LEADING THE WAY OUT OF THE EU

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After slow progress throughout most of 2017, Theresa May finally caved into the European Union on all three key divorce issues in December: the Irish border question, the rights of EU nationals in the UK, and the financial settlement. The estimated £40bn pay-out is has opened the door to “Phase II” of the negotiations along with an unwelcome transition period set to last until December 2020, only then will Britain become a sovereign nation again, and even then, perhaps only in name.

The EU secured additional concessions in the run-up to the March European Council summit when it was revealed British fisheries would be left under EU control for the entire 21 months of the transition period, threatening their very existence. Both parties are now engaged in rampant speculation about what the eventual deal might look like. The UK government is aiming for a “Canada plus plus plus” agreement based around mutual recognition of regulations and continued oversight from certain EU agencies.

Having ruled out any such “cherry-picking” – Britain was told it must settle for a goods only deal or remain in the Single Market – the EU has offered some additional access to its underdeveloped financial services market. The finance offer falls far short of what the government had asked for, nevertheless, following the massive concession over fisheries, suspicions have arisen that May will sell our fishermen down the river to secure it.

A BREAKDOWN OF THE OPTIONS

Britain will cease to be an EU Member State at midnight Central European Time on 29 March 2019. However, the transition period will essentially keep the UK in the open borders European Economic Area until December 2020.

The strong support towards a close (and subordinate) relationship with the EU in both houses of Parliament suggests Britain will leave the European Union in name only. Possible outcomes include continued membership of the Customs Union or the EEA (the so-called Norway option) or both. The government may still salvage a comprehensive trade agreement without long-term concessions over free movement. Although a dwindling prospect, the option of reverting to a conventional trading relationship based on WTO rules remains open too.

 

1. THE UK NEGOTIATES A FREE TRADE AGREEMENT (FTA) WITH THE EU

The most relaxed of the formal options available to the UK is a typical free trade deal. Britain would retain full or partial access to the Single Market, meaning tariffs on the vast majority of goods would continue to be exempted. But there would be no requirement for the UK to adopt regulations from Brussels, nor would Free Movement be a pre-requisite.

2. THE UK REMAINS PART OF THE CUSTOMS UNION

The Customs Union in many ways mirrors the the EEA. Just as all EU countries are in the EEA, they are also members of the CU. Non-EU countries in the Customs Union are usually hoping to one day become fully-fledged EU Member States, whereas the likes of EEA Norway have decided not to join the EU but have sought a higher level of EU market access. Non-EU countries in the customs union include Turkey, free movement is not a pre-requisite as it is with the EEA. The EU wants to retain access to the UK labour market and has not entertained the CU option in public.

The Customs Union carries a major drawback. Members must adopt the EU’s common tariffs (aka import duties) and regulations. In other words, members of the CU cannot unilaterally raise or lower tariffs on any imports other than agricultural goods, and as a result, they cannot enter into trade agreements without the EU doing so first. EEA countries can.

3. THE UK REMAINS A MEMBER OF THE EEA

Under this option, Britain would still remain within the European Economic Area (EEA), which comprises of all the EU Member States plus three other countries, Norway, Iceland, and Lichtenstein. The EEA is essentially, the EU’s Internal Market, minus agriculture and fisheries. A ‘Norway-Style’ relationship therefore means the European Court of Justice will no longer be Britain’s supreme court, EU VAT requirements will no longer apply, agriculture and fisheries policies will be back under the government’s control, as will its ability to independently negotiate trade deals. A condition of remaining in the single market however is to adopt Free Movement, pay budget contributions to the EU, albeit at a significantly reduced level, and adhere to the EU’s single market regulations.

4. THE UK NEGOTIATES ITS OWN EEA TYPE DEAL

Switzerland, chose to arrange its own EEA-type deal with the EU. It has tariff-free access to the single market, but whereas Norway and the other EEA countries have chosen to weld most of their industries to the EU’s single market, Switzerland has opted to be more selective. The alpine country has still had to adhere to free movement of labour, but it has on occasion decided to restrict access to its labour market for non-Swiss nationals.

5. THE UK TRADES WITH THE EU THROUGH WORLD TRADE ORGANISATION (WTO) RULES

Should negotiations break down with the European Union for whatever reason, the UK would fall back onto World Trade Organisation (WTO) rules in its commercial relationship with the EU. The core principle of WTO membership is to treat all other members equally and the EU will not be able to impose arbitrary and prohibitive duties on imports from the UK.

ARTICLE 50

Article 50 of the Treaty on the Functioning of the European Union (also known as the Lisbon Treaty) is central to the process of exiting the EU. Following the Prime Minister’s notification of withdrawal to the European Council on 29 March 2017, the clock has started on the two-year negotiating period, which will define both the terms of Britain’s exit as well as its future relationship with the European Union.

Click here to learn more about the Brexit process, how we leave and when.

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