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Brexit and the EU27 - a view from Latvia

  • Latvia
  • Brexit

12-12-2016

Interview with Toms Puriņš

Interviewed by Julian Sayarer

Lexis Nexis, 12.12.2017.

 

With the EU institutions and the EU27 Member States assessing the potential fallout from Brexit, this series continues our exploration of the effect of the UK’s exit from the EU on different jurisdictions across Europe. Toms Puriņš of the corporate law team at Eversheds Bitāns in Riga offers a warning against Brexit’s broader impact on growth, while also addressing specific Latvian worries about immigration and its key UK business sectors.

What could Brexit mean for Latvia and the Baltic states and how could the relationship with the UK change?

Even though in 2015 the UK was Latvia’s eighth largest trade partner and eight largest foreign investor—investing in the region of €334m mainly in financial, real estate, wholesale, pharmacy and forestry sectors—it is considered that the impact of Brexit on the Latvian economy in the short-term will not be material.

In the mid- and long-term, however, Brexit may have a more considerable role in the economic development of Latvia as Brexit may decrease EU and global economic growth. This may accordingly have a more appreciable impact on the Latvian economy.

Furthermore, since the UK is one of the largest contributors to the EU budget, post-Brexit EU funding may be reduced significantly. Such funding has played an important role in the development of the Latvian economy by supporting a broad range of projects and programmes, including in such areas as employment and social inclusion, regional and urban development, as well as agriculture and rural development. This too may pose a considerable impact to the growth of the Latvian economy.

Nonetheless, if following Brexit the UK’s relationship with the EU is based on similar terms to those seen among the European Free Trade Association (EFTA) Member States, material changes in the UK trade relationships with Latvia are not expected. If Brexit leads to a different and completely new trade model then it might have both a direct and indirect impact on Latvian export volumes to the UK, as well as the UK’s investments into Latvia.

What are the priority issues in the Brexit negotiations from the Latvian point of view and why?

From the Latvian point of view, one of the key priorities in the Brexit negotiations will be Latvian and EU nationals’ status in the UK. It is of paramount importance to Latvia to ensure that Latvian nationals residing in the UK retain their current status and are permitted to stay, work, study as well as to do business in the UK on the current terms.

Another priority issue will be trade relationships with the UK in forestry and wood-processing, and also food processing, sectors. These are the main export sectors from Latvia to the UK and if Brexit were to impede the movement of these goods to the UK it could have a negative impact on the Latvian economy and Latvian businesses working in these sectors.
Aside from Brexit, what are the key domestic priorities in Latvia and the region?

One of the key priorities of the current Latvian government is to foster development of a sustainable and competitive economy in the medium term. Therefore, Latvia is increasingly focusing on creating an exceptionally favourable environment for business by:

  • improving openness to investors
  • clarifying and improving investment protection rules and regulations
  • creating a better and more transparent legal environment and tax policies
  • working on innovation and digitalisation, and
  • trying to make state institutions more client orientated

Brexit most likely will have no direct impact on these issues.

What are likely to be the key challenges with the negotiations?

It currently seems that in order for the UK to achieve favourable conditions for the exit from the EU and to maintain existing privileges and relationships with Brussels, such as participation in the single market, the UK will have to accept a variety of humbling terms, which British politicians most likely will not be ready to concede. Therefore, the key challenge is likely to be finding a balance between the EU’s and the UK’s exit strategies and expectations.

What form of relationship and type of trade model is Latvia likely to favour in the future? Will they prefer ‘hard’ or ‘soft’ Brexit?

Latvia would clearly favour a trade model that has the least impact to Latvian trade relationships with the UK. The primary reason for that is the already mentioned strong economic relationships with the UK as well as the large number of Latvian nationals residing in the UK. That being said, however, it is very doubtful from a political point of view that a ‘soft’ Brexit model will be implemented, thus at the moment the only real alternative seems to be ‘hard’ Brexit.

Are there any other developments on the horizon that could have an impact on Brexit from your perspective?

At this stage, it is very difficult to predict what developments may have an impact on Brexit, but it is clear that the uncertainty around Brexit is a real concern for all EU countries with strong economic ties with the UK. Negotiations and both the EU’s and UK’s positions will have to be followed and analysed carefully.

 

 

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