In June 2016, the
people of UK voted to exit the EU. This will affect both UK and EU. The impact
of this divorce will be on the whole world. The news of Brexit affected financial
markets of 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. Britain is still under EU before Divorce. Britain’s future of trade
with EU is not yet clear. With the effect of Brexit, British currency will lose
its value. The future of Britain economy is uncertain at this moment. And the
countries who does maximum business with EU and UK will face the consequences
as well. Trading arrangements of UK with EU and other countries will change.
will see changes after the main negotiation.
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, Tata steel UK and TCS. Every sector certainly felt the pinch of
Brexit. In the following, we will discuss about the advantages or disadvantages
of Brexit on the company. We will also throw some light on theory of trade
integration, how the Brexit will affect UK, EU and other countries and what
kind of models and technique Britain can go for in the future. As of now
nothing is clear about the future of the Economy. There will not be any other
referendum for UK to go back to EU. That is why UK has to make favourable trade
agreements with EU and other countries. Some economists are saying that few
years may be a difficult time for Britain but after that everything will be
back to the track. EU will also face some losses because Britain is one of the
The way of producing things has been changed
because of economic integration. The countries are becoming more specialised in
production because of trade integration. Because of free trade policy between
UK and EU import and export of the goods and services became easy for both countries.
The production became more specialised because of the economic integration. Because
of the free trade Market people have to pay less price on the goods. Free
trading access is very important for the future of the economy of different
under EU are able to do the free trade. Many countries in world are doing free
trade by forming some unions. Under free trade, countries can move goods and
services from 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 will be affected after
Brexit. Britain is a very strong country. It plays a very powerful role in EU.
Britain imports German cars from EU. So after Brexit import of these cars would
cost more to 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 labour.
There are chances that after the final divorce there will be no free movement
agreement between them. 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. The
strength of pound helps to increase the value of euro. currency like dollar and
yen will be strengthen as compare to euro.
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
who are not member of EU going to play a vital role after Brexit. UK has good
trading relationship with US. So UK has a good deal for free trade with US
after Brexit. 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 and it
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 would be to do
the trade as a single market with EU. That would not affect UK’s 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
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. But Norway still has to face the
rules of origin requirement and anti- dumping duties.
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 trading 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 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 state.
Another thing EFTA let its member decide their
trade deal with third countries. EU has its own rules when it comes to trading
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.
Brexit UK will be free to make its own trading deals 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 may not
be able to bargain with other countries on some trade deals. But other
countries may be interested to do business with the strong neighbour like
Britain. 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%
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.
Opportunity and threats for Tata groups
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.
The process of Divorce will take another two years. 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 upon 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’s natural market.
Norway and Switzerland are the best example how a country
can survive outside the EU. UK should go for single market option so that the
access to the free trade would be still there. EFTA sounds a
better option 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
It has 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.
Leaving the EU would not be an easy
process. It will take time for both UK and EU to settle down after divorce.