In June 2016 the
people of UK voted to exit the European union. This will affect both UK and EU.
The impact of this divorce has been seen on the whole world. The news of Brexit
affected especially financial markets both UK and EU. Britain will see many
political and economic changes because of Brexit. The negotiation for the
future trade will start after the divorce. So Britain is still under EU before
Divorce. Britain’ future of trade with EU is not yet clear. With the effect of
Brexit, British currency will lose its value.
The company we are going to take is Tata Group. It is an
India Based company. Tata group has 19
different companies in UK. Tata group generates 35% of its revenue from EU and
UK That includes Jaguar range rover, Tetley tea and Tata steel UK. Every sector
certainly felt the pinch of Brexit. Many people say that Britain is ready for
specialization has been changed a lot for European countries under EU because
of economic integration. Market access is very important for the industries in
The countries under
EU are able to do the free trade. Many countries in world are doing free trade by
forming some union. Under free trade countries can move goods and services one
country to another without any barrier. After Britain come out of the EU, there is
going to be tariffs and barriers. Both the nations would be affected by Brexit.
Britain is a very strong country. It plays a very powerful role in EU. For example, Britain imports German cars so after Brexit import of
these cars would cost more to Britain.
As Britain was the
member of EU, there was free movement of people from one country to another. Britain
is dependent on the European countries for the cheap workforce. Because of the
Brexit immigrations rules will be changed. The lack of workforce will certainly
effect the Britain. UK got the largest share in foreign direct investment in EU
according to UNCTAD data. These investments
estimated to be 56 billion dollars per year. These investments will directly go
to the EU nations after Brexit. Britain will suffer the consequences.
Sterling pound used
by Britain strengthened the value of euro. After the divorce between Uk and the
European union currency like dollar and yen will be strengthen as compare to
Britain exports more
of its product to EU. For example, in 2014, according to the figures given by
bureau of statistic Britain exported 10% of its product to Germany, 6.9% to
Switzerland, 6.2% to Netherland and above 12% to united states. That means
there is not going to be free trading zone for Britain after Brexit. Countries
those are not the member of EU going to play a vital role after Brexit. UK has
good trading relationship with US. So US
is going to be a good trading partner with UK. If there will be restrictions
for UK for trading in EU after Brexit,
trading with US, China and Other Asian countries turn out to be positive for
Britain. There is a law for the nations who comes under EU, that they shall not
do business with other countries. Brexit will let Britain take its trading
decision by itself.
It appears that there
are pros and cons for the Brexit. Both UK and EU has to face the consequences.
Free movement of labour will suffer. When Greece left EU, its trading suffered
a lot. That effects its economy as well. Britain will face some consequences as
well. Britain may get some benefit also like free trade with other countries.
And it can grab onto some missed opportunity, the third country it can expand
its trading horizon to.
Brexit Approach with different Models
EU is the biggest
trade partner of UK. Being a member of EU the cost of trading was cheaper for
UK. Because of that goods and services
were never expensive for UK. Brexit will make the trade expensive for UK
because of higher tariff and other barriers. The only benefit would be less
contribution to the EU budget.
If UK go for Norway model, It can trade as a single
market with EU. That would not affect UK average income that much. GDP will
fall from £23 billion to £55 billion. EU income will also decrease after the
Brexit. The countries outside EU can experience some benefits.
UK will not be the
beneficiary for the other trade deals of EU. If UK removed tariffs on the
imports from other countries it will be in loss. If we look at Norway it is a
free trade partner with EU and enjoy free access to EU single market. But
Norway does not fall under EU custom union. There Norway still has to face the
rules of origin requirement and anti- dumping duties.
If we look at the negative effects of Brexit.
UK would have to follow WTO rules for tariffs if it would not be able to
negotiate with EU on single market Trade. It has the access to free labour
movement as well. But it does not have free access to the trading of services.
This kind of system will be very difficult for UK because it has a comparative
advantage in services. According to the Switzerland Model, this would be almost
similar to the Norway Alternative Again 1.30% loss of Income will be there. If
we look at the Swiss Model, Switzerland has many trade agreements with EU.
