Monday, June 19, 2017

There aren't very many ways to implement Brexit

Published on CNN

As Brexit negotiations have finally started, there’s quite a bit of confusion. Despite Theresa May’s insistence that “Brexit means Brexit”, for many it isn’t clear at all what it actually means. Nevertheless, reality is imposing itself here, as it becomes apparent that there aren’t so many ways to implement Brexit.

Apart from the “cliff-edge” Brexit scenario, when there wouldn’t be any EU-UK deal on legal arrangements in place when Britain automatically exits the EU, on March, 31th, 2019, and which would risk trade happening on WTO terms, including tariffs, there really only seems to be the version of Brexit which the UK government pursues: a carefully negotiated exit, with the UK ultimately leaving the customs union and the single market.

As the debate rages on, all suggestions to “moderate” this kind of Brexit are being revealed as undesirable and unrealistic, on closer inspection. 

First, there was the idea that Britain could perhaps stay in the single market”, as proposed by some politicians from both Conservatives and Labour. However, when people realise this would mean that the UK would copy paste all of the EU’s rules without being able to vote on it, something dawns that this may not be a good fit for one of the world’s oldest democracies, let alone for the majority of the public who voted for Brexit. Norway, which is outside of the EU but inside the single market, has been described as a “fax democracy” by its former PM, Jens Stoltenberg, the current head of NATO. Of course, perhaps the UK could accept this status, which comes with full market access to the EU, for a limited transitional period, as Norway can still delay EU rules, which would effectively grant Britain the power to say “no”. In any case, the idea has lost traction, with Labour ruling out “formal membership” of the single market, and already in February, the UK High Court rejected a legal challenge over whether the government must give parliament a separate vote on Britain’s withdrawal from the single market. 

A second attempt seems currently underway to mitigate the UK government’s version of Brexit by having the UK stay in the EU customs union after it has left the EU. The idea seems to be supported by the European Commission, which hopes that this may limit the risk of “regulatory divergence” and therefore “regulatory competition” - as if that would be a bad thing, but anyway.

The idea of the UK staying in the EU’s customs union is flawed. It would effectively mean that Britain continues to outsource its trade policy to the EU even after Brexit. Turkey, a non-EU member state which is in a customs union with the EU, has little or no freedom to develop trade policy. It also has to beg to get the same market access the EU manages to secure in its trade deals with for example Canada or Japan. Can anyone really imagine the UK in this situation, even if one could of course delay the UK’s exit from the customs union a bit until it its own bureaucracy is ready? Labour is still open to it but at least UK Chancellor Philip Hammond, who seems to have expressed some doubt, is now firmly in favour of a British exit from the customs union which would allow the UK to conduct its own trade policy, one of the great benefits of Brexit which can compensate for some of the inevitable “exit costs”.

Equally, also from the EU side, some less good ideas seem to run out of steam. The EU’s demand that the UK would still need to accept the rulings of the EU’s top court after Brexit was slammed by Franklin Dehousse, a former Belgian judge at that Court, as “dangerous” as it would “make a final deal less likely.” On his turn, Germany’s Foreign Minister, Sigmar Gabriel, has undermined this particular EU demand by suggesting that a joint EU-UK court may be a better idea, although he thought it should still follow the EU’s top court “in principle”.   

One can of course argue Brexit wasn’t a good idea, but as the lack of success of the UK Lib Dems, who are keenon a second referendum, has shown, the British electorate doesn’t like to be asked again about the issue. Therefore, it’s better to try to implement Brexit with as little trade disruption as possible and to avoid a “cliff-edge”, chaotic event. To negotiate an arrangement which ultimately allows Britain to determine its own rules and trade policy is the obvious way to do that.

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