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Brexit: The Implications for Shipping

May 12, 2016

 “Brexit” is the notion that the United Kingdom would leave the European Union. What would be the impact of Brexit on the shipping sector? Dr Vincent Power, EU & Competition Partner, looks at impacts of Brexit on the shipping sector.

Shipping is extremely important to the EU. In 2014, more than 51.5% of EU external freight trade by value was transported by sea. More than 400 million people are transported by sea from EU ports annually. 
The EU’s 22 coastal Member States have more than 1,200 seaports offering direct employment to around 110,000 people and providing indirect support to around three million more. Almost 90 per cent of the EU’s external trade by volume is facilitated by seaports, as are 40 per cent of freight exchanges between member states. 
The EU’s seaports are the gateway for two-thirds of all goods which are imported by more than 60,000 cargo ships from non- EU countries. Over 3.8 billion tonnes of cargo are handled in these ports annually.
Shipping is also extremely important to the UK. The sector contributes around €12 billion annually to the UK economy. Around 240,000 people are employed in the sector in the UK. The UK is one of the top 10 ship owning nations according to UNCTAD with about 3% of the world tonnage.
Bringing the two strands together – the importance of shipping to the EU and to the UK – leads to some important conclusions. The rest of the EU is the UK’s biggest trading partner. 
Almost half of the UK’s imports are from the rest of the EU (53%) and almost half of the UK’s exports are to the rest of the EU (45%). It is believed that several million jobs in the UK are linked to trade with the rest of the EU and the most common estimate is that there around three million people employed in this context.
No-one can suggest realistically that trade between the UK and the EU would stop if the UK left the EU but the terms of the trade would change.
Since the early 1970s – but particularly since the mid-1980s – the EU has become involved in the shipping sector. Over time, an enormous volume of law has been adopted – regulations, directives and decisions as well as case law. 
If the UK were to leave the EU then the logical question would be as to what would happen to that law vis-à-vis the UK. Answering that question is not simple given that it is not yet known whether the UK will vote to leave and, if it does vote to leave, what arrangements would be put in place to replace the current ones. 
It is possible that some of the legislation will remain in place (for example, because it is already part of UK law (such as where a directive has been implemented) or because the UK has opted into that piece of legislation) or it may simply disappear from the UK legislative environment. 
Indeed, if the EU legislation is retained by the UK, it may be somewhat “frozen” in time if amendments or interpretations by the courts are not also taken on board. There is little doubt that EU shipping law and UK shipping law would diverge in a post-Brexit environment but it is not yet clear (and would not be for some time) as to the extent of that divergence.
So what could happen if the UK were to leave the EU? It is clear that trade between the UK and the EU would continue but what would differ would be the terms on which that trade would occur.
Today, the UK is part of the “internal market” and there are, for the very most part, no barriers to trade among the 28 Member States (whether those barriers are, for example, physical, technical or fiscal) and there is a common external customs tariff vis-á-vis the rest of the world. It is meant to be as convenient to trade between Liverpool and Lisbon as it would be to trade between Liverpool and Leeds.
 If the UK leaves the EU then trade will become more difficult – the degree of difficulty depends on the arrangements concluded between the UK and the EU post-Brexit. The campaigners for Brexit are probably correct in saying that there will be trade agreements between the EU and a Brexited UK but the difficulties involved and the time such arrangements would take to adopt should not be underestimated. 
The EU- India Bilateral Trade and Investment Agreement negotiations commenced in 2007 (nine years ago) and are stalled since March 2015. The Economic and Trade Agreement (CETA) agreement between Canada and the EU is a mammoth exercise. Work on it commenced in October 2008.
The launch of negotiations was announced in 2009. An agreement in principle was signed in 2013. The negotiations were concluded in 2014. The 1,634 page agreement has to be translated into 24 EU languages and ratification has been an on-going process. In regard to the EU-US “Transatlantic Trade and Investment Partnership” (TTIP), the negotiations are currently in their 13th round! 
The Chairman of Lloyd’s of London, John Nelson, is reported as saying that it would be “fantasy” to think that bilateral negotiations on trade agreements would be simple and he also said that it would take “many, many years” to negotiate such arrangements.
Clearly, there would be trade agreements to be negotiated – not only between the UK and the EU but between the UK and all the States with which the EU has a plethora of arrangements with various countries worldwide. So, it is not just a matter of negotiating a single trade agreement, it would be a matter of negotiating a range of agreements.
Not only would many trade agreements have to be concluded but there would also be uncertainty arising from Brexit itself which would impact on trade. Examples of that uncertainty would be currency volatility which has already commenced and may continue further.
There is also no guarantee that the Member States which remain would not seek to either strengthen their own position in the event of a Brexit or even punish the UK so as to deter others from leaving. 
Guy Platten, the Chief Executive of the UK’s Chamber of Shipping has said: “no one has left the European Union before, and the EU may seek to ‘punish’ the UK for leaving, in order to discourage others from leaving too. The Brexit negotiations are unlikely to be quick or easy”.
There is already considerable uncertainty in the run up to the referendum on 23 June 2016. If the UK votes to leave the EU then there would be, under Article 50 of the Treaty on the European Union, a prolonged period of negotiation on the terms of its departure. 
Not only would there be that period of uncertainty but there could even be a second referendum on whether or not the UK should accept the terms of the “Withdrawal Treaty”. One could see the “Britremain” supporters arguing that the precise terms of the withdrawal – which were not known on 23 June 2016 – should be put to the electorate. 
All of this means that the uncertainty which currently exists could well be prolonged in the event of a Brexit vote and there could even be two Brexit referendums!
Canadacase lawEuropean Union

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