There are also uncertain policy implications for the timber sector associated with Brexit. UK technical standards for the vast majority of building products are now set at EU level under the terms of the EU Construction Products Regulation.
This situation won’t change any time soon, particularly as even after the UK has left the EU, UK manufacturers selling any product into the EU will have to continue to abide by EU standards. However, the UK’s exit from the EU would open the door to gradual divergence of UK and EU standards for construction and other products.
The same could be said of regulatory requirements like the EU Timber Regulation (EUTR), although again it’s unlikely that there will be any significant change in the terms of this regulation in the UK in the foreseeable future.
The UK in both the public and private sector has been a leading player amongst EU countries to develop measures such as the EUTR, provide political and technical support for FLEGT and promote responsible timber procurement policies. There’s no reason to expect Brexit to lead to a reduction in this level of commitment, nor a reduction in co-operation between EU and UK agencies seeking to address these issues.
Speculation about when, or if, the UK will leave the EU
There is still speculation that the UK may never actually leave the EU. An on-line petition has been signed by more than 2.5 million people calling for a re-run of the referendum on grounds that less than 60% voted to leave and turnout was less than 75%.
The legal basis for this petition is dubious since the terms agreed for the referendum in advance were that the decision required a simple majority of those voting and not a super-majority of the voting population as a whole.
A more convincing legal argument is that, as the UK is constituted as a parliamentary democracy, MPs must still vote to implement the referendum result which, from a legal perspective, is only “advisory”. A majority of MPs may yet vote against the parliamentary motion to repeal the 1972 European Communities Act, by which it voted to take the UK into the EU, and thereby prevent the UK leaving.
At this stage, the latter scenario seems unlikely. It would be highly divisive and likely to create even deeper political conflict and prolong the uncertainty. The statements issued so far by both the UK government and jointly by the leaders of the EU Member States, assume that the UK will now act on the referendum result and leave the EU within the two-year timeframe required once the Article 50 procedure is initiated - a move now widely expected sometime between September and November this year.
It is possible the situation will change – negotiations with the EU might prove too difficult, or the economy might slide to such an extent, or the divisions between the various constituent parts of the UK become so great - that British MPs vote to try to halt the process at some stage.
In that event of course, it’s unlikely that the rest of the EU would be sympathetic to back-tracking, and the UK’s political and financial position would almost certainly be weakened within the trading block.
Uncertainty leads to sharp economic downturn
In economic terms, the overwhelming issue is uncertainty. There are already signs that this is leading UK businesses and external investors to delay decisions until there is greater clarity and there is some settling in volatility of currencies and share-prices.
For timber importers in the UK, weakening of pound sterling to a 30-year low against the US dollar, and a 30% fall in the share value of the largest UK house builders following the referendum – are certain to result in a big decrease in buying. Whether this is short term or long term depends heavily on the progress of the challenging political processes now underway and the extent to which the wider economy is able to ride the storm.
A key issue for the longer term is the eventual terms of any trade deal between the EU and the UK. Once the UK initiates Article 50, there would be a two-year window in which the country will maintain unfettered market access to the EU as it negotiated an exit. After that, the terms of trade will be set in a new agreement.
The UK will be pushing for the best possible deal with the EU and one which is almost certainly unrealisable. The UK is likely to ask for continued participation in the EU free market without allowing free movement of EU citizens into the UK – an issue which proved highly divisive in the referendum campaign.
The UK also wants to contribute significantly less to the EU budget but to continue to participate in development of technical standards and certain other decision making bodies.
The EU has already issued a joint statement to the effect that the UK will not be able to cherry-pick only those aspects of the free market that they like, nor to have continued access without allowing freedom of movement and without paying the full costs of membership.
What is certain is that the starting positions for negotiation are a long way apart and it will be extremely challenging to reach a mutually acceptable agreement. In fact, many EU officials and Member States are calling for the EU to impose tough conditions on UK trade with the EU to discourage leave campaigns in other EU Member States.
The UK has some points of leverage, for example with certain German exporting industries that sell a large proportion of product into the UK, but hardly seems to be negotiating from a position of strength.
A likely decline in bilateral trade between the EU and UK
It seems likely that there will be greater obstacles to UK trade with the rest of the EU in the future and that the value of bilateral flows will decrease. This will hurt the UK economy more than the EU - UK’s total exports to the EU are currently equivalent to 13% of UK GDP while the same figure for the EU is just 3%.
The imbalance could become even more pronounced when it is considered that there is likely be a reorientation of inward investment away from the UK to other European countries as it loses its status as a gateway to the single market.
There is particular concern in the UK about potential for relocation of European financial firms with offices in London - the financial sector is about 8% of Britain's GDP and the departure of these firms would make a considerable dent in the nation’s tax receipts and overall consumption and spending.
The expected decline in UK-EU trade will have less to do with tariffs – which for WTO members are relatively low across many product groups – including timber – than on other factors such as the potential for diverging product standards and a decline in cross-border business integration and investment.
Source: ITTO
