The 2016 United Kingdom European Union membership referendum was a significant event in both British and European history – an inflection point in the relations of the two parties.
Yet even though the United Kingdom (UK) officially left the European Union (EU) more than eight months ago, the most significant change for Finland and other EU countries so far is that common interests are no longer discussed with the British in Brussels.
That being said, the Brexit saga is not behind us just yet. Although the UK has ceased to be part of all EU institutions at the beginning of 2020, the British are still bound to EU rules until the current Brexit transition period comes to an end on January 1, 2021.
Present state of negotiations
With less than three months left before the Brexit transition period expires, it is not yet clear whether the EU and the UK will be able to agree on the nature of their future relations at all.
“I am still very optimistic that we can find a solution, but of course this can’t be guaranteed. Both sides have red lines that they don’t want to change,” Finnish Ambassador to the UK, Markku Keinänen, tells Helsinki Times. “The coming weeks will be crucial – we have to be able to reach reasonable progress so we can enter the final phase of negotiations.”
Issues that continue to hamper negotiations are, among other things, state aid and fisheries. Before the EU can agree to a free trade deal, they demand commitments from the UK regarding the use of state subsidies, as these could lead to a disadvantage for EU companies within the single market. The EU’s fishing sector is also adamant to preserve exactly the same access to UK waters from January onwards, something that the UK is not as keen to accept without an end date to such access.
Even so, the two parties seem to agree on arguably the most important part of the free trade agreement – that is the basic tenets of future trade in goods and services.
Finnish Ambassador to the UK, Markku Keinänen
Deal or no deal
“Both sides would like to have an agreement, but Mr. Boris Johnson [Prime Minister of the UK] has been very clear that unless we have a clear indication that there is going to be an agreement by the middle of this month the UK side and the EU side will have to double down on preparations for trading in a different way,” explains Tom Dodd, British Ambassador to Finland.
Keinänen concurs by saying that “it is in Finland’s and the UK’s interest that we agree on tariff and quota-free trade.”
“If we don’t, it means that Britain will trade with World Trade Organization [WTO] compatible tariffs,” he adds.
World Trade Organization tariffs would undoubtedly make trade between Finland and the UK more expensive. However, as Keinänen explains, quite a big part of Finnish exports to the UK would continue to be tariff-free even under WTO rules. Many forest products, which make up a significant part of Finnish exports to the UK, are notably classed as ‘no tariff products’ by the WTO.
Business opportunities remain despite costs
Regardless of whether an agreement is reached or not, trade between the two nations will no longer look the same as it does today once the transition period expires.
“Whatever the outcome, trade will be much more cumbersome,” Keinänen says. “In both cases, customs procedures come into force, and that is a new thing. It may be that the companies that have already traded with third countries will be better prepared, but those that have previously only traded inside the EU will have to quickly learn what it means to export to a third country and what procedures they need to comply with.”
“It is quite clear that there are going to be additional costs from customs forms. However Finnish businesses and certainly big multinational businesses in Finland are used to trading across customs borders.”
Irrespective of these additional costs, then, Dodd remains optimistic that the UK will continue to attract Finnish investment – and vice versa – once the transition period ends.
“There are great opportunities for British businesses in Finland, and Finnish businesses in the UK,” he remarks. “Since 2016, for example, we have seen a growth in tech sector investment in the UK from Finland, so there are growth areas. In some other areas trade has gone down, but that is very much what happens in trade. If you are a business person you look at the overall cost and opportunity of doing trade – customs forms, labour costs, electricity costs, rental costs, and more.”
“We have 66 million people living in the UK, which is nearly three times the population of all of the Nordics combined. It’s a very significant market for Finnish companies.”
Keinänen also anticipates that the UK will remain an attractive market for Finnish business. So far, this is supported by data – Finnish companies have not yet lost their appetite for doing business in the UK even though the Brexit transition period is ending in less than three months.
“Britain is an entrepreneurship friendly country in that they try to avoid red tape, so companies still believe that there are opportunities in Britain,” he says.
The Finnish Ambassador also adds that Finland has expertise in many sectors that will continue to be needed in the UK in the future, such as digitalisation, health technology, and sustainability.
That being said, a greater focus on public diplomacy will be needed to promote these products and sectors in the UK post-Brexit due to both increased costs for British consumers caused by new customs forms and potential tariffs, as well as greater competition from other non-EU countries.
“As an embassy, we have something to do, because now Finnish companies have to get their narrative through,” Keinänen says. “This is, in many cases, a narrative of sustainability. For example, our stainless steel is much more sustainable than that which comes from other countries. So if you wish to take care of the climate, Finnish products will often be better.”
British ambassador to Finland, Tom Dodd
Potential of non-EU countries
A potential area of opportunity for Finnish companies in the UK post-Brexit is that it may be easier to trade with various third-countries from the UK as opposed to from Finland, depending on the trade agreements that the UK can negotiate, Dodd points out.
“One of the things that my government very much believes in is the opportunity to shape trading relationships beyond the UK. That means that we have just negotiated a better Free Trade Agreement with Japan than the EU has. We are also looking to agree on trade agreements with the United States, Australia, and New Zealand, and many people argue that we can do this more rapidly than the EU could do.”
