limits their freedom to
strike their own trade deals.G23 G24 

It
is totally different from a trade space. in a very trade space, no tariffs,
taxes or quotas area unit charged on merchandise and services moving inside
however members are absolved to strike their own external trade deals.

The
single market could be a terribly totally different beast – it’s not regarding
the interchange merchandise. It permits the free movement of individuals, cash
and services as if the EU was one country.

 

The
Trade deals that the European Union has with other parts and countries of the
world should be copied as much as possible. Of course, this will be no easy
task. The SWA can lobby to convince the government to keep as much trade deals
as possible.

 

If
the trade deals disappear and they will not come with a good substitute than
the SWA should try to open a factory in the EU, so they can keep the European
market. Unfortunately, a large part of the production will disappear, which
means that they will have to fire people in the UK.

They
can try to boost their own market or that of other countries so they can keep
the production level at the same level. In this way, they don’t need to fire
people.G25 
G26 

Gain from Brexit

Big
business with many exceptions cared for be in favour of England staying within
the EU as a result of it makes it easier for them to manoeuvre cash, folks and
product around the world.G27 

Given the crucial role
of London as a money centre, there is interest in what number jobs are also
lost to different hubs within the EU. Some Great Britain exporters say they’ve
had multiplied orders or enquiries as a result of the autumn within the price
of the pound. Others area unit less optimistic, fearing product for the G28 EU market could need to be created at plants within the
EU.G29 

Financial
and professional services contribute to around 12% of GDP in the UK. The
financial sector alone offers indispensable support for the economy. She
employs more than a million people.

 

Following
the Brexit vote, the Head of the European Central Bank said that London could
lose its status as the financial capital of Europe. Reports in the media
suggest an important movement of financial jobs in Europe.

 

According
to calculations by PwC for professional organization TheCityUK, an EU exit may
jeopardize 100,000 jobs in financial services. Banks may lose their authority
to advise on European deals and to sell in euros if the United Kingdom loses
access to the internal market. This would, in turn, mean a move to European
cities such as Paris, Frankfurt and Dublin.G30 G31 

With
regards to Brexit’s champs and failures, Berlin looks set to catch a couple of
triumphs particularly the city’s developing money related innovation area.

Germany’s
capital has created buzz for its endeavours to draw in London’s Intech
organizations and different new businesses since the UK voted a year ago to
leave the European Union. A moving board (“Keep quiet and move to
Berlin”) is one of the tricks that have unsettled British quills.

However,
Berlin’s increases won’t originate from a Brexit-driven mass migration that is,
from UK-based innovation organizations relinquishing their country. Rather, its
Intech scene will profit by the US and Asian organizations currently picking
Berlin, and not London, as their EU base. That at any rate is the expectation
from Stefan Franke, CEO at Berlin Partner, a business advancement office. He
gauges that Berlin is home to around 80 to 100 fitness and anticipates that
that number will twofold by late 2018.

The
majority of that development will originate from “our own particular
environment here in Berlin, and that individuals from Asia and America who need
to enter the European market that they will do it more from Berlin than from
London since no one comprehends what the Brexit implies for their own
particular business circumstance”, Franke disclosed to FN’s sister
production Market Watch. He was talking a year ago, yet the current hindrances
to the British government’s EU withdrawal design have just elevated the
vulnerability. Particularly with the overall pattern to digitalize banks.
Fintech organizations in Germany can accomplice up with the banks that move
from the UK to Germany.

In
the meantime, Germany is as of now getting up to speed, by a few measures.
Subsidizing inflows for the nation’s Intech division totalled $421 million in a
year age’s initial seventy-five percent, besting the UK’s $375 million, as
indicated by figures from bookkeeping mammoth EY.

Some
examples:
Fin Leap a self-described “organization developer” that has propelled
11 Intech wanders utilizes English as its in-house dialect, said prime
supporter Raman Normand, as there are around 30 distinct nationalities among
its about 400 workers.

