Friday 19 August 2016

What type of Brexit will we get?

In my last blog, I discussed the daunting administrative and political challenges in exiting an organisation we have been a member for 43 years and of negotiating a new relationship with the EU and the rest of the world. When to trigger Article 50 will be a critical issue given the political timetable of elections in Germany and France, of European Parliamentary elections and finally UK elections in May 2020. This is particularly so when Article 50 gives us just two years from when it is triggered which is not a lot of time when you are dealing with 27 countries and given how long it takes to negotiate trade deals. Thus one likely option is an interim deal before a final agreement.

One of the principal options the UK could go down is the so-called Norway option. This involves membership of the European Economic Area (EEA). This gives full access to the single market but we would not need to  participate in a number of  EU  policies including agricultural, fisheries, security, foreign, and justice. We could also negotiate trade deals with non-EU countries. However, I think this is exceedingly unlikely to be the favoured route. It would require free movement of labour which is clearly unacceptable to the majority of the population who voted to leave. Furthermore, it would also require us to be subject to EU regulations. Given the importance of sovereignty to much of the population and the Tory right, again this would be a red line that could not be negotiated on. Furthermore, the City has also said it does not like the idea of financial regulation being imposed over which it has no influence over. Finally, we would still have to make contributions to the EU budget, which could even exceed what we pay now, without any rebate being on offer.

More appetising would be some sort of Swiss-style deal.  Switzerland has access to the single market without some of the burdens of membership. Even so it has involved some contributions to the EU budget and some acceptance of regulations. But the main downside has been acceptance of free movement of labour. In February 2014 Switzerland voted narrowly for quotas on EU immigration.  This has put existing bilateral deals under threat. Yet there is talk of introducing an"emergency brake" procedure to halt immigration if the country becomes overwhelmed. Similarly there is now talk of an emergency brake lasting up to 7 years for the UK. This option is possible for the UK and given its greater leverage than Switzerland they would hope to negotiate a more favourable package although it could work against us. This is now seen as the favoured option for the City, an industry critical for the wealth of this country and potentially badly impacted from lack of access to the single market. It hopes to negotiate trade deals in individual sectors and secure asort of Swiss plus deal. While a number of EU leaders have expressed a willingness to secure a special deal,  success will not be easy given not only the complexities but also that many EU players want to penalise the UK.

The final option I wish to mention is the World Trade Organisation (WTO) option. This is much favoured by the Brexiteers as it would not only enable us to "get back" our national sovereignty including  control of borders and regulation but also have the freedom to agree trade deals with third countries and avoid contributions to the EU budget.  Here the UK  would rely on WTO rules for access to European markets but would be subject to the EU's external tariffs as well as non-tariff barriers. But this will not be easy either and take a number of years to achieve.

Given that the UK and EU's likely negotiating positions will start very far apart, this is perhaps still the most likely option. However I personally feel that the Swiss plus option will in the end be the path that we will go down and achieve, albeit over many years of painful negotiations.

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