By Oshin Shahiean of OTS Solicitors
The business community is feeling more positive. After nearly a month of turmoil, politically, economically and socially, a sense of stability has returned.
New Prime Minister, Theresa May, staid, solid and sensible, gave an assurance that Article 50 would not be triggered until there was an agreement reached with Scotland and Northern Ireland, in a move to stabilise the British Isles own union.
Trade opportunities and challenges
Australia has also given the green light that it wants to enter into a free trade agreement with the UK as soon as possible.
One of the most important jobs for the British Government prior to triggering Article 50 is to recruit the 500 or so experienced trade negotiators it will need to put in place trade agreements with not only the EU, but all the nations that Britain currently has trade relations with via its membership with the EU.
This is not a simple process. Trade negotiations have grown increasingly sophisticated over the years. Because the EU has taken the lead in formulating every trade deal Britain has been involved in since the 1970s, we simply do not have anywhere near enough people with the technical knowledge required to build these agreements from scratch.
Trade deals that have been or are in the process of being negotiated by the EU on behalf of the UK ensure that British companies face as few obstacles as possible when selling their goods. The advantage of this negotiating model cannot be overestimated and is unlikely to be repeated given that the UK is a by a single nation whose services industry makes up nearly 80% of the economy and has the highest ratio of services exports to GDP in the G7, at 13%.
According to a trade negotiator speaking to the Financial Times, putting together a trade deal is, “a long process: given that trade agreements have grown increasingly sophisticated, concluding negotiations in five years is a real achievement. Typically, about 20 commission negotiators backed by 25-40 technical experts are involved. That may sound a lot but EU negotiators are known for their quality and manage with fewer people than most nations or trading blocs.”
Starting from scratch on negotiations with countries such as Brazil and America will require intense negotiations for at least a decade. And nothing formal can begin until after Britain exits the EU, two years after Article 50 has been invoked.
Ongoing trade with the EU – what models are available?
There are a number of countries which sit outside the EU but have close economic relations. They provide an illustration of the options which may be open to the UK following the triggering of Article 50.
Norway is part of the EEA - the European Economic Area - alongside Liechtenstein, Iceland and all of the EU. It has free access to the single market and contributes to the EU budget. However, it has no say in EU decisions and has to accept the free movement principle. Norway has economic clout though; it provides almost all Europe's oil and is extremely wealthy.
Switzerland sits outside the EEA and does not pay any fees to Brussels. Instead, it has access to the free market via 100 or so bi-lateral agreements. Like Norway, it must accept the principle of free movement of people in return for access to the single market. This means immigration per head in Switzerland has been consistently higher than the UK's - at times four times higher - even outside the EU. This is despite the Swiss electorate voting in favour of reducing European migration in a 2014 referendum.
Like Norway, Switzerland is a prosperous nation with high living standards. Their banking sector is world-renowned thanks to its secretive laws and the fact it is so well trusted after centuries of political neutrality.
But the Swiss financial sector doesn't have full "passporting" rights to the EU, which is why so many of their biggest banks have big headquarters in London. Given that such a large chunk of the UK’s wealth depends on exporting financial services, the Government would have to invest heavily to bring up other industries to make up the shortfall if we followed this model and lost passporting rights.
Re-igniting the manufacturing industry
This is by no means a bad thing, in fact many believe the Leave vote was a protest by workers who feel that the EU stripped the manufacturing industry out of Northern England and Wales (although the process began long before the 1970s and was cemented by the Thatcher Government).
The problem is it would take a lot of time to build up. Can the UK wade through a decade or two of low growth and high deficit? Britain must combine its finest assets and unify innovation with its production capabilities and partner with global leaders to make a success of growing its manufacturing industry.
To do this, Britain needs talented workers. And many of them will come from overseas. Some are already here. Business owners who already employ EU nationals can support their staff by organising permanent residence Cards for those who have been in the country for more than five years and British Citizenship for staff who have lived in the UK for six or more years.
To recruit non-EU nationals, UK employers must obtain a Sponsorship Licence. A Sponsorship Licence entails many responsibilities, but it affords the opportunity to hire talent from outside the EU so you can grow your business.
Although Britain faces many challenges, Brexit does provide businesses with the opportunity to explore new markets and re-invigorate industries that have been left to founder due to our comfortable reliance on the single market.
Businesses can make the most of this period of relative stability, by taking time to plan how they will grow revenue and create new business opportunities once the process of leaving the EU begins.
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Posted on: Monday, 18 July, 2016