Now that the results of the British election have thrown the issue of Brexit wide open, the alternatives for Prime Minister Theresa May, although she does not want them, are multiplying. Not a situation that makes planning compliance with regulations an easy task.

There have doubtless been economic consequences as a result of the shock referendum result a year ago. The pound’s collapse has made imports dearer, which is having a downward effect on living standards, savings, and holidays abroad; at the same time, inflation is up. But it has helped some manufacturers with substantial overseas sales, who, according to the Confederation of British Industry (CBI), have the strongest order books in three decades. U.K.-focused retailers, on the other hand, have done very poorly. And strawberry prices have soared due to the lack of EU migrant workers.

Despite the election result, on 21 June, the Queen’s speech outlined to a less-than-united Parliament eight pieces of legislation that Brexit would require over the next two years on: trade, customs arrangements, international sanctions, nuclear safety, agriculture, fisheries, and immigration, as well as the “Great Repeal Bill” which was designed to transform existing EU rules into British law.

Brexit negotiations started two days earlier, on 19 June, when Secretary of State for Exiting the European Union David Davis and EU Chief Negotiator Michel Barnier met and outlined their plan for monthly meetings, “bringing our teams together for a number of days at a time” along with separate deliberations that will make up the negotiations for Britain to leave the union. Davis and Barnier announced that: “In the first phase, the negotiation rounds will be broken down into three groups: citizens’ rights, the single financial settlement, and other separation issues.”

But even the first round of negotiations did not go well—the rights of U.K. citizens in the European Union and EU citizens in the United Kingdom—when the detailed proposals from May were met with a worse than lukewarm response from EU officials and country leaders, and downright condemnation from all the citizens covered. If this first reaction is a predictor of future negotiations, the United Kingdom is likely to lose several rounds, if not the whole match. The European Union’s official position appears to be one of stonewalling. After all, plucky little Britain against the EU27 is not the fairest of fights, and perhaps one that shouldn’t have been picked.

Just a few days later, however, the Guardian announced that it had information from the Department for Exiting the European Union (DExEU) that “officials have quietly abandoned hope of securing the government’s promised ‘cake and eat it’ Brexit deal,” and will have to accept a difficult and unwelcome set of negotiations surrounding market access and political control. With the election result, May will need the support of Labour Party leader Jeremy Corbyn on a whole range of issues, but even cabinet ministers in her own party are openly rebelling against her hardline stance, especially Philip Hammond, the chancellor of the Exchequer, who has said that political principle should not override economic expediency. Also as a result of the election, the U.K. Treasury Department, long an opponent of breaking economic ties with Europe, has gained newfound confidence and is in the mood to force ministers to choose between economic interests or sovereignty.

All this is a bit of a change from the stridency of May’s Lancaster House speech in January, when she echoed that Boris Johnson boast that Britain can “have its cake and eat it;” in other words, enjoy full trade access without free immigration, jurisdiction from the European Court of Justice, or continuing the hefty EU payments that have been a feature of Britain’s membership. The Labour Party, despite winning 40 new seats in the election, does not seem to have caught up with the new mood in the civil service or the country, since Corbyn sacked three shadow ministers for questioning a “we’re going to leave the single market” position.

Increasingly, there is a growing realization that Brexit could be softened as far as to mean membership of the European Economic Area (EEA), although this not only mandates free movement of people, but also means the country would have to abide by decisions made by the European Union without having any input. Otherwise, the country will end up agreeing to a trade deal such as the one recently struck between the European Union and Canada, which gives both sides low access but high control.

“There are a number of options for any new customs arrangement, including a completely new agreement, or for the U.K. to remain a signatory to some of the elements of the existing arrangements. The precise form of this new agreement will be the subject of negotiation.”
Theresa May White Paper



,

Former UKIP leader Nigel Farage said recently that a hard Brexit was “for the birds” because of the election and the consequent hung parliament. But until the government’s position that free movement of labour and the jurisdiction of the European Court of Justice must end in Calais is changed, it still has to deal with the consequences of a hard Brexit. So, what does that mean?

It means no membership of the single market. May has admitted in her many statements on the issue that the U.K. cannot “cherry pick” from the Four Freedoms, and if she wants to ditch the other three, the single market must go as well. Of course, what this means is that British companies trading within the European Union will be trading under rules agreed upon by institutions over which the United Kingdom has no influence. It means a negotiated agreement on the treatment of EU citizens in the United Kingdom (around three million, including almost a million from Poland) and vice versa (around a million). May is also insisting that there must be an agreement on all the issues up for negotiation before an exit, though this seems increasingly unlikely, while at the same time saying no deal is better than a bad deal.

