SOE11729 - Analyzing Brexit's Impact on EU-UK Trade and Strategy

This project analyzes the potential impact of Brexit on a company trading within the EU and UK markets, identifying both benefits and threats. It begins by exploring the theory behind economic integration, supported by statistical data on trade between the EU-27 and the UK. The study identifies possible models for economic relations post-Brexit, drawing examples from existing EU agreements with third countries. It then highlights theoretical opportunities and threats posed by Brexit, such as currency fluctuations and trade barriers. Finally, the project designs a strategy to exploit potential opportunities and avert threats, considering the challenges and uncertainties businesses face due to the changing legal and regulatory landscape.

Running head: Global Economic Environment and Marketing
Global Economic Environment and Marketing
Analysing potential impact of the Brexit on a company trading on the EU market in the
UK and other EU market
Student’s name:
Name of the university:
Author’s note:

1Global Economic Environment and Marketing
Table of Contents
Introduction........................................................................................................................2
Identifying and describing theory behind the economic integration..................................2
Identifying possible models of economic relations between the UK and EU-27 after the
Brexit..................................................................................................................................5
Identifying theoretical opportunities and threats posed by the Brexit................................6
Designing a strategy which could exploit potential opportunities and avert threats..........9
Conclusion.......................................................................................................................10
Reference style................................................................................................................11

2Global Economic Environment and Marketing
Introduction
British people voted for the exit of Britain from EU on 23rd June 2016 in a historic
referendum. This incident of Brexit led to celebrations for Eurosceptics and it also sent
shockwaves to global economy1. Under Article 50, the UK will leave the EU by the end
of March 2019. After the incident, the price of pound fell to the lowest point and free
trade between the EU and the UK will no longer be possible, therefore the cost of
supplies will increase. On the other side, the UK companies that do businesses in the
EU countries need to reassess the contingency plans as the cost will increase for UK-
EU trade.
In this study, the potential impact of Brexit on a company trading on the EU
market and the UK market is analysed. Benefits and threats of Brexit on that company
are assessed. In the initial section, the theory behind economic integration is explored
giving evidence from EU-27 and the UK. Possible models of the economic relationship
between the UK and EU-27 are identified. In the later section of the study, theoretical
opportunities and threats posed by Brexit on a company are highlighted. In the final
part, a strategy is designed to exploit the opportunities and avert the threats.
Identifying and describing theory behind the economic integration
Economic integration is the merger of economic policies among various states
through the full or partial abolition of trade and tariff restrictions before the integration.
The decision of economic integration is taken to lower the price for consumers and
distributors. This also helps to increase the welfare of the country through economic
productivity. The best option of economic integration is free competition, free trade and
no trade barriers2. However, free trade can be referred to as idealistic option and
economic integration is taken as the option for international trade where barriers of free
1 Wojcik, D. (2018). The New Oxford Handbook of Economic Geography. Oxford
University Press.
2 Baier, S. L., Bergstrand, J. H., & Feng, M. (2014). Economic integration agreements
and the margins of international trade. Journal of International Economics, 93(2), 339-
350.

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trade already exist. Brexit can be seen as the symptom of social disintegration in
European section and it is the influence of globalisation. Economic integration has many
stages and members' countries may have the preferential trade area. In order to
complete economic integration members of the countries must be integrated. Within a
geographical area, a regional bloc can be a group of states that protect themselves from
other non-members countries and from imports. These regional trading blocs are called
for as regionalism. Preferential Trade Areas exist when states agree to eliminate the
trade barriers on some of the goods or products imported from the members' areas.
Agreements are created among several countries as multi-lateral. On the other side,
Free Trade Area is created when some of the states decide to reduce the barriers to
trade on all products or goods coming from members' states. The EU is a Customs
Union as here it is involved to the removal of trade tariff barriers among the members
having the acceptance of unified tariff against the non-members. Countries those export
to the CU need to make a single payment when the products pass through the borders.
Free movement of services, goods, capital and people has always been primary
principle of the EU; however, intensive harmonisation is required in-laws of economic
integration to grab the openness in practice of continuous exercise. Cutting the barriers
from the trade can increase free movement of service and goods that can stimulate the
trade. Eliminating the barriers of trade can increase the competitiveness faced by the
firms. EU applies 9.8% tariff on motor vehicles those are imported from outside the EU
and it can be argued that EU diverts more trade than it makes3. In addition, free
movement of people and capital can increase the efficiency that enhances the
production process by allowing the labour force. In a single market, where domestic
market is open for foreign services and goods, prices can be raised to consumers. The
EU was the UK’s largest trading associate and in the year 2016, the UK exported to EU
approximately £ 236 billion (almost 43% of overall the UK’s export). In addition, the UK
imported from the EU approximately £320 billion in the year 20164. The UK also faced
the overall trade deficit in the year 2016 of £ 80 billion and the UK has a trade surplus of
3 The options for the UK’s trading relationship with the EU. (2018). The Institute for
Government. Retrieved 16 February 2018, from
https://www.instituteforgovernment.org.uk/explainers/options-uk-trading-relationship-eu

