Hard Brexit to have serious implications on Australia
Theresa May’s abortive attempt to pass the Brexit withdrawal agreement (WA) through Parliament has driven the UK to a precipice. It now risks crashing out of the EU on 29 March 2019 with no exit agreement.
The UK’s exit from the European Union is forecast to cause serious implications for Australia. But what would a hard Brexit entail?
A hard Brexit means the UK will immediately leave both the EU’s single market (SM) and the customs union (CU), something the WA would delay. This, the Committee for Economic Development of Australia says, will ignite an industrial chaos.
“CU membership means the UK remains subject to all EU border and customs requirements; for business, this is a positive aspect, as UK tariffs will remain harmonised with the EU, while SM membership is retained, ensuring the Four Freedoms (free movement of goods, services, labour and capital) continue for 21 months,” CEDA explained.
Many have predicted that leaving the CU and SM in March will mean inhibited long-term economic growth for the UK, which will spill over and affect its investment power.
The UK is Australia’s second biggest investor.
In 2015, UK direct and portfolio investment in Australia totalled $499 billion.
“Once excluded from the SM, British banks will no longer have ‘passporting’ rights to offer financial services throughout the EU-27,” CEDA said.
“London-based firms have already begun shedding staff and shifting operations to Frankfurt, Paris and Dublin.”
What is a WA?
The EU-UK WA was finalised in November 2018 and Ms May planned to bring on the vote in the House of Commons in early December.
However, faced with the prospect of losing in the Commons by 200 votes, May chose to postpone the vote.
After surviving a no-confidence motion in her party room with a very slim margin, she now faces the task of persuading her party to pass the WA in January 2019.
The WA is necessarily a compromise between a ‘hard Brexit’ and a transition arrangement that, according to CEDA, would do least harm to the economy and industry. The WA also paves the way for a EU-UK free trade agreement (FTA), once the WA is ratified.
Affect on SMEs
Recent research by the Dun & Bradstreet Corporation revealed that 32 per cent of the surveyed UK SMEs are concerned about the negative impact of Brexit on their businesses, while 35 per cent have cancelled their expansion plans as a direct consequence of Brexit.
“As a result, this may influence their international trade activities with foreign partners and suppliers, including those based in Australia,” the Institute of Public Accountants said in its Small Business White Paper, published in partnership with Deakin University.
The situation could also deteriorate if a hard Brexit becomes reality.
Small business owners are following the lead of major employers, such as Jaguar Land Rover, who have have axed 5,000 jobs, victims of Brexit uncertainty and falling Chinese demand.
Lesson of economic disintegration
The Bank of England, treasury and every credible private and public-sector economic forecaster has warned of dire consequences of a hard Brexit.
Recent UK economic performance already lags behind its EU stable mates, including Germany, France and Italy, on almost every major economic indicator. The lesson of economic disintegration is clear: no country has ever withdrawn from a FTA and experienced increased living standards.