What is proposed, in the white paper setting out the government’s position that was published in May, is that the United Kingdom and the European Union agree on a Free Trade Agreement that covers financial services and network industries, such as transport, energy, and communications, and agree on a new customs agreement for goods being imported and exported. While the U.K. government is hoping for terms similar to those already in place in the single market, this seems unlikely also. The white paper calls for the: “Freest possible trade in services, including financial services.” And it goes on to say that: “There are a number of options for any new customs arrangement, including a completely new agreement, or for the U.K. to remain a signatory to some of the elements of the existing arrangements. The precise form of this new agreement will be the subject of negotiation.” This hard Brexit calls for not just better trade agreements with other countries than those negotiated by the European, but also trade agreements with the EU similar to those that are already in place. A position that seems not so much having your cake and eating it, as asking for a dollop of ice cream on top as well.

Hard Brexit “guarantees” a seamless and frictionless border between Ireland and Northern Ireland, reciprocal citizenship, and a preservation of the Common Travel Area. But for everyone else it will mean that the Free Movement Directive no longer applies and that U.K. law will govern the number of EU nationals migrating to the United Kingdom. The proposals specifically exempt migration for the “brightest and best,” as well as students and academics, but make no mention of strawberry pickers. “There may be a phased process of implementation to prepare for the new arrangements. This would give businesses and individuals enough time to plan and prepare for those new arrangements.”

Existing workers’ rights regulations and legislation are also going to be protected, and the white paper lists a series of statutory rights that are more generous in the United Kingdom than are guaranteed under EU law, such as statutory annual leave, maternity leave, and shared parental leave. It does not mention that the EU rights are the absolute minimum and that many other European countries offer better protections than that minimum.

A hard Brexit would also mean that Britain would take control of its own agriculture policy and over fishing in British waters.

London is cited as “one of only two global, full service financial centres,” and it is stated that “Over 75 percent of the EU27’s capital market business is conducted through the U.K.” and that “The U.K. is also responsible for 37 percent of all European Initial Public Offerings, while the U.K. receives more than one-third of all venture capital invested in the EU.” While this is true at the moment, the slow migration of financial business away from London and to a variety of other European locations that have no intention of leaving the European Union has already started and, unless something is done quickly, the trickle will turn into a flood.

Finally, there is the Great Repeal Bill, which seeks to replicate every piece of EU legislation in a massive copy and paste exercise and has been referred to as dead in the water by Corbyn. It then leaves the government—without consultation, in the manner of Henry VIII—to decide which bits to keep and which bits to throw out. In conclusion, the white paper says that the U.K. will be the “Best place to do business: This will mean fostering a high-quality, stable, and predictable regulatory environment, whilst also actively taking opportunities to reduce the cost of unnecessary regulation and to support innovative business models.” A statement that sounds more like the deregulatory policies of the Trump administration than a Conservative government offering to guarantee protections that the European has spent 43 years putting together. Another compliance nightmare.

WHAT PEOPLE ARE SAYING

“A good Brexit deal for working people means tariff-free and barrier-free trade with Europe. And it means a level playing field for workers’ rights written into the Brexit deal. That deal must protect all current rights and make sure hardworking Brits do not miss out on new protections enjoyed by EU workers in future.”
—TUC General Secretary Frances O’Grady
“Because membership of the single market requires the four freedoms to be obeyed, we’ll be seeking to leave the single market. Similarly, we’ll be leaving the customs union. The circumstances haven’t changed at all.”
—Secretary of State for Exiting the European Union David Davis David Davis
“It’s not about punishment, it’s not about revenge. We are trying to unravel 43 years of patiently built relations. I will do all I can to put emotion to one side and stick to the facts, the figures, and the legal basis.”
—Michel Barnier, European Chief Negotiator for Brexit
“A bill will be introduced to repeal the European Communities Act and provide certainty for individuals and businesses. This will be complemented by legislation to ensure that the United Kingdom makes a success of Brexit, establishing new national policies on immigration, international sanctions, nuclear safeguards, agriculture, and fisheries.”
—The Queen
“This legislation will, wherever practical and appropriate, in effect convert the body of existing European Union law (the “acquis”) into U.K. law. This means there will be certainty for U.K. citizens and for anybody from the European Union who does business in the United Kingdom.”
“This Government will make no attempt to remain in the EU by the backdoor, nor will we hold a second referendum on membership.”
—U.K. Prime Minister Theresa May

And then there’s soft Brexit.

