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From Westminster Abbey to Your Shopfloor -- An Explanation of 'Brexit'

From Westminster Abbey to Your Shopfloor -- An Explanation of 'Brexit'

Yesterday’s vote by 52% of the United Kingdom to exit from the European Union—the so-called British exit (Brexit)—has sent shockwaves across global financial markets and plunged manufacturers on both sides of the Atlantic into a long period of uncertainty. While there are no direct immediate consequences for the day-to-day operations of businesses in the United Kingdom, European Union or the United States, all businesses engaged in the transatlantic market need to start preparing for the changes that will in fact come.

Given the size of the U.S. commercial relationship with Europe, the U.K. decision is expected to have wide ramifications. Indeed, the U.S. commercial relationship with the United Kingdom and European Union combined is the United States’ largest in the world, representing about 40 percent of the global economy. Trade of U.S.–EU manufactured goods reached $836 billion in 2015, and cross-border investment equaled more than $5 trillion. Many U.S. companies with EU operations have headquarters in London, and about 17% of U.S. manufactured exports to the European Union are destined just to the United Kingdom.

What Brexit means for manufacturers in the United States and their partners in Europe is expected to take years to unravel. The United Kingdom will soon start detailed and comprehensive negotiations with the EU under Article 50 of the Treaty of the European Union to set the terms of its withdrawal, a negotiation which some expect may take two years or more. Expected impacts will be both on the U.K. market in particular and its trade and investment relationship with the EU:

  • Businesses operating in the United Kingdom will undoubtedly see a change in the legal regime governing a wide range of their activities after separation, as U.K. rules will be substituted for EU directives and regulations. The extent of these changes, for better or worse, will be determined through the course of the negotiations and subsequent U.K. lawmaking. Yet, for U.K. manufactured exports going into the EU, EU standards and regulations are expected to continue to apply for those goods to be eligible for sale, as EU standards and regulations apply to U.S. exports.
  • Similarly, the United Kingdom will be negotiating a new trading relationship with the EU, which may impact all businesses engaged in those markets. In particular, the withdrawal agreement will determine the tariffs and other terms of trade by which manufacturers in the United Kingdom access the EU market and EU manufacturers can access the U.K. market.

There are, however, much broader trade and investment implications of Brexit.

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ShopFloor is the blog of the National Association of Manufacturers (NAM).

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