So, with the European Referendum hanging over the heads of small businesses across the UK like a big, black cloud, just what will unfold post 23rd June 2016 if we vote to “Leave” the EU? No-one seems to be able to tell us, and this uncertainty is what is keeping small business owners awake at night! What will the world look like for small business owners with ambitions to export after next Thursday?
Well, drawing from experts like Lesley Batchelor, Director General of the Institute of Export, and Catherine Barnard, a Professor in European Union law, I can say with almost certainty that my husband will still be able to join the EU Members passport queue when he returns from his US trip early on Friday. However, in terms of companies exporting to Europe (approx. 50% of goods exported go to the EU), although not instantaneous, life will start to look very different.
Possibly the first step will be that UK companies will start being charged import duties on goods exported to the EU, this in turn will increase the price of those products in the local target market, perhaps (not a definite) making them less attractive to consumers. UK products will also become subject to VAT charged between states, and this VAT tariff will affect the price the consumer ends up paying. In fact, it is estimated that import tariffs would be imposed on some 90% of our goods exported to the EU by value, dramatically changing the competitive landscape for UK exporters.
So how is this different to now you may ask? Well, quite simply, as a member of the EU we are not charged import duty on our exports and VAT between states is covered by our subscription to the EU, so UK exported goods remain competitive in local markets and UK small businesses are not crippled by excessive export tariffs.
The second step is that the UK government will begin the arduous task of negotiating trade agreements, of which there are a raft: goods, goods and services, a basic preferential rate, free trade, customs union …. Until each trade agreement is reached (it took Canada over 5 years) we would revert to the World Trade Organisation’s agreement which enables the EU to apply a tariff to UK goods, so long as the tariff is not higher than that imposed on other non-member states exporting to the EU.
Talking of trade agreements, what are our options? Let’s consider 3:
- We do a “Norway” – Norway is a member of the European Economic Area (EEA) and benefits from free movement of goods, however it does not benefit from the 50 free trade agreements (FTAs) that EU members benefit from. So, only part of the pie we enjoy currently would be up for grabs;
- What if we do a “Switzerland? – Switzerland manages its relationship with the EU via a number of bilateral agreements. The UK could negotiate a free movement of goods agreement with the EU, however our bargaining power is weak, we sell 50% of our goods to the EU, its sells a mere 6% to us – we’re hardly top of the list!
- OK, so we do a “Canada” then? – Canada negotiated a free trade agreement with the EU, we could do this, however it took Canada 5 years. Can small companies support the tariffs, red tape, and potential loss of business whilst our government hurriedly negotiates global FTAs? It’s doubtful, many are only just starting to get back on track after the recession.
Outside of the immigration argument, which I point blankly refuse to engage in, the other complaint I’ve heard repeatedly is how we pay in more than we get out. I agree, we do (certainly not to the figure Boris Johnson has emblazoned on every London bus you see), there is a deficit in our trade with the EU, but this is NOT an issue of the EU’s making. There are two reasons for this deficit:
- We as a nation let our manufacturing sector crumble and instead focused on the service industry
- Until recently, we have not made export an attractive option, we have not invested in helping companies, especially Small to Medium-sized enterprises (SMEs) export their goods
Surely, it stands to reason, the solution to paying out more than we get back, is to focus our efforts on getting more out than we pay in!
I’ve gotten increasingly frustrated listening to arguments of how we are in some way “hard done by”, how the EU robs us of our money and we get little in return. The truth is we, as a nation, haven’t marshalled our efforts to making the most of this fantastic trading block we have, it doesn’t take a rocket scientist to do the maths, we export more, and we get more out. And, it would seem that Mike Cherry, FSB National Chairman agrees with me (Yay! I’m not making it up!) “Small businesses have huge potential to export, both within the EU and further afield. Only by supporting these businesses to achieve their potential will the government succeed in closing the UK’s long-standing trade gap.”
And on that note I’ll leave it. If only the EU referendum’s dark cloud was as transitory as the one that’s just passed over my office; bit of thunder and lightning, 5 minutes of torrential rain, then glorious sunshine again. Sadly, I fear if the Brexit campaign is successful, the effects of the EU storm clouds will be felt by UK small businesses, in fact by the whole nation, for many years to come.
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