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Brexit fallout to be worse than expected, Finnish think tank says

There's a major risk that British firms reliant on cross-border trade will move abroad, warns ETLA.

Binokulaarinen jalustan läpi kuvattu maisema Lontoossa. Vasemmassa aukossa näkyvät parlamentin tornit ja oikeassa aukossa Big Ben.
File photo from 28 January 2019 of British Parliament building photographed through a binocular stand in London. Image: Andy Rain / EPA

The UK's eventual - and still uncertain - departure from the EU will have much broader negative consequences than previously thought, according to a report issued by the economic think tank the Research Institute of the Finnish Economy (ETLA). The group examined the United Kingdom's trade links with Finland and the EU.

The report said that the UK is tightly aligned to international value chains, which will undergo changes when - and if - it leaves the EU.

The purpose of value chains is to help reduce costs and maximise profits, but if those chains are missing one, or have several weak links, they become less effective, the think tank noted.

In a post-Brexit world, an example of a weak link could be a single issue like exports getting stuck in customs disputes or being additionally taxed; a scenario that would increase costs for UK firms - and could prompt them to leave the country.

Weakened links pose threat

ETLA said that international value chains are particularly sensitive to individual weak links, and that a departure from the trade-friendly EU poses a major threat, noting that it is common for UK companies to assemble products using components from other EU countries.

Then, those finished products are commonly sold across the EU, according to the report.

After departing the EU, this arrangement would lose its cost-effectiveness and UK-based firms are beginning to consider moving abroad, to countries in which there are no such trade barriers.

ETLA noted that the UK is an important trade partner of Finland. According to Statistics Finland, Britain was Finland's seventh-most important export country, ranking eighth in imports in 2017.

Uncertain future

The future of the UK's departure reached a dramatic and confusing cliff-hanger on Wednesday night as British Parliament voted to refuse to go along with a no-deal Brexit.

Many pundits say the non-binding vote will likely lead to Parliament voting on Thursday to seek an extension to the 29 March Brexit deadline.

Whether that happens, and if all 27 other EU countries will go along with an extension, remains up in the air.

Several international corporations and firms have reportedly already announced that they have made the decision to leave the UK or are seriously considering the idea. These include Japanese automaker Nissan, electronics firms Sony and Panasonic and airplane manufacturer Airbus.

Even iconic British automaker Jaguar Land Rover has warned it could close its UK operations, which employ 40,000 workers.

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