That’s why it has an access to the EU single market. It does not come under
EEU. Norway and Switzerland has a very limited influence on regulation made by
EU. When we talk about the different Models, it does not mean that UK will do
exactly the same way after Brexit. Britain will bargain in its own way and will
change according to its own needs and situation. EFTA style trading relation
with EU looks more appealing. Switzerland is doing very good as an EFTA only
Another thing EFTA let its member decide their
trade deal with third countries. EU has there on rules when it comes to trading
deals with third country. It ignores the biggest developing economies of the
world. After Brexit Britain would be able to concentrate on those countries as
well. EU has not much deals with India, Republic of china and Indonesia.
After the Brexit UK
will be free to make its own trade deal with rest of the countries of the
world. UK is looking forward to its new trade deals with America, India and
Republic of China. UK market is very small compare to EU. UK would not be able
to bargain with other countries on some trade deals. The economy of Switzerland
is global. It has free trade agreement with EU and some agreement with China,
Japan and other countries. Swiss has a rich economy. People of Switzerland do
not want to join EU. The main problem with the Swiss model is it still have
some arrangements linked to EU. UK should not make that mistake while talking
to EU. Another problem is Switzerland is not having single market for financial
service with EU. But Swiss has never face any problem because of this.
Brexit would not mean that UK will not
contribute to the EU Budget. Like Norway give some payments for accessing the
single market of EU. But we can assume that UK contribution to EU budget will
fall by 17%
Brexit will certainly
affect non- EU countries as well. Countries who does maximum trade with UK will
bear some loses as well. Some countries like Russia and Turkey will be in
benefit because their trade will increase towards these countries.
investment in UK will likely to be go down after Brexit. migration is found to aid growth and help
to reduce the budget deficit without serious adverse labour market effects
The process of Divorce will take another two years. So UK
is still a member of the EU. Everything is dependent upon the strategy Britain
will go for after the final exit. As we all know there will no turning back
after the Divorce of UK and EU. The impact on the economy is depend on the
model UK adopt with EU. Changes may be not much if Britain stays in the
European economic Area. If UK go farther from EU in relation to the trade then it
has to face more changes. The reason being EU is UK natural market.
Norway and Switzerland are the best example how a country
can survive outside EU. UK should go for single market option so that the
access to the free trade would be still there. EFTA sounds
better for Britain. Under EFTA Britain would be able to get maximum access to
world’s biggest economies which was not possible staying in EU. Britain can have good trade deals with USA
and Asia. Britain can have a good EU- 27 relationship by joining EFTA. But UK
has to negotiate with EU on service rule and migration arrangements. The
solution to the Brexit seems to be possible. Brexit may open to the doors to
many opportunities. It will serve the purpose both to the countries who want
free trade and who want political unions.
Uk will be free to make
independent trade deal with other countries outside of UK
been argued that EU does not make those deals in trade which benefit UK. EU is
in the process of maturing another free trade deal with US and Japan. UK will
not get any benefit out of these deals after Brexit. Another free trade deal is
threats on company
The downfall in
currency will certainly going to hit Tata Groups. Tata group has more exposure
to UK and EU markets. JLR does more business with European countries so after
Brexit it has to face more tariffs and other barriers. Tata Elxsi, other
company of the Tata group, half of its income is generated from EU. 30% of Tata
steel comes from UK. Economic future of UK is not certain so that is going to affect
the overall demand of Tata steel in Europe. The company is planning to sell its
UK business. Another company of Tata group is Tetley tea. Fall in pound will
certainly affect the company’s income. Tata consultancy Services (TCS)
generates 27% of its income come From other countries in Europe. 16% out of
this 27% comes from UK. Fall in the value of currency of both UK and EU will
result in less income for TCS.
if we look for the opportunity for data groups
after Brexit. It has more developing markets of other countries around it. The
Demand for JLR is increasing in China and other countries. JLR is Britain’s
biggest car manufacturer and very important for UK industry. They are Britain’s
largest exporters as well. After Brexit JLR will be more competitive to
To survive the Brexit gracefully, Tata group
has to make changes to its strategy accordingly. The scenario after the final
divorce would be very different for Tata group. That will change the whole
approach to the EU market. Tata group has to re- consider the all trade deals
with EU countries and make changes to its future strategy accordingly. As JLR
has the full support from Britain. Its going to launch its first electric Car
model in 2020. As of now the future economic conditions of the economy is not clear.
This will be clear after the final step. When UK will negotiate it trading deal
with EU. We can ignore the fact that there are so many growing countries around
the world. Tata group will get better chances to expand its territory to other
developed economies of the world for better trade.