EU Referendum: should we stay or should we go now?
Naveen Aricatt, legal expert, UK at Trusted Shops discusses whether a leave vote could mean goodbye to cross-border commerce
June 23rd needs no introduction, or further explanation. It’s a date eagerly anticipated by all and will determine whether Britons stay in the EU or call for a Brexit. Unfortunately, there’s no precedence but lots of uncertainty in how the vote will unravel. And, while many arguments have been outlined by political representatives sharing their take on the pros and cons, the effects of a “leave” vote could be immense. That’s why, all things considered, it’s important to understand both the potential political and economic outcomes for the whole of Europe should a Brexit come to fruition.
Cutting ties with prospective customers and trading partners
Currently, the EU market covers 28 countries that provide 500 million potential customers. In short, not being part of the EU eliminates the privileges of free trade, free movement of goods and services and free persons, and with it cuts off the UK’s direct access to a massive pool of prospective buyers. Along with Germany and France, the UK belongs to some of the strongest markets in the EU. Yet, in the event of a Brexit, the internal market will be harmed, with the UK losing its most important trading partnerships (excluding the US and China) with countries like Germany and even upcoming markets like Spain.
Overcoming an uncertain relationship status
According to Art. 50 of the EU Treaty (which sets out the process of withdrawing from the Union) the UK must negotiate its new relationship with the EU in the event of a Brexit within two years. That means that the exact impact of a leave vote cannot be predicted yet, as this will mainly depend on what kind of relationship is going to be negotiated. Leaving the EU in the first place puts the UK in the position of a third country, (i.e. a country that is no member of the European Union) but we cannot assess the impact that will have for retailers until negotiations happen. This leaves a lot of room for businesses to be left in flux as decisions are made and this uncertainty could create problems. This includes the existing fluctuation of the pound and could result in other European investments in the UK being put on hold.
Questioning competitiveness with additional charges
Should there be a leave vote, it is doubtful that any of the four freedoms will continue to be applicable for the UK. For e-commerce this would mean that goods going from the UK to the EU will note be sold in the internal market, but from a third country to the EU. The risk of this is that customs duties may apply, making EU trade more expensive for UK retailers. Especially those in fashion who have succeeded in selling to countries like Germany, and could now struggle to compete on price point as EU consumers are attracted to offerings from other Member States, (where no additional charges apply).For small and medium size retailers in particular, the cost of exporting to the EU will hinder their growth capacity. Particularly given that these retailers will not be able to form strategic partnerships or retail co-operations as easily as some of the bigger market brands. As a result, a leave vote could see imports to, and exports from, the UK suffer. We must not forget that while the internal UK market might remain strong because of its size, that’s no good to businesses would want to continue their international expansion.
Considering consumer rights & competition laws
The Consumer Rights Directive recently harmonised much of consumer protection law and the recent UK initiative, The Consumer Rights Act 2015, made sure that the overhaul of the consumer protection landscape was in line with EU law. Competition law is also harmonised and this means that the jurisdiction of the European Court of Justice is accepted. Simplifying and harmonising these laws was a big step to offer greater internationalisation opportunities. If a Brexit occurs this could create another hurdle for UK retailers as they grapple with legal compliance when trying to interpret laws that could be different to their own.
Selling a tale of two parts – the loss for both sides
As far as retail is concerned, a Brexit doesn’t just pose the potential for a one-sided loss for the UK. The EU will also lose an influential market. Despite the fact that new trends and innovations are largely being driven out of the US retail market, European consumers still trust in the UK market and look to those retailers for both branded items and electronic goods. Yet, ultimately, without the benefits of the internal market, customers cannot be expected to continue to embrace the UK but will settle for alternatives. Even for those British retailers who are currently happy with their results on home soil, a potential Brexit could deprive them of any future growth opportunities they should wish to capitalise on.