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Brexit and the Future of the UK

Political and Economic Chaos?

Kirsty Hughes is a researcher, writer and commentator on European politics and policy and is Director of the Scottish Centre on European Relations.

Brexit is a Conservative Party policy-idea that got out of hand. The collapse of the centrist and liberal Tory leadership created a vacuum for hardliners within the party, in the right-wing media, and in other smaller parties to occupy that space, and call for the reinvigoration of British exceptionalism through Brexit. Unfortunately, a political and constitutional crisis besets the United Kingdom, reducing the reality of British exceptionalism to Little England isolationism.

After a nine month pause, since the United Kingdom (UK) voted to leave the European Union (EU), the Brexit talks are finally set to begin. The decision to leave the EU has been characterised as the biggest shift in UK domestic and foreign policy since World War II. It is also a political and economic blow to the EU at a time when it is beset by a range of challenges from populism and economic inequality to Putin’s Russia, migration flows, and now the unpredictable impact of Donald Trump as the United States (US) President.

But the biggest impacts of Brexit are on the UK. The UK is in a simmering political and constitutional crisis mainly, though not only, driven by the Brexit decision. With the public split on Brexit in England and Wales (which voted by a narrow majority to leave the EU), and with a majority in both Scotland and Northern Ireland voting to remain in the EU, there are growing tensions and uncertainties about how the constitutional challenges of Brexit will be resolved. With Theresa May’s decision to call a snap election, the constitutional and political tensions across theUK are only likely to worsen.

At the same time, the internal melt-down in the opposition Labour Party has left UK democracy struggling to function as normal—a government focused on the huge and, probably, highly damaging route of Brexit faces no serious opposition at Westminster. With the Liberal–Democrats (Lib–Dems) having been decimated at the 2015 general election, the Scottish National Party (SNP) Members of Parliament (MPs) make up the third largest opposition party at Westminster, but they are inevitably more focused on Scotland’s future and interests, than those of the UK as a whole.

This leaves the big political decisions on Brexit firmly in Conservative Party hands—Theresa May as a result is more focused on the politics of the Tory party in deciding her Brexit approach. The loud and influential voices of those on the Tory right, seeking a “hard” Brexit (backed by some of the right-wing media and voices from the UK Independence Party (UKIP), outside Westminster), are carrying remarkable sway for now. As the European Parliament’s chief Brexit negotiator, Guy Verhofstadt, put it recently, Brexit is a result of a “catfight in the Conservative Party that got out of hand.” Some see the decision to call the general election by May as a way for her to get some freedom from her most right-wing “Brexiteers” but others think, fairly enough, she cannot resist the prospect of a much larger majority (rather than her current small one). In England and Wales, the general election will be about Brexit. In Scotland, it will focus more on whether the pro-independenceSNP does as well as in 2015 and so gets more backing, in effect, for its wish to hold a second independence referendum.

Where Next?

After the EU27 (minus the UK, the EU’s 28th member state) gathered in Rome to celebrate the EU’s 60th birthday, since its founding in 1957, the UK finally triggered Article 50 of the Treaty of Lisbon on 29 March 2017, which sets in motion the process for a member state to leave the EU. Article 50 sets a two-year deadline for talks, after which if there is no exit deal, the departing member state simply leaves.

This deadline can be extended unanimously, but few at this point expect such an extension to occur. The EU27 are keen to move on, and having a large member state in their ranks—still with full voting powers and a voice—that will not in fact take part in future policies and strategies currently under discussion, is an uneasy interim phase. The UK should be out by March 2019.

In response to the UK triggering Article 50, both the European Council (all 27 member states, excluding the UK) and the European Parliament, respectively, issued draft guidelines and a resolution on how the EU27 should approach the talks.

The EU27 have been clear since last summer—supported by the European Parliament—that the UK cannot have the full access to the EU’s single-market, which it has access to now, if it is not part of the EU’s so-called “four freedoms”: free movement of goods, services, capital and labour. May in turn has made clear that her redlines for Brexit include: the UK having its own migration policy and not being party to the free movement of labour any more, and that the UK is not directly under the European Court of Justice. These redlines mean the UK will not accept the “four freedoms.”

