It’s happened. The British people have spoken. The UK will leave the EU.
We have already seen the immediate market reactions – a weaker pound, losses on the stock exchange and a lower credit rating for the UK. The impact on creative businesses will take longer to play out but will be more significant.
Initially, there is no change for creative businesses. The UK will remain in the EU for at least two years and EU regulations will remain in place. The exact timescale depends on the British Prime Minister. The referendum instructs him to leave the EU and to do that he will send notice to invoke Article 50 of the Treaty of the European Union. The date of that notice starts the clock ticking. Two years from that notice date, the UK will no longer be a member of the European Union.
What happens then is less certain. There is a provision for a new trade agreement to be negotiated during the two year exit window. However, there is no obligation to conclude those negotiations and agreement between the UK and the EU is unlikely. In practice, trade agreements normally take 10 years to negotiate, even with willing partners.
The trade agreement between the UK and the EU will be particularly complex. The current trading arrangements, within membership of the EU, cover goods, services, IP and people. The only other trade agreement which has the same coverage is Norway’s agreement with the EU whereby Norway adopts all EU legislation and regulation, pays a contribution to the EU as if it were a member, but has no say in changes to market rules. That solution has been specifically rejected by Brexit campaigners.
The default position after the two year exit window is that the WTO rules apply. They set out standard tariffs on goods, for example a 10% tariff on importing cars, but they generally do not cover services, IP and people. For creative businesses, this is highly significant.
Trade in physical goods would continue, but with higher cost to business. For example, the tariff on CDs in Europe is 3.5%. That is not a significant barrier to trade. It just adds some cost which would be weighed up against the cost of local production.
The situation on services and IP though is different. These were only introduced into international trading standards with the formation of the WTO in 1995. TRIPS and the WIPO treaties offer baseline reciprocal IP rights but the development of arrangements for services has been more limited. The chances are that a service-based creative business would not be able to rely on default WTO rules to offer that service directly in a third party country. The UK will become a third party country in relation to the EU as soon as the Article 50 termination process has run its course.
Movement of people is not covered at all by WTO common rules. When the UK leaves the EU, that will be subject to local immigration and visa regulations. This will affect touring, where EU countries are likely to put up barriers to entry for professional purposes. Even administrative barriers in the context of an apparently open policy, such as the US visa system, has a dampening effect on the ability of groups to tour. The hiring of talent from the EU will face similar barriers. There are already restrictions on hiring talent from third party countries and new immigration policies which were a driving force in the Brexit campaign will add to those difficulties. At the very least, that amounts to additional cost. At worst, it would deny a creative business access to talent which could add significant creative and commercial value.
Outside the trade agreement framework, we have all the common regulatory rules that have been brought in over the years to facilitate cross border business within the EU. Of key interest to creative businesses are the Audio-Visual Media Services Directive, the Satellite and Cable Directive, the E-Commerce Directive, the copyright acquis and the Services Directive. These allow creative businesses based in the UK to operate directly throughout the EU from a single base, using a single set of regulatory standards. If the Norway model is rejected, it is hard to see these benefits being successfully negotiated in a new trade deal. No other country has succeeded in including these provisions in their trade agreements with the EU.
Finally, there is the impact of the UK no longer being part of the EU policy making process. The significance of this tends to be under-estimated as few people realise the extent of influence from the British government and UK-based businesses in shaping the Digital Single Market, from audio-visual policy to territoriality and licensing regulations. Without the UK influence, there is an increased likelihood of new barriers such as quotas being introduced in the EU.
All of these barriers to trade will cause creative businesses to question their locations. Doing business across the EU from the UK will become more expensive and more difficult. Mobile SMEs and corporates with a large footprint will find commercial advantages in operating from other locations and for some, the move can be made within the two year window offered by the Article 50 exit procedure.
The creative industries in the UK could be very different within a couple of years.
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Dominic McGonigal is Chairman of C8 Associates, a consultancy dedicated to taking creative businesses to the next level. He also chairs two creative startups, CICI and JazzUK. Read more at www.c8associates.com