The Brexit: Why? - Really? - And cross-border e-commerce?

June 30, 2016 by
Janine Nothlichs

One week has gone by since the British voted to leave the EU. Or should I better say, 51.89% of the 72% who turned up to vote favoured the ‘Leave’ side? An outcome that has shaken up Europe. I took a week before I sat down to write this, carefully weighing all that I have read and heard. Some may find this late- I guess it might be too early: If I have realized one thing throughout the past few days, it is that predicting the future- and the consequences of the Brexit in particular- is extremely hard. I have compiled some of the most stunning quotes and arguments I came across so far, and gathered a small expert panel in order to discuss the possible repercussions for cross-border e-commerce.

by Janine Nöthlichs, Editor-in-Chief

Just to sum up a few things that have happened since the vote: Cameron resigned, Scotland announced it will strive to find a way to remain in the EU, stock-markets reacted negatively, the pound dropped, and allegedly thousands of Britons residing in Belgium have inquired whether they can apply for the Belgian nationality, and companies headquartered in Britain are looking for alternatives. “Uncertainty” may be the word that sums all this up in the best possible way.

Point of no return?
The president of the European Commission, Jean Claude Juncker, made very clear that he wanted negotiations for Britain to leave the EU to start as swiftly as possible “It will not be a pleasant divorce,” he  stated, “But is has never been a marriage of love anyways.” In an interview with BILD/ Business Insider, he made his perspective on the procedure and possible consequences very clear: “The will of the British people must now be put into effect as quickly as possible. Under Article 50 of the EU Treaty the UK must leave the European Union within two years at the latest. Between now and then, after 43 years of European marriage, the whole body of legislation will therefore have to be disentangled. That entails a whole range of specific and very complex questions: what will be the future legal status of the millions of EU citizens in the UK and the millions of Britons on the continent? How will the exit affect thousands of British pensioners living in Portugal or Spain who will lose their access to the welfare and health systems? Fifty-three free-trade agreements, which were negotiated by the EU on behalf of all Member States, are also hanging in the balance for the UK.” Just as Juncker, also the German chancellor Merkel has made clear that the new treaties to be negotiated should in no way become a ‘cherry picking party’ for the UK. But can one live without the other? Economically speaking, the EU and the UK will always remain partners, trade will continue, even if the circumstances have to be adapted.

The big “why”

To many, it has been quite surprising that the British have been the first Member State to officially leave the EU. As the Wall Street Journal points out, "Britain had managed to get itself a deal where it got only the good bits of the EU — free trade and an integrated market, and free movement of people within the union — while keeping its own currency and its own passport controls. The British relationship with Europe was a model for what a slimmed-down, good-parts-only EU should have come to look like." A possible motivation for the ‘Leave’-campaigners might have been raising up the pressure: “Boris Johnson, a leader of the Leave campaign and Britain’s probable next prime minister, hinted at his real thinking back in February, when he said: “There is only one way to get the change we need — and that is to vote to go; because all EU history shows that they only really listen to a population when it says No.” (Source: FT.com)

Already in May, European Council President Donald Tusk admitted in a speech quoted by the Wall Street Journal that “Obsessed with the idea of instant and total integration, we failed to notice that ordinary people, the citizens of Europe, do not share our Euro-enthusiasm.” The threat of Europe to fall apart has shown the political class that an ‘ever closer union’ will only work if the citizens can trust in what they are served.  “The specter of a breakup is haunting Europe, and a vision of a federation doesn’t seem to me like the best answer to it.”

This sentiment was echoed by MEP Nigel Farage (UKIP) in the Europen Parliament on June 28, where he accused EU officials of having “by stealth and deception, and without telling the truth to the rest of the peoples of Europe, […] imposed upon them a political union.”

To Brexit…or not to Brexit?
Another voice that is increasingly heard is that of people that believe that Britain will in fact not leave the EU at all: “Any long-term observer of the EU should be familiar with the shock referendum result. In 1992 the Danes voted to reject the Maastricht treaty. The Irish voted to reject both the Nice treaty in 2001 and the Lisbon treaty in 2008,” writes journalist Gideon Rachman in an article on FT.com. He continues: “And what happened in each case? The EU rolled ever onwards. The Danes and the Irish were granted some concessions by their EU partners. They staged a second referendum. And the second time around they voted to accept the treaty. So why, knowing this history, should anyone believe that Britain’s referendum decision is definitive?” What if Article 50 is never triggered? What if the outcome of all this will indeed be a ‘European Makeover’ instead of Member States leaving the institution?

E-Commerce and cross-border trade
If there has been a European success story of cross-border e-commerce, it is definitely the UK. Europe’s most mature online retail market has not only been a favourite shopping destination for many international webshoppers, it’s retailers also profited from a large international audience. This success was not only fuelled by the market’s maturity and the technological advancement, but also by the fact that English is the most common second language in the world. According to a report by the Ecommerce Foundation, in a world-wide comparison, the UK ranks third, only behind global giants China and the United States. It is the world’s second most popular cross-border destination behind the US, and in terms of per capita online spend, the UK even tops the bill. British e-commerce pure players such as Boohoo.com or ASOS see major shares of their buyers come from abroad. So can we predict the consequences of a (possible) Brexit for cross-border online retail, in Britain and the EU in general? As I said before, this is hard to predict.

The Cross-Border Magazine has gathered some ideas by a panel of experts from diverse fields to shed some light on the possible consequences. Please feel free to share your thoughts as well! I am happy to be part of a vivid exchange!

Luc Delany, CEO Delany & Co, Former European Policy Manager at Facebook:
Whilst the dust settles on the result of the UK’s referendum on UK membership many of us are trying to figure out what this means for our country and for our businesses. What is clear, is that the new Conservative Government will be formed with an un-elected Prime Minister. She or he will pursue a Brexit policy but it would be a foolhardy move to trigger Article 50 immediately and without Parliamentary debate. They may even need to call a General Election as a new Government will not technically have a mandate from the electorate (UK-referenda a purely advisory).

For cross-border business; plus ça change, plus c'est la même chose. For the time being the UK is a fully paid up member of the EU and will be until two years after Article 50 is triggered (which may never happen). A savvy PM will want Parliament to back them for the sake of democracy and to share the blame for what happens next. Parliament does not want to leave the EU.

Whatever happens the UK has one of the world’s strongest economies. The EU will want to trade with the UK and vice-versa. That could mean a 3% trade tariff which could be absorbed by currency fluctuations or reductions in other taxes on the UK side. It’s not the end of the world, just the world as we know it.

Sjoukje Goldmann, Cross-Border E-Commerce Researcher, PhD Candidate and lecturer at the University of Applied Sciences in Amsterdam:
What we see in our research ‘the state of cross-border e-commerce in Europe’ is that the UK is one of the leading countries on our continent with regard to (1) the number of online retailers offering international shipment in their web stores (50 – 70%) and (2) attracting a good share of cross-border web visitors (> 30%, whilst the European average is 23,6%). Differences in rules and regulations between the European countries are, unfortunately, still one of the main barriers to the success of cross-border e-commerce in the European Union (EU). The EU works hard on harmonizing rules and regulations between its member states, but with BREXIT the UK will not be part of this anymore. If it is both easier and cheaper for European customers to order from other countries on the main land than from the UK, we expect this will negatively impact the number of European customers in the UK web shops.

When the Digital Single market is in place and fully operational, it is more attractive for companies to legally register in one of the EU member state. If BREXIT would not have been there, companies from overseas continents might have chosen the UK as the UK has been known to be a good gateway to Europe. And UK based companies will consider moving to the mainland for the same reasons. So yes, BREXIT will definitely impact the current success the UK online retailers have in Europe and diminish future opportunities they would have had if they had stayed part of the EU.

Lily Varon, Forrester Analyst:
“While the long-term implications of "Brexit" will be hammered out in the next few years, the short-term uncertainties will definitely have an impact on eCommerce and cross border trade in the region. Regardless of outcome, online retailers can expect a) shaky consumer confidence to impact spending, b) uncertain immigration laws to impact staffing and hiring, and c) product delivery and innovation to slow as retailers spend more time wrestling with uncertain trade rules and privacy regulations than improving the customer experience. While certainly a political crisis, whether this will be a short-term hit to business or have a longer term impact depends heavily on Parliament's decisions going forward and, in the case of an exit, the trade agreements established.“

Frank van den Berg, Country Manager and export expert for the UK (Salesupply):
While in the medium to longer term details of trade and other relationships will undoubtedly be impacted, some fundamental things will stay the same:

  1. The UK is and will remain the largest e-commerce country in Europe by far, in size equal to France and Germany together. It is also the fifth largest economy in the world, and will continue to be a part of Nato and have a seat on the UN security council;
  2. The central financial and fiscal management is exceptionally strong. The national debt as % of GDP has been brought down from 11% 6 years ago to 3%. In other words, the UK economy is one of the healthiest in the Western world;
  3. The continent will continue to be the main trading partner for the UK, and the UK one of the main trading partners for the countries of Europe. The fundamentals of the economy and trade will not change;
  4. This was not a vote against working together with partners across Europe and the world, not a vote against other people - rather a vote against an institution many people had lost faith in, it is a wish to work together differently;
  5. The more structural things like trade agreements will take a few years to sort out. Until then existing deals will remain in place;
  6. Based on the Norway and Switzerland examples it is likely that by far the most rules and regulations will remain the same as within the EU and that free movement of people will continue in some form or other;
  7. All parties including the EU and UK will have a strong interest in making any changes smoothly without affecting international commerce;
  8. The UK has always been on the periphery of Europe, not only in geographic sense. It is also the one country with its own currency, so in that sense nothing is changing;
  9. While in the short term the £ will stay lower against the Euro and potentially affect your selling price, local competitors now will have to pay more for imports - putting upward pressure on their prices too;
  10. English is still the dominant language of e-commerce and a great UK web shop will continue to be a great shop window to the world;
  11. You have and will continue to have a stronger team in the UK standing ready to respond to any opportunity and deal with any challenges.

After the dust has settled, I expect the reality could well be a scenario where it is mostly 'business as usual' within a trend of well-managed change.

No doubt there will be surprises, but these might create as many opportunities as challenges, for our countries, our companies and teams. Let’s keep a close eye on developments and be ready to respond to these and move things forward positively and working together even better.

 The Cross-Border Magazine is a new print magazine on cross-border online selling throughout the world. We will at all time strive to be up to date about all things cross-border, be they financial, political, economical or else. Don't forget to order your free copy!

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