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Post-Brexit trade deal will hurt both EU and UK economically

Posted by Warwick Business School at 28 April 2021, 21:00 CET |
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Nigel Driffield, Professor of International Business at Warwick Business School, said:

"Perhaps the most telling quotes after the ratification of the Brexit deal were from the parliament's Brexit Co-ordinator, Guy Verhofstadt and Michel Barnier who described it as a divorce that was bad for both sides, but better than nothing.

"They recognise how much the exclusion of the UK from the single market will hurt both sides and are comparing the deal with the position under EU membership, while the UK side has championed the deal as “getting Brexit done”.

"The UK has for 30 years been a bridge between America and Asia, and the EU, attracting far more than its share of investment, from firms who wish to serve the whole of the EU.

"At the same time, European firms have taken advantage of the UK's more flexible labour markets to locate certain EU facing activities in the UK, and as a result value chains cross between the UK and the EU several times. As Verhofstadt recognises, any frictions in this are contrary to the aims of the single market, and will deter investment in Europe

"Whether the UK will be hit disproportionately hard (as seems likely) will become clear in due course, though EY in their FDI surveys have highlighted an increase in UK FDI to the EU, and it is accepted that inward investment into the UK has declined significantly since the vote.

"This was inevitable from the point at which the UK government decided to interpret the Brexit vote as a vote to end European free movement of labour in the UK, and, even ignoring issues such as UK residents abroad, or questions over the Northern Ireland border, it is clear that the very limited deal that we have, is sub optimal in economic terms for both sides.

"There is no evidence that the UK will be able to replace EU trade with trade with the rest of the world, or the UK firms will find it easier to export to Asia or America than they did as EU members, because at best the UK is rolling over existing deals not improving on them.

"All potential partners recognise the political need for the UK to announce trade deals to its own population, and the deals that are being done reflect the somewhat one sided nature of the imperative to have things agreed, the Australia deal being a case in point."

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