Both sides have effectively accepted that this means the EU27 and the UK are aiming at what May has called a “deep and special” trade, and wider political and security relationship. Unlike any normal set of trade negotiations, these talks will effectively result in new barriers being introduced between the UK and EU markets; rather than the removal of barriers. The big questions include, what sort of barriers? How deep? What the new provisions for trade will be? And how damaging this may be to the UK’s trade and foreign investment position?

As long as a trade deal is agreed upon, then it is unlikely that there will be tariffs on industrial goods, and quite possibly, not on agricultural imports either (though the latter may prove trickier). But the most difficult issues will centre on non-tariff barriers of various kinds. If no deal is done—if talks break down—then the UK will hit the so-called WTO (World Trade Organization) cliff, falling into a legal and economic limbo with WTO tariffs introduced across many goods.

The UK is expected to set its own trade policy after Brexit, so it will not be a part of the EU’s customs union or common commercial policy. This means, as it happens today for Norway, that the UK will have to meet “rules of origin” conditions on its exports to the EU so that, for example, India or China cannot agree to a free-trade deal with the UK and use that as a backdoor to enter the EU market, thereby avoiding their tariffs.

There will be a host of other non-tariff barriers due to the potential divergence in regulatory standards in different sectors. At the moment, the UK and EU27 have the same regulatory standards across a very wide range of areas, from health and safety at work, to rights in the workplace, drugs’ regulation, financial services, automobile safety, food safety, the list is long indeed. The EU has 34 regulatory agencies altogether and over 90,000 legal texts. If the UK withdraws from all of these, it is going to be a huge, perhaps overwhelming task, and one that will certainly make future trade with the EU in goods and services much harder than it is now.

Even if non-tariff barriers can somehow be minimised, they will get in the way of current cross-border supply chains in sectors such as automobiles and aerospace, that depend on barrier-free trade and just-in-time production. Some cite the EU’s recent trade deal with Canada—that took seven years to negotiate—which allows free-trade in goods, but is much less open in services. Financial services in the UK face losing their EU so-called “passporting” rights. The National Institute of Economic and Social Research, has estimated that with a typical free-trade deal the UK’s manufactured goods trade could fall by 35% and its services by a massive 61%.

Even if a special trade deal makes the impact smaller, the path the UK is embarked on is a rather extraordinary one from an economic point of view.

Managing the Transition

May is planning to introduce a Great Repeal Bill—which rather than repealing EU laws will in fact, to begin with, bring EU laws into the UK’s legal framework. So at the start of the process, in this model, there will be no regulatory divergence between the UK and EU. But even this process is fraught with difficulty. Many EU laws refer to EU regulatory bodies and committees for oversight and updates. How this will be handled by bringing EU law into UK law is unclear. The UK has said it will, for instance, withdraw from Euratom—which covers the handling of nuclear materials (anything from nuclear waste toX-rays come under this). Many EU environmental laws depend on EU supervision for their effectiveness, but the UK looks likely to set up its own environmental regulatory processes.

In addition to this, there are already major political disputes over whether all EU powers and laws go back to Westminster, or whether some, such as in agriculture, fisheries and environment, should go back to the devolved administrations in Scotland, Wales and Northern Ireland. The Scottish Parliament currently has power over agricultural, fisheries and environmental policy yet, May has implied that EU powers in these areas will not, or not all, go back to Scotland. This is politically highly contentious.

As these and a myriad of other issues are dealt with, the idea that the UK will have resolved all of this by the end of the Article 50 two-year deadline, that is, by March 2019 is clearly implausible. The EU27 are aiming to first agree on an exit deal—one that will cover the thorny subject of the rights of EU citizens currently residing in the UK, after Brexit—and then the question of what sort of budget liabilities the UK owes the EU on its departure. The EU27 are rightly concerned at the implication of Brexit for the peace process in Northern Ireland, and also want to find a way to avoid a hard border being reintroduced between the Republic of Ireland and Northern Ireland (which will become the external border of the EU).

If those issues can be resolved, the EU27 then wants to discuss with the UK the outline goals of a future EU–UK trade deal. Having agreed to those, they will then look at a possible transition period between the UK leaving the EU, and the trade deal actually being signed and sealed. It is quite possible that a future trade deal could take five to 10 years to negotiate and ratify, but so far May has implied that the UK can do a full deal before the end of the two-year period. This is clearly said for domestic political reasons, rather than something that is at all realistic.

The time for exit negotiations is actually very short. The EU27 are currently drawing up their detailed negotiating position, and the talks may not start until the end of May, or the beginning of June. They will need to come to an exit deal by autumn 2018 so that the European Council, European Parliament and Westminster can ratify the deal before March 2019. A 16 to 17 month window for talks is very little for an exit deal and clearly is not enough for a full trade deal. Brexit is clearly going to be messy and prolonged.

UK Politics Is Fraught

In March, Scotland’s First Minister Nicola Sturgeon said she wanted to call a second independence referendum before the UK leaves the EU—ideally in a window from autumn 2018 to spring 2019. Her argument is that it is unacceptable that Scotland, which voted 62% to remain in the EU, is being pulled out of the EU against its will.

May, in return, insisted that now was not the time for a referendum and has given no indication of when she might agree to ask Westminster, to vote, to allow one to take place. Observers think that May would like to push a possible referendum back until after the next Scottish elections in 2021, with the hope that the pro-independence parties, the SNP and Greens, do not then win a majority—which they currently do have—in the Scottish Parliament. But now, having said she wouldn’t call a general election yet having done so, May is open to easy criticism for saying now was not the time for an independence referendum, while doing a u-turn on holding a general election.

At the moment, opinion polls show the “no” to independence side somewhat ahead of the “yes” side, but it is close. And unlike at the time of the first independence referendum in 2014, there are more positive noises coming out of the EU27 on the feasibility of Scotland rapidly rejoining the EU, if it did vote for independence.

Meanwhile in Northern Ireland, there is currently no devolved government, as the two sides have failed to come to a deal after recent elections—the possibility of direct rule from Westminster is on the cards. In Ireland, talk of the possibility of a united Ireland is back, even if no one is expecting it to happen in the near future.

In England and Wales, opinion polls show that “leave” and “remain” voters have mostly not changed their minds, and have quite different views about the UK’s future prospects—leave voters are optimistic, while the remain voters are very pessimistic. The 48% who voted “remain” have little political voice, as Labour has gone along with the Brexit vote while calling for the impossible goal of a trade deal that is exactly as good as the current UK–EU situation. The Lib–Dems have been more vocal in their criticism of Brexit and have demanded the UK stay in the EU’s single-market, and asked for a second EU referendum once the exit deal is known. But with just nine MPs in the House of Commons their leverage is small. Currently more pro-EU than Labour, they may do quite a bit better in the general election though they are unlikely to get back to the level of 50MPs they had at the 2010 election.

Any Way Back?

If public opinion shifted, showing clear regret for the decision to leave the EU, it is politically and legally likely that the UK could withdraw its Article 50 notification in the next two years. But for now, UK politics and public opinion make that route back look unlikely.

There is a simmering political and constitutional crisis in the UK, ignored by the government which is acting as if Brexit is entirely manageable and smooth. And the economic costs of Brexit will continue to mount—though many will only be clear once Brexit has actually happened in 2019. The UK will be absorbed by the Brexit process for many years to come—and also absorbed in dealing with its own resulting internal political and constitutional fallouts.

While the UK will still turn up at theG7,G20 and UN Security Council meetings, it will mainly be seen on the world stage looking for trade deals either to replicate, or to add to the ones it currently has through the EU. At a moment when the EU and the US are facing many challenges, both at home and with their neighbours, the UK has stepped back into Little England isolationism. It may not return in a hurry.

Updated On : 28th Apr, 2017

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