The Brexit deal might affect the Swedish economy

Sweden has every right to be concerned about the impending Brexit. Sweden would lose its nearest European ally, a partner in several topics ranging from the need to cut the EU's agriculture budget to a strong belief that free trade with the rest of the world is the key to Europe's competitiveness. However, as the United Kingdom prepares to leave the EU, Sweden's main worry is geopolitical. The United Kingdom is one of Sweden's most powerful trade partners, both in terms of goods and services. Whether it be H&M, Ericsson, Spotify, or IKEA, most British customers will list at least a few Swedish brands. Today, trade between Sweden and the United Kingdom is frictionless; in principle, the United Kingdom is regarded as a stable and highly lucrative "home market" for Swedish businesses. And the other way around.

The United Kingdom, however, is exiting the European Union. The Swedish Government has commissioned the National Board of Trade to determine which sectors are especially relevant for Sweden, as talks on the future relationship between the EU and the UK are about to begin in Brussels. In the last three months, a team of EU internal market and foreign trade analysts has compiled a 350-page overview of the aspects in which Brexit would be most harmful to trade between our nations, as well as how its negative consequences can be mitigated.

Research, on the other hand, is not limited to the topics that the government asked to look at. Of course, some segments of the Swedish-UK trade are especially sensitive, but we have highlighted a number of wider, lateral challenges that are critical for the future trading partnership. International trading laws developed under the auspices of the World Trade Organization will be crucial as the UK exits the EU, at least in the event of a no-deal scenario. The WTO laws aren't as detailed as those governing the EU's Internal Market. This could result in significant regulatory divergence and increased costs for Swedish companies, at least in the long run. The prospect of laws and legislation drifting apart is enough to have a negative impact on trade between those two countries.

We selected sectors that are (1) very important to Sweden's trade with the UK (imports and exports) and (2) where Brexit could result in major trade barriers when determining the sectors of particular interest to Sweden in the ongoing Brexit negotiations. Those are the aspects that have the direct influence over the financial conditions and affect the gbp sek exchange rate due to the required additional amount for exchanging goods or services. Other deciding factors include where added value is generated and how many workers are funded in Sweden through trade in various sectors.

Motor vehicles and commercial facilities are two specific markets that must be prioritized. In the event of a no-deal Brexit, motor vehicles are an industry with complex technological legislation and the potential for heavy tariffs. To prevent severe trade barriers, some kind of solution, such as those already in place for Switzerland, Japan, and South Korea, could be needed. But for a few professions, sector-specific strategies aren't very useful when it comes to business services. Horizontal rules governing areas such as individual and data movement are relevant in all industries, but they are especially important in the business services market. In some of the sectors/areas where Sweden has particular interests, however, the threats raised by Brexit seem to be reasonably small (mineral oils, paper, iron and steel, protection of intellectual property and retail). This indicates that the regulatory mechanisms in place do not seem to pose major challenges to the industries as a whole.

Individual businesses, however, can suffer – especially if they deal with price-sensitive goods. Even if tariffs on commodities traded within these industries are not raised, Brexit would result in increased administration and regulations, such as customs formalities. The cost of doing business will rise as a result of this. However, the main conclusion goes beyond and above what the Swedish government requested. Horizontal topics such as free flow of people and documents, tariff-free access with liberal origin laws, trade facilitation, transparency in public procurement, and ways to ensure conformity with negotiated rules should be prioritized.

The main lesson is that, while particular industries could be more adversely affected than others, we must work on seeking answers to the wider problems in order to minimize the negative impacts of Brexit. When it becomes more difficult to transfer people and data, provide services, or confidence that mutually agreed-upon laws are enforced, trade, regardless of industry, is put to the test.

We would like to emphasize, as a specialist organization not just on the EU internal market but also on the design and reach of free trade deals in all aspects, that the movement of goods and services through our borders would not run seamlessly without those basic building blocks that make up modern trade. This may sound self-evident, but I think we can reiterate it on a regular basis. So, post-Brexit, which model will be the most appropriate? One must look at the evidence in this apparently perplexing argument about CETA +++ and other formulas. To start from the beginning, as it was done with Canada and the EU, CETA is a genuinely ambitious free trade deal.

There is no one paradigm that will be the perfect option for post-Brexit UK-EU ties. From a purely commercial standpoint, combining components from various models will be the ideal option. The ideal solution from a Swedish viewpoint will be for the UK to enter the European Economic Area (EEA). This is the nearest that can come to keeping the status quo of EU-UK trade relations, in most but not all situations, and that will minimize the detrimental consequences of Brexit.

Other deals cannot equate to the current simple trading conditions between Sweden (EU) and the United Kingdom (UK). In this respect, the study gives no ready-made templates or dreams of a happier ending – Brexit is not positive news for a free-trade-minded nation like Sweden.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes