Which Way Forward for the UK Post-Brexit?

11 Aug, 2016

In the aftermath of the vote for Brexit, it transpires that there is actually no such thing as a Brexit, but potentially a number of Brexits that we could end up with.

In theory we could negotiate a Brexit where the UK leaves the EU but does not sever its ties to the EU’s ‘four freedoms’. By retaining its commitment to the freedom of movement of capital, goods, services and people, the UK could become a member of the European Economic Area (EEA). We  could have the same status as Norway, Iceland and Liechtenstein as non-EU members that are able to access the EU’s single market.

However as reducing immigration played such a large role in the recent Leave campaign it is likely the Government will attempt to restrict free movement of people in its negotiations with the EU. This seems like a sensible assumption especially in light of Theresa May’s recent comment that there would be no attempt to re-join the EU by the back door. This means the prospect of the UK joining the EEA is likely to be off the table from the outset.

This leaves the UK with a couple of other possibilities. Switzerland’s relationship with the EU is a possible example of what a post Brexit UK-EU relationship could look like. However this model is also fraught with problems. Switzerland currently has access to the European single market as a result of a series of bilateral agreements with the EU which include unrestricted immigration for EU nationals which it has recently attempted to renegotiate. Switzerland has been warned by the EU that it will lose access to the single market if it goes ahead with any limitations. This does not bode well for any UK advocates of this scenario.

However all is not lost as there is a precedent for  a free trade agreement that gives  access to the  EU single market without full adherence to the principle of free movement in the shape of the  bilateral free trade agreement between Canada and the EU (CETA). The agreement has been cited as an example of what future UK-EU trade relations could look like by both Boris Johnson and the new Brexit minister David Davis.

Canada’s international trade minister Chrystia Freeland has stated that she expects the new CETA deal to come into effect in early 2017. The implementation of CETA would mean that all tariffs on industrial products will be lifted between Canada and the EU as will nearly all tariffs on agricultural products. To secure this deal Canada has agreed to accept free movement of people between itself and most of the EU member countries; Bulgaria and Romania are excluded.

However Canada’s access to Europe’s single market of course falls far short of the access that the UK currently enjoys as a member of the EU. For example, the CETA agreement only grants limited access for the Canadian financial services industry. Considering how reliant the UK is on its own financial services industry (with the UK exporting over £22 billion worth of financial services to the EU in 2014) a similar deal is far from ideal for the UK economy.

Although the CETA negotiations were concluded in 2014, its implementation has been put at potential risk by Bulgaria and Romania’s announcement that they would be vetoing CETA. The UK, if it chooses to go down this route, could risk finding itself in a similar position down the line. One member state could object during the ratification process and potentially scupper the whole deal.

Ultimately what may help the UK negotiate itself a better deal than Canada is the fact that the UK’s economy is more integrated into the European economy than Canada’s. The UK currently absorbs a huge 16% of the EU’s exported goods. Furthermore 1.2 million British people live or work in the EU and over 3.3 million EU citizens live or work in the UK.

Clearly whichever path the UK takes, the economic needs of both Britain and the EU will have to be fully considered in any future negotiations. Any bad moves on either  the principle of the free movement or restricting the UKs access to the single market risk hurting both the UK and Europe in which case no one wins.

(Source: Caron Pope, Managing Partner at Fragomen)

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