A
keeping money stage Solaris Bank is the Fin Leap wander that may profit most
from Brexit, as it helps organizations working in the EU, Normand said. He
included that its different endeavours won’t see much effect. The Berlin-based
organization’s portfolio ranges from protection specialist Clark to
speculations stage Saved.

Conclusion
and future

Both companies will have to adapt to
these new situations. They will have to follow up new developments. Because
there is still a lot that needs to be discussed. If the leaders in the Brexit
negotiations come up with new regulations, then the companies much see if it’s
beneficial for them or not. For example, with the new regulations the Whiskey
company can maybe benefit and the Fintech companies in Germany not.

 

There will be a further reduction of the
credit rating. It did not take long before the three largest credit rating
agencies in the world Moody’s, S&P and Fitch reduced British credit. This
means that the country loses its AAA status.

 

And that lowered credit rating has its
consequences. The consequences for the British Treasury in the short term are
not yet known, but there is a chance that S&P and Fitch will further reduce
the score of the United Kingdom.

 

If that happens, the British government
debt looks less attractive to investors. British government bonds will then be
excluded from the safest part of investment portfolios. The demand will
decrease and the financing costs of the government will increase.

 

The impact of Brexit on other forms of
borrowing is still unclear. In order to stimulate inflation, it is very likely
that the central bank will lower the interest rate before the end of the year.
This can ease the cost of loans.

 

As we have seen in the course of
Entrepreneurship, economists and investors are particularly concerned about an
increase in the cost of loans for businesses and consumers. Even if the base
rate of the Bank of England drops. Due to the economic uncertainty, lenders
might increase financing costs to compensate for the higher risk of lending in
the United Kingdom. Higher financing costs will then have a negative effect on
companies, especially if the economy enters a recession.

 

The weak pound could stimulate British
exports, but many financial experts are not convinced. To begin with, the
United Kingdom relies much more on imports than on exports. In addition,
specialists explain that the production and export of services have a high
added value in Great Britain. They are more sensitive to changes in demand than
to changes in price.

 

Approximately 28% of British products are sold abroad.
45% of this is exported to EU countries. Access to the internal market is
uncertain at the moment, but European demand will undoubtedly be affected. In
combination with the already weaker demand from the most emerging markets, the
chances are that the cheaper pound will benefit the economy less than expected.
Indeed, the UK economy is likely to feel the pressure from higher import prices
than any growth in exports.G32 G33 

 

What also will play a
role is that the EU can impose a tariff and quota for British exports to Europe
and thus limit the number of goods and services sold.G34 G35 G36 

 

The prospects for business and the
economy of the United Kingdom are uncertain at the moment. They are too dependent
on the negotiations about a withdrawal from the United Kingdom from the
European Union.

 

Business Secretary Sajid Javid has one
major priority in the EU negotiations: ensuring that the United Kingdom has
access to the internal market. But it is not certain that he will succeed.

 

References

·     
Alex Hunt & Brian
Wheeler. (2017). Brexit: All you need to know about the UK leaving the
EU. Available: http://www.bbc.com/news/uk-politics-32810887. Last
accessed 18 Dec 2017.

·     
Unknown.
(2017). EU Referendum Results. Available:
http://www.bbc.com/news/politics/eu_referendum/results. Last accessed 18 Dec
2017.

·     
Victor Reklaitis.
(2017). How Brexit could help Berlin take London’s fintech crown. Available:
https://www.marketwatch.com/story/how-brexit-could-help-berlin-take-londons-fintech-crown-2017-03-10.
Last accessed 18 Dec 2017.

·     
Unknown.
(2017). Brexit risks damaging UK financial services, threatening jobs
and growth. Available: https://www.thecityuk.com/news/brexit-risks-damaging-uk-financial-services-threatening-jobs-and-growth/.
Last accessed 18 Dec 2017.

·     
Jan Willem
Velthuijsen / Jan-Willem Thoen. (2017). De impact van Brexit op
Nederlandse bedrijven. Available:
https://www.pwc.nl/nl/publicaties/de-impact-van-brexit-op-nederlandse-bedrijven.html.
Last accessed 18 Dec 2017.