“A Finnish subsidiary based in London, Yorkshire or Scotland may in the future be able to do better trade with, say, the United States from one of these locations than from Tampere, for example,” Dodd adds.
Indeed, the negotiations between the EU and United States (US) for a Transatlantic Trade and Investment Partnership (TTIP) that were launched in 2013 were eventually abandoned by both parties, and haven’t been restarted since. Thus no trade agreement exists between the US and the EU to this day.
But no trade agreement between the UK and US has been signed yet either. In reference to Boris Johnson’s Internal Market Bill, which threatens to undermine the Northern Ireland protocol in the EU-UK Withdrawal Agreement, the US Congress has warned that they will not support a UK-US free trade deal if Britain does not “uphold commitments with Northern Ireland”.
“There was a meeting between Michael Gove [Minister for the Cabinet Office in the UK] and one of the ministers of the EU a couple of days ago and it was made very clear that British ministers are not going to change their views on this legislation,” Dodd says. “The bill has now passed the House of Commons [lower chamber of the UK Parliament], but of course it has to be approved by the House of Lords [upper chamber of the UK parliament] before it becomes UK law.”
Impact on the Finnish economy hard to predict
Part of the reason that it is so difficult to estimate the impact of Brexit on the Finnish economy is that it very much depends on not only the agreement that the UK reaches with the EU but also the agreements that the UK can negotiate with other countries.
Currently, the Finnish government estimates that Brexit will lead to a loss of anything between 0.1-1% of Gross Domestic Product (GDP) in Finland.
“This is a very wide estimate,” Keinänen admits. “One issue is that around 22% of our exports to the UK continue from the UK to other countries because in Finland we produce a lot of intermediate products that are later installed into something bigger.”
“If the UK can’t negotiate better trade agreements than the EU has already done, the situation will also worsen for Finnish companies that export to third-countries from the UK.”
Not only is it important for Finland that the UK economy is not too hard-hit by Brexit, but Keinänen makes it very clear that it is in Finland’s interest that Britain remains a strong global player in other aspects, too. This is due to the two countries’ shared views on issues ranging from the safeguarding of a multilateral, rules-based order to human rights and free trade.
Similarly, it is in the UK’s interest that the EU continues to succeed post-Brexit.
“Having a prosperous, stable neighbour – or club – is very important for the UK,” Dodd says. “We are working bilaterally with EU member states on issues related to climate change, policy towards Iran, and policy towards China, and this will continue.”
The UK has undoubtedly been a big supporter of Finland in the past few decades, and an important ally for Finland within the EU.
“I do think that for Finland there are some questions about the longer-term trajectory of how the EU develops,” Dodd ponders. “If Finland wants to have an open EU that supports free trade and is not protectionist, and works collaboratively with its neighbours, then that is something that Finland needs to encourage.”
“But as the British Ambassador it’s not for me to tell how Finland should conduct itself,” he adds.
Big break in cultural relations unlikely
With regards to social and cultural links between Finland and the UK, there is a risk that Brexit may have a negative impact not only in the short-term but also in the medium- to long-term.
“We have all kinds of volunteers working in the UK at the moment, and such volunteering may become more difficult in the future due to new immigration rules,” notes Keinänen. “Erasmus-type programmes have also been very useful [in creating social links between the countries].”
University fees for Finnish students who want to study in the UK are already increasing in the next academic year (2021-22), as Finns will no longer be paying “home student fees” but rather the more expensive “international student fees”.
“Right now, EU students have preferential treatment in British Universities, and that will change. It is fair to say that this will have an impact on how many Finns will come to the UK to study,” Dodd says. “But the UK remains a very good place to come to study as a student because of the quality of education that our institutions offer.”
Dodd also notes that the UK has recently changed its immigration policy to allow international students to stay in the UK for two years, in any capacity, after having completed an undergraduate degree, and three years after a Ph.D.
With regards to cross-border movement and cultural exchange in general, Dodd does not believe that Brexit will be a stark turning point in the history of the UK and Finland.
“It is worth noting that prior to 1995 the UK was in the European Economic Community, and Finland was not,” he says. “Yet we had at least 10,000 Finns living in the UK at that point. We had an awful lot of academic, cultural, and business exchange as well. There’s absolutely no reason why that would not go on post-2020.”
“The rules of the game are changing, and it will take a while for people to adjust to,” Dodd maintains. “But I’m sure that in ten years this period will be viewed differently than when it is so close up front.”
“Blood is thicker than water”
Both Ambassadors conclude that Finland and the UK are in many ways very likeminded and that it is therefore in the interest of both to maintain strong bilateral relations independent of the EU regardless of what happens in the next few months.
“There are many areas where we have been likeminded before Brexit, and I’m sure we will continue with these bilateral links afterwards as well. Although we won’t work together within the EU, we will still work together,” Keinänen notes.
“There is a natural affinity between Finland and the UK. That is one reason that it is quite important for us to get through this negotiation moment. The overall relationship can then adjust to the new ways of doing business in various areas,” Dodd says, and then adds:
“As the saying goes, blood is thicker than water.”