The future of the United Kingdom in the EU will be put to the vote in a referendum on the 23rd June. With the campaigns on both sides of the debate becoming increasingly hostile, we will attempt to consider some of the key issues that are likely to affect the sector in the event of the UK deciding
to leave the EU.
If the vote is for a British exit or ‘Brexit’. then there will follow a 2-year ‘transition’ period; this is the time between the UK notifying the European Council of its intention to depart and the actual departure of the UK, although many believe that much longer would be needed to renegotiate Britain’s new relationship with the EU.
What is currently unclear is which model of relationship the Leave campaign envisages for the future: being part of the European Economic Area (EEA) or European Free Trade Association (EFTA), such as Norway or Switzerland, would mean that the UK would continue to be bound by the very ‘freedom of movement’ principle those wishing to leave object to, and the UK would, in effect, be likely to retain all EU product standards, financial regulations, employment regulations and make substantial financial contributions to the EU in return for access to the market.
The UK would, of course, begin a process of negotiating its own trade agreements with the EU and other countries with which the EU currently has trade agreements, and some believe this would free the UK. Remain campaigners counter, however, that there would be no incentive for the EU—however much it intended to continue its trade relationship with the UK—to offer terms more favourable than those offered to other EU members, as it might lead to other members demanding to leave. And it is questionable whether third countries would be willing to offer the same trade terms to a single nation as to the EU as a whole.
For commodities, it seems there would be a signi cant potential impact were the UK to leave. For those based outside the EU, access to the UK market may not change signi cantly; however if the UK and the EU failed to agree trade terms, trade would take place under WTO rules, and there could be increased tariffs on UK goods.
For those UK rms trading with EU counterparties, new trading requirements could be introduced, and as the UK would no longer be part of the Customs Union, new customs tariffs could be created.
At the recent Holman Fenwick Willan breakfast brie ng, those with physical commodity trading contracts involving parties based in the UK or elsewhere in the EU were advised to review these in the event of a Brexit, particularly in the case of long-term or master contracts. Other contract issues to consider would be currency and import/export and transit procedures, which may be affected.
A big concern for businesses is whether EU legislation, such as REACH, will continue to apply to UK-based companies importing into the EU, or indeed whether the UK government will implement similar domestic legislation. Again, it appears that this will depend on the type of relationship the UK chose to adopt with the EU.
Whichever way the vote goes, this referendum is certainly an historic moment for the UK. The outcome of the referendum will be known on the 24th June.
Holman Fenwick Willan Commodities Bulletin April 2016—Brexit—Key Questions for the Commodities Sector