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£38 billion from the non-EU countries. Apart from goods, the UK exported 38% of the
services to the EU in the year 2016; these services are included with financial services
and overall business services. The East side of the UK has always been the highest
proportion of goods imports from the EU. EU tariffs on agricultural products were low.
Exports Imports Balance
£ billion % £ billion % £ billion
EU 237 43.1% 319 53.3% -82
Non-EU 313 56.9% 271 46.1% +39
Total 530 100% 590 100% -43
Table 1: UK trade with EU and non-EU countries in 2016
Source: 5
Figure 1: UK trade with EU and non-EU countries in 2016
4 Dhingra, S., Ottaviano, G. I., Sampson, T., & Reenen, J. V. (2016). The consequences
of Brexit for UK trade and living standards. International Journal of International
Relationship, 02-14
5 The options for the UK’s trading relationship with the EU. (2018). The Institute for
Government. Retrieved 16 February 2018, from
https://www.instituteforgovernment.org.uk/explainers/options-uk-trading-relationship-eu

5Global Economic Environment and Marketing
Source: 6
Identifying possible models of economic relations between the UK and EU-27
after the Brexit
The UK was the part of the EU and it has been dealt with trade deals. There are
almost 22 trade agreements between individual countries and the EU. There are five
multi-lateral agreements also. After leaving the EU, any UK trade business with the EU
will need adherence to EU policies and standards regardless of any agreement
adopted. The ongoing regulation in the UK that facilitates single market entry may not
change. Only WTO and CETA agreements would observe an end towards direct
financial contributions to the EU budget. In case of the free trade agreement, it will
depend on the agreement or deal that is negotiated and completely based on the CETA
model. Some of the services or goods may exclude from the agreements. Under any
agreements, the UK cannot influence the laws of the EU, only EEA (European
Economic Area) by Norway can provide some consultation to EU. The UK can follow
the Norway Model as Norway has full right to access single market and they accept the
EU laws. Norway needs to oblige to provide a financial contribution. Individuals from the
EU countries can work and live in Norway; however, Norway does not follow fisheries,
home affairs and agriculture and justice rules of EU. In case of Switzerland Model,
Switzerland is a member of EFTA (European Free Trade Association) and it has access
to EU market as they have more than 121 bilateral agreements. Switzerland has to
make a financial donation and it does not have a duty to apply to EU laws. Moreover,
Turkey Model explains that Turkey is neither in EEA nor in EFTA; however, it has a tiny
agreement in San Marino or Andorra7. Turkey does not face any tariffs or quotas for
6 Kreindler, R., Gilbert, P., & Zimbron, R. (2016). Impact of Brexit on UK Competition
Litigation and Arbitration. Journal of International Arbitration, 33(7), 521-540.
7 Five models for post-Brexit UK trade. (2018). BBC News. Retrieved 16 February 2018,
from http://www.bbc.com/news/uk-politics-eu-referendum-36639261

