On the 23rd of June 2016 the British voted in a referendum to leave the European Union. While this decision will surely have far-reaching geopolitical and economic consequences, it is too early to draw exhaustive conclusions about the impact of Brexit on Europe. However, some facts are already known and, along with their possible implications, will be analyzed in this short document – with a special focus on forestry and the wood working industries.

Article 50 of the Lisbon Treaty (TEU) sets out the formal process for leaving the EU, which is not triggered by the referendum, but when the UK formally notifies the European Council of its intention to leave. Once the notification takes place, negotiators have two years to conclude new arrangements.  The new UK Prime Minister Theresa May stated that she will not to trigger article 50 before the end of 2016, therefore Brexit may actually take place at the beginning of 2019. On the 28th of June, the European Parliament, in its resolution on the UK decision to leave the EU as a result of the referendum, warned “that in order to prevent damaging uncertainty for everyone and to protect the Union’s integrity, the notification stipulated in Article 50 TEU must take place as soon as possible and recalled that any new relationship between the UK and the EU may not be agreed before the conclusion of the withdrawal agreement”.

The EOS Member, CONFOR, has pledged to continue to provide strong leadership for the forestry and timber sector after Brexit – and to work with all levels of UK government to deliver the best possible outcome for the industry industries. For these reasons, CONFOR has issued a detailed paper on the implications of Brexit for its members; the document examines the key issues which are likely to impact most on the sector as the UK negotiates its exit from the European Union. These are grouped under three main headings:

• Legislative and regulatory affairs, including: Environmental Impact Assessments; Birds and Habitats Directive; plant health and quality; employment and health and safety law.
• Public funding, including: European Agricultural Fund for Rural Development; European Regional Development Fund and European Social Fund; EU Programmes; state aid. Following the Referendum vote, the future of existing Rural Development Schemes and contracts issued through them is currently an issue of major concern for the UK forestry sector.
• Trade & markets, including: goods; labour; timber; renewable energy; land.

Likewise, the British Woodworking Federation[1] outlined 4 possible scenarios as a result of the Brexit negotiations.

• UK to stay in the European Economic Area. Main features: freedom of movement of labour, no tariffs, but added bureaucracy from border control and VAT. This is the model used by Norway, Liechtenstein, and Iceland.
• UK to stay only in the European Free Trade Area. Main features: similar to the EEA but more limited in scope. It is the model used by Switzerland, who has rejected the EU Policy on Freedom and movement of labour.
• A Free Trade Agreement. Main Features: this depends on the outcome of the contingent negotiation. The aim of an FTA would of course be to have a tariff-free agreement and some business freedom in Europe.
• No agreement at all. Main features: WTO rules would apply and both tariffs (individually negotiated) and customs borders would be re-established.

Such incertitude will surely contribute to an already worsening economic picture across Europe. In its latest issue (1st-8th July), The Economist predicted that the UK GDP would grow by 1.5% in 2016 and just 0.8% in 2017 (in June the outlook was, respectively, +1.8% and +2.0%), while in the EU for 2017 a 1.2% growth was forecast (June: +1.6%). Some economists are not ruling out a fully-fledged recession in the UK. Immediately after the outcome of the referendum became apparent the British Pound underwent a remarkable devaluation against the US Dollar and the Euro. One Euro was traded at 1.31 Pound on the 23rd of June, while on the 15th of July at just 1.20 on the 15th of July, having reached 1.16 Pound on the 5th of July. A weaker pound will make export-oriented British manufacturing sectors more competitive but importers will probably suffer. Brexit could also have the effect of weakening the euro, at least vis-à-vis the dollar or the Asian currencies, which would make European exporters more competitive. On the other hand, the uncertain economic scenario will surely have negative consequences for European industries.  Having a closer look at the impact of Brexit on the forest-based sector, a recent paper[2] made, inter alia, the following points:

Being the fourth largest importer of timber in the world (after USA, China, Japan), the UK has often had a different perspective to most European countries with respect to forestry, especially the largest exporters. The UK was a key supporter of the EU timber regulation and a Brexit would significantly diminish the importer perspective in the European arena, leaving the Netherlands as the largest net importer in the European Union

With a Brexit, the focus on trade and market based mechanism in forest and forest related policy might get weaker. The UK on global forest policy related issues tends to uphold the free trade ideal. As regards EU environmental and climate policies, the UK position has been frequently marked by the idea of economic efficiency. “With the UK exiting the EU, this focus on market based mechanisms is seen as losing importance compared to more hierarchical approaches, e.g. related to directives and regulations”.

Regarding the economic impact on the wood working industries, in the medium term a lot will obviously depend on the kind of agreement which will be negotiated between the UK and the EU. Keeping tariffs at low level or possibly at 0% is in the interest of both parties. In the short term, it is quite safe to say that a weakening of the pound will be felt by exporters. For instance Sweden is the largest timber exporter to the UK: according to the EOS Member Skogs-Industrierna, the Swedish Forests Federation, in 2015 shipments to the UK reached 2.7 million m3, which represents more than one fifth of total Sweden exports. Other notable European exporters of softwood are Latvia (802,000 m3), Finland (621,000), and Germany (567,000)[3]. Conversely, the UK exports of sawn wood will become cheaper – though the quantity of sawn wood exported by the UK is relatively small (180,000 m3). The British consumption is expected to be impacted not only by the weaker pound but also by low consumer confidence due to negative economic prospects.  

[1] The article mentioned is retrievable here: http://www.bwf.org.uk/news/bwf_pr/british-woodworking-looking-for-the-brexit

[2] The paper mentioned is retrievable here: http://ac.els-cdn.com/S1389934116301241/1-s2.0-S1389934116301241-main.pdf?_tid=0a2bfe56-4a70-11e6-82d9-00000aab0f6c&acdnat=1468575754_661a8ad90545b6fa8abbfc1863d30b45

[3] Data referred is taken from FAOstat and the 2015/2016 EOS Annual Report