Trading Places

Having taken a look last month at how leaving the EU might affect businesses in general, we not look at how a Brexit vote might affect the UK’s import and export services

The UK is one of the most open economies in the world, with significant trade and financial links with other countries. While the EU now accounts for less than half of goods and services exported from the UK, it still remains the UK’s largest trading partner. In the prevailing uncertainty of an EU referendum, the relationships we’ve spent so long building may well be on the line as we face a potential Brexit. Would the outcome damage or strengthen our trading partnerships?

A briefing paper published in February by the House of Commons Library found that, taken as a group, EU trade accounted for 45% of UK goods and services exports (equating to £230 billion) and 53% of UK imports (£289 billion). In 2015, UK exports to the EU equated to £134 billion, with UK goods imports from the EU at £223 billion. UK to EU exports made up 38% of all UK service exports in 2015, whilst UK imports from the EU made up 48% of all UK imports of services. Although this number is a decline on previous years, it’s safe to say that our current trading relationship is a vital cog in the workings of our economy.   

Standing on the edge of an EU referendum leads to more and more questions about how the UK’s export performance will be affected – and whether a Brexit would indeed shatter our strong relationships with the euro area.

The terrifying fact is that we are going into this potentially life changing vote completely blind to what lies ahead. The undeniable consensus across the board is that we simply cannot know what would happen should we exit the EU, and it is for us to decide whether that risk is worth taking. Post-Brexit outcomes which reduce trade or increase the cost of trade between the UK and the rest of Europe will be damaging for both sides. However, post-Brexit outcomes which keep trade the same or even increase trade – or its economic benefit – is of course a welcoming thought to those who reap other benefits of a Brexit vote.   

As with most political debates, it’s near impossible to find a balanced argument. Politicians notoriously use the statistics in their favour, and this situation is no different. Boris Johnson says one thing; David Cameron says another. The same facts; different outcomes. All we have is speculation and our own judgement. According to Open Europe’s new report on the potential outcome of a Brexit vote, UK GDP could be 2.2% lower in 2030 – that is, if Britain fails to strike a deal with the EU or reverts into protectionism. In a best case scenario though, under which the UK is successful in entering into liberal trade arrangements with the EU and the rest of the world, we could be better off by 1.6% of GDP in 2030. These are, however two extremes. What is suggested to be a far more realistic range is between a 0.8% permanent loss to GDP in 2030 or a 0.6% permanent gain in GDP in 2030, in scenarios where Britain mixes policy approaches.   

There is a possibility that leaving the EU, even if we re-build relationships, would leave the UK as a weaker trading partner than we currently are. A recent report from the international courier, ParcelHero, for example, has warned that if Britain were to exit the EU, there would be an immediate and significant decline in trade, potentially negatively impacting those businesses who see such benefits from exporting, and equally, importing.

ParcelHero warned that there will be an average of 5% – 9% added to the price of items in duties, and VAT of around 20% to pay. Additionally, it warns there will be increased transport costs, as the UK becomes a less competitive market for international couriers, and new ‘customs clearance’ charges from global carriers: typically around £15. Head of Consumer Research for ParcelHero, David Jinks, said: “Our report reveals that the typical SME engaged in importing from the EU will be spending around £163k extra annually, including duties and taxes, if we leave the Union.”

It has been argued that once outside the EU, the UK may be unlikely to qualify for the many favourable trade agreements negotiated by the union with key countries and markets around the world. Inclusion in the planned Transatlantic Trade and Investment Partnership (TTIP) between the US and EU, aimed at removing most customs duties, would be debatable. This would mean, for example, British cars exported to the US would still face a 2.5% tariff that will no longer apply to EU cars. It is also likely that many other British exports such as fuel and chocolate could also be at a disadvantage if TTIP abolishes tariffs on those products.

On this subject, David Jinks added: “If we were to plough our own furrow completely, leaving the common market and setting our own tariffs, that would also mean moving outside the EU’s Common External Tariff and setting new duties on 19,000 individual tariff codes: a guaranteed recipe for increased red tape and delays.”

In addition, the UK may lose the strength in numbers when settling disputes with countries like China, and would lose out on the comprehensive trade arrangements already in place in the EU, having to renegotiate on agreements which don’t automatically apply, which would take considerable diplomatic effort.