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industrial goods when it sends the products to EU countries8. Turkey has to respond to
bear the tariffs on goods import from non-EU countries.
There are mainly three types of agreements; one is Custom Unions where
countries can eliminate the customs duties in bilateral trade. The members' countries
can create a joint customs tariffs for importers from other countries. Second types of
agreements are Association agreements, stabilisation agreements, Free Trade
Agreements and Economic Partnership Agreements, in which the countries can remove
or decrease the customs tariffs in bilateral trade. In the third type of agreement,
Partnership and Cooperation agreement, member countries need to provide a general
framework for bilateral economic relations and they leave custom tariffs as the countries
are. EFTA is a free trade area consisting of Norway, Switzerland, Iceland and
Liechtenstein9. All the four members participate in European Single Market. CETA
(Comprehensive Economic and Trade Agreement) is an agreement of trade between
Canada.
Identifying theoretical opportunities and threats posed by the Brexit
After the incident of Brexit, currency fluctuation has been happening. For
instance, the pound fell to the lowest point in the 30 years. Therefore, exporters will be
an advantage if the pound falls and importers will experience the rise of the price of the
products. British farms may trade in the global market if the market price rises; the
products' price automatically rises in the UK market. In case of the agricultural products,
farmers may have the opportunity to sell the goods and services in the European
market; however, at this situation, the UK and EU both are trying to reach to an
agreement. In case of the online business, these companies are in threats of rising
costs as most the technologies come from the US. These will be more expensive.
Another threat for the business organisation, after the Brexit, trade barriers hinder Dutch
exporters and importers doing the business directly with the UK, it is an important link to
8 Kenward, M. (2016). Brexit leaves UK scientific research community in
uncertainty. MRS Bulletin, 41(12), 946.
9 Franks, J. R. (2016). Some implications of Brexit for UK agricultural environmental
policy. Centre for Rural Economy. 23-25

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the value chain. Free-trade agreements between EU and the rest of the world no longer
apply to the UK, therefore, UK based companies will see the trade barriers 10. In
addition, EU personnel in the UK working in the other EU based countries might have to
leave from the UK, therefore, UK based companies will lose the European talents.
British based businesses do not find the management time to continue business in
overseas as overseas legislation and regulation are getting changed. The UK had done
the Brexit because of to mitigate the disruption, companies are facing major challenges
from non-EU countries as there no legal clarity11. The UK based businesses can try to
apply the trade preferences after the UK has left the EU as there is no legal clarity and
documentation needs change. For instance, EU business may import the UK goods
may encounter an import tariff.
British competitors supplying the EU27 are less completive due to trade barriers.
The companies that have in-house expertise or services that can help other businesses
cope with Brexit. For the EU based companies, they need to find out the alternative of
the UK as other EU countries sell more to the UK than the UK sells to them. In the year
2016, the EU based countries sell almost £80 billion in goods and exports touched to
the £240 billion. Therefore, the companies will find the other open market for business;
it will open up the opportunities for the companies to try Netherlands and Germany
economy.
10 Bailey, D. (2017). Brexit, the UK Auto Industry and Industrial Policy. Regions
Magazine, 306(1), 4-5.
11 Nathan, M., Pratt, A., & Rincon-Aznar, A. (2015). Creative economy employment in
the EU and UK: A comparative analysis. National Endowment for science, technology
and the arts.

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Figure 2: UK share of exports of goods and services to EU countries
Source: 12
` On the other side, the UK based companies need to find the trade opportunities
apart from the EU based countries. In the African region, countries like Nigeria and
South Africa are starting to moving and maturing to develop as emerging markets. The
UK based companies are trying to open up the opportunities in this market by building
the infrastructure. The UK farming and agricultural sector is also trying to make
improvement in the Russia and Turkey. The UK has been facing the mini-recession and
recession always open up the way to innovation for the businesses. As unemployment
increases, that could be an advantage for retraining employees to pursue new ventures.
This means proactively teaching skills that are relevant to the new economy, such as
programming, entrepreneurship. GDP decreases, public spending will also decrease13.
This means there’s an opportunity for co-operative-like work on infrastructure and other
public services that may diminish. The companies will be beneficial if they do Financial-
12 Jeffery, C. (Ed.). (2015). The regional dimension of the European Union: towards a
third level in Europe? Abingdon: Routledge.
13 Allan, G., & Comerford, D. (2017). How might Brexit impact the UK energy industry?
Journal of International Relationship. 34-45

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technological investment as people are less rusting the Bank, it will be an opportunity
for technology to grab this.
Designing a strategy which could exploit potential opportunities and avert threats
Businesses need to understand each aspect of the business in which Brexit can
impact. The businesses need to consider if the companies can terminate certain supply
chain as the trade designing is changing. The UK can predict now a free movement of
goods, service, people and capital. Business needs to understand the business tariffs
and consumers may face the import duties. Business management should calculate the
costs and if it is possible, they can raise the price of the products. In absence of the EU,
the UK will be responsible for making trade relationship with other countries and the
companies can negotiate freely with the countries as well. In this situation, Brexit issue
can be handled by the companies through keep going and keep growing at the same
time. The company needs to invest in business as crucial time always provides a
chance to introspection. Companies need to build for all weathers as delivering the
growth in the sneaky economy is always challenging. In this scenario, the leadership is
important to exploit the opportunities and averts the threats of future and trade
relationship.
Companies can take the strategy of making subsidiaries in the EU countries for
trading advantages. Leaders of the business can calculate the costs and if they think it
is worth continuing the business, they can establish a subsidiary in the EU based
country. If the company does not have an office in Europe, they will definitely feel the
risk to set up a subsidiary in the EU jurisdiction. The company can transfer some of the
staffs to the EU based country and they can wait for the UK and EU agreement. This
will help the company to be profitable enough to weigh the partial relocation and costs
of the business. After the Brexit, the companies need to protect the skills and people so
that the staffs do not leave the companies. The companies can send the staffs to the
subsidiary to understand the legal and trade relationship. The subsidiary can be defined
as an incorporated entity made by the host country in accordance with the national

