Tax & Accounting Blog

Brexit: Looking at Greenland’s Withdrawal from the EU

Indirect Tax, ONESOURCE, Tax Automation June 21, 2016

One of the main topics in the UK during the last few weeks has been related to the possibility of the UK leaving the EU following a referendum to be held on the 23th of June. With few days to go, the things look very tight and the polls show quite similar results for both remain and leave vote.

When analysing the issue of leaving the EU, it might be useful to look at the case of Greenland, the only country that has left the community since its creation. Greenland held a referendum in 1982 in which the country decided to leave the EU predecessor the European Economic Community (EEC), mainly motivated by the restrictions and impact that the single market regulations were having in their fishing industry, which is their main economic sector. The negotiations on the terms of withdrawal from the EEC took 3 years and Greenland officially left the community in 1985.

Since leaving the EEC, the fishing industry of Greenland has grown and has become an important player at world level. However, the country still remains related to the EU at a certain level as an associated country through the Overseas Association Decision, getting money from the EU for the development of education and the fishing industry and tariff-free access to the EU market for fish products in exchange of granting European access to its waters. Furthermore, in order to sell its products to the EU (its biggest market) it needs to comply with many rules that are discussed and adopted in Brussels, without even having the possibility to have a saying on them after leaving the community.

Notwithstanding the growth of the fishing industry and the beneficial agreement that Greenland reached with the EU after leaving the community, there are parties within the country that believe it is worth analysing the possibility to re-join the EU, as it would allow its fishing industry to reach more markets and would also attract more investment into the country.

The case of Greenland leaving the EU is a very special one and cannot be compared to the potential withdrawal of the UK. Greenland has a population of approximately 56.000 people and has only one main economic sector related to the fishing industry. However, it took 3 years for Greenland to conclude the negotiations with the EEC establishing the terms of its exit.

Considering the above, it might take several years for the UK to negotiate the full terms of its withdrawal from the EU, as it has a large population (including many EU nationals) and many economic sectors that would be affected by the measure. The uncertainty of the outcome of the negotiations is likely to reduce investment, as uncertainty creates risks for businesses. It is also important to bear in mind that, as in the case of Greenland, in order to access the EU market in the future, UK products will still need to comply with many regulations that are imposed by the EU, limiting the real impact of leaving the community.

As said before, the case of Greenland leaving the EEC is very different to the case of UK leaving the EU, but some lessons can be bear in mind, such as the length of the negotiations regarding the terms of withdrawal and the need to comply with EU rules in order to access the EU market, even when you are not a member country. For now, we have to wait for the results of the referendum and see how things go from there.