On the other hand, the UK would be free to set its own trade policy priorities, under particular Brexit models. Something to consider within free trade arrangements (FTA) is the application of sturdy and efficient regulations and technical standards. Regulations for importing and exporting goods and services are currently fairly tight within EU laws, but perhaps not so secure in other trade models. This may affect business as we know it.

In these situations, it’s usually a good idea to look to other countries which have steered away from EU regulation and struck their own trade agreement with the EU, such as Canada. However, as the BBC recently reported that, even after 7 years of trade negotiations, with a document spanning over 1400 pages, there are still issues over regulation and technical standards between Canada and Europe which need to be resolved.

Chrystia Freeland, Canadian Minister for International Trade says: “This is a really high quality, gold plated trade deal. When I look at what Canada will have in terms of its ability to trade with Europe compared to being a member of the EU, the really big difference is regulatory harmonisation. What it means for Canadian businesses is they have to – quite rightly – meet European regulatory standards without having a say in how those standards are written.”

So, how important has exporting been for these businesses? The most recent survey by UKTI of their trade clients found that 85% said exporting led to a ‘level of growth not otherwise possible’ whilst 87% said exporting had significantly improved their profile or credibility. 78% said exporting had given them exposure to new ideas, 73% said exporting had increased the commercial lifespan of products or services and 70% said they had developed or modified a product or service due to doing business abroad.

The South East of England is currently doing particularly well in terms of export and there are numerous examples of company exporting successes, some of which have been made possible by the services offered by UKTI, in our very own region of Sussex.

The UK Trade & Investment department works with businesses across the UK to assist in developing and building export opportunities with international markets. UKTI suggests that the South East is England’s biggest exporting region, exporting goods to the value of £39.2 billion for the year ending September 2014.

Two Brighton-based companies, Elmeridge Cables and Harlow & Fox have taken advantage of the support that the UKTI gives – a step in the right direction for the UKTI’s ambitious Exporting is GREAT campaign, whose headline aim is to get 100,000 additional companies exporting by 2020.   

In 2014, support from UKTI enabled Elmeridge Cables to attend an exhibition in China, securing an export deal and new local agent. The company received a significant order from a large Chinese research organisation for a 10,000 metre steel tow rope. Elmeridge also secured an agent to represent it in China at the exhibition. This has since generated 12 new leads. At the time Company Director Darren Holmes said: “Having delivered this contract and appointed a Chinese agent, we are in a good position to secure more new business in this region.”

Also in 2014, luxury lingerie company, Harlow & Fox secured a deal to supply their products to firms in Dubai and Qatar. Founder Leanna Williams said: “Exhibiting at the biggest lingerie trade show in Paris last year certainly helped and led to approaches from stockists in both Dubai and Australia. Exports have helped me to almost double my predicted target turnover and I am now on track for unprecedented success in the first year.”   

Bdifferent, a financial services specialist research company, is yet another local example. In 2014, they were introduced to the UKTI and attended one of their export seminars. This inspired them to look at exporting their services on a more serious level and in 2015 they set up an office in Singapore to respond to the needs of clients with bases in Asia. The venture has been an overwhelming success and turn over from non-UK clients now accounts for 25% of total turnover.

Kim Bell, Director and Founding Partner of Bdifferent believes that their UKTI experience has been instrumental in their success, saying: “We have utilised the UKTI’s Export Communications Reviews and these have been extremely helpful in building our international image. I’m not sure we would have had the confidence to have done what we have, without the support of the UKTI, I can’t praise their support enough.”

Commenting on what the EU referendum could mean for the financial services sector Kim, like many others, remains wary: “In terms of the future, we await the result of the Europe vote with mixed feelings, working in the financial services sector, anything that creates adverse volatility in the market, has an effect on our clients and in turn has an impact on their marketing budgets.  The UK is seen as a major financial centre and we have easy access to carry out projects across Europe for our UK and International clients, we don’t yet know whether an exit from Europe would make this more difficult and would ‘downgrade’ the UK’s perception as a financial centre of expertise – so for us it is a case of wait-and-see.”

Wait and see is what seems to be the over-riding answer for us ahead of 23rd June. However, ultimately the decision is ours and the evidence overwhelmingly points to the need for more information across the board.