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business legal form14. The foreign company can fully own the subsidiary or controlled
through collaboration. The legal structure will define the statutory provision and
advantages to the subsidiary. The company can understand the economic volatility and
competitive advantage through the behaviour of the markets.
Conclusion
It has been observed that Brexit has made a breach to the UK from EU based
countries. A new model of economic integration is necessary for the UK now to continue
their trade and business. Loss of momentum is mutually problematic for both EU
members and the UK as both know the value of partnership. In addition, the UK has to
follow no longer need to follow the agreements of the EU and they can trade with any
other countries freely. However, the UK has to follow the models of economic
relationships in order to trade with EU based countries. The UK can follow the Norway
Model or Switzerland Model. The UK has to contribute a financial proportion in order to
trade with the EU countries. For a company, Brexit has posed opportunities and threats
as trade and legal relation now in dubious condition. The companies have to face the
risks of trade, working conditions, supply chain and financial measures. For the UK
based companies, they need to find out the opportunity from the different parts apart
from Europe.
The decision to leave the EU is a bold measure for the UK and it has made a
climate of uncertainty. Companies need to plan for the growth as it is a crucial decision
from the alternative. The companies can take risk of setting up of a subsidiary to
manage the transition.
14 Petria, N., Capraru, B., & Ihnatov, I. (2015). Determinants of banks’ profitability:
evidence from EU 27 banking systems. Procedia Economics and Finance, 20, 518-524.

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Reference style
Allan, G., & Comerford, D. (2017). How might Brexit impact the UK energy industry?
Journal of International Relationship. 34-45
Baier, S. L., Bergstrand, J. H., & Feng, M. (2014). Economic integration agreements
and the margins of international trade. Journal of International Economics, 93(2),
339-350.
Bailey, D. (2017). Brexit, the UK Auto Industry and Industrial Policy. Regions
Magazine, 306(1), 4-5.
Dhingra, S., Ottaviano, G. I., Sampson, T., & Reenen, J. V. (2016). The consequences
of Brexit for UK trade and living standards. International Journal of International
Relationship, 02-14
Five models for post-Brexit UK trade. (2018). BBC News. Retrieved 16 February 2018,
from http://www.bbc.com/news/uk-politics-eu-referendum-36639261
Franks, J. R. (2016). Some implications of Brexit for UK agricultural environmental
policy. Centre for Rural Economy. 23-25
Jeffery, C. (Ed.). (2015). The regional dimension of the European Union: towards a third
level in Europe? Abingdon: Routledge.
Kenward, M. (2016). Brexit leaves UK scientific research community in
uncertainty. MRS Bulletin, 41(12), 946.
Kreindler, R., Gilbert, P., & Zimbron, R. (2016). Impact of Brexit on UK Competition
Litigation and Arbitration. Journal of International Arbitration, 33(7), 521-540.
Liepmann, H. (2017). Tariff levels and the economic unity of Europe: an examination of
tariff policy, export movements and the economic integration of Europe, 1913-
1931 (Vol. 25). Routledge.

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Nathan, M., Pratt, A., & Rincon-Aznar, A. (2015). Creative economy employment in the
EU and UK: A comparative analysis. National endowment for science,
technology and the arts.
Petria, N., Capraru, B., & Ihnatov, I. (2015). Determinants of banks’ profitability:
evidence from EU 27 banking systems. Procedia Economics and Finance, 20,
518-524.
The options for the UK’s trading relationship with the EU. (2018). The Institute for
Government. Retrieved 16 February 2018, from
https://www.instituteforgovernment.org.uk/explainers/options-uk-trading-
relationship-eu
Wojcik, D. (2018). The New Oxford Handbook of Economic Geography. Oxford
University Press.