Again, since the election, former Tory prime ministers, including her immediate predecessor, David Cameron, have been lining up to encourage May to think about a softer Brexit. John Major, Margaret Thatcher’s successor, has also said that a hard Brexit was not endorsed by the electorate and that May should try to negotiate a better deal on free movement to retain single market status. Scotland, which saw new Tory MPs elected this time around, and which has long been a Remain supporter, has also begun making urgent calls for a soft Brexit. May’s own Chancellor, Philip Hammond, has also signalled his desire to stay in the customs union, at the very least. And, the U.K. Treasury wants closer economic ties to stay in place, since it believes the British economy will be seriously harmed if they are not. Hammond is among many who have said that May’s Lancaster House speech has hamstrung the government’s negotiations with its absolutist positions.

So, what would a soft Brexit look like? Most commonly, this would mean remaining in the customs union, which would allow for tariff-free movement of goods, cutting down massively on paperwork, but would also allow for non-EU international deals in the service sector. It could also mean accepting a continued limited role for the European Court of Justice. Trying to strike a deal on free movement, as Major has suggested, would also allow closer ties to the single market. This could mean EEA membership (like Iceland, Norway, and Liechtenstein, which, along with Switzerland, make up the European Free Trade Association, or EFTA).

Some of these positions have support from the opposition Labour Party, which was specific in its manifesto that Britain would leave the single market, but was much vaguer on staying in the customs union or maintaining the oversight of the European Court of Justice. There is also the possibility of a “Customs Union with the EU’s Customs Union,” such as that negotiated by Turkey, which has a common external tariff. The arguments for staying within the customs union—if the EU agrees—are strong. According to several sets of figures, including some from a leaked Treasury report, if Britain had a Free Trade Agreement but no customs union with the European Union, its total trade with the world would fall by 22 percent; but new trade deals with the five BRICS countries, as well as the United States, Canada, Australia, and New Zealand, would boost trade by only 5 percent—a significant net loss.

And then there is the host of not-officially-EU bodies that Britain is a member of as a result of its EU membership. The Confederation of British Industry has identified 34 key agencies covering agriculture, energy, transport, and communications. Britain has the choice of either leaving them—the choice under a hard Brexit, for example, with the atomic energy authority—or staying within them under a soft Brexit. This is surely a better option than having to create new bodies or massively increase the scope of existing national ones. The European Aviation Safety Agency, for example, authorises British aircraft to fly. Euratom, which May has explicitly said she will leave, regulates the trade of nuclear materials. The European Securities and Markets Authority oversees the regulation of securities markets. Equivalent bodies would have to be set up at huge expense. But if the U.K. wants to stay in these agencies, it will have to submit itself to the jurisdiction of the European Court of Justice, as other non-EU members of these agencies do.

In another interesting and new possibility, Swiss think tank Foraus put out a discussion paper suggesting that the U.K. could seek associate membership of EFTA, rather than full membership. Finland was an EFTA associate member from the 1960s to the 1980s. Associate membership would bring trade benefits without also mandating free labour movement. This would allow the United Kingdom to access the EFTA’s 27 free trade deals covering 37 countries and 900 million consumers. Existing EFTA members would have to accept the U.K.’s application, and countries that have signed free trade deals with the EFTA also have the right to block a new member. Goods would still have to undergo “rules or origin” checks to ensure the exporter is not avoiding EU tariffs, but the benefits are manifest.

But what is Lexit? There are several influential groups that favour “left exit” or “Lexit.” These groups see the European Union as “anti-democratic, pro-big business, and steeped in conservative economics.” Lexiteers see Brexit “not as a threat but as an opportunity to use trade, procurement, tax, ownership, and public investment to transform the economy along socialist lines,” opportunities that are not available within the European Union.

And then there’s “Nexit,” or “No Exit,” which, prior to the election, seemed a complete no-hoper. May asserted in the May white paper that the government’s position is: “This Government will make no attempt to remain in the EU by the backdoor, nor will we hold a second referendum on membership.” But she is no longer in a position to affirm these statements in a parliament that does not contain the same MPs who voted to implement Article 50 and without a proper majority in the House of Commons.

Suddenly all of these options appear to be on the table, although officially the stance is still a hard Brexit one. Overall positions and specific negotiating positions, however, appear to be changing daily. One thing is certain, though: If the British people see the phrase “deep and special partnership” one more time in a government publication, there might just be riots in the streets.

Topics