By Cameron Peek

Photo: Brexit Text License: Editorial Use OK

Following the conclusion of phase one (“the divorce”) of the Brexit negotiations last December, the United Kingdom and the European Union have officially entered phase two of the negotiations, discussing the framework for the UK-EU future relationship and deciding the arrangements necessary during the period transitioning to that relationship. Frustrated that the discussions have produced few concrete ideas of what this future relationship would look like, two weeks ago the EU’s chief negotiator, Michel Barnier, told UK leaders that the time had come to make a choice — will the UK be in or out of the EU customs union? Responding to growing concern within the Conservative Party that she might bend to opposition pressure, last week UK Prime Minister Theresa May made her position clear; the UK will “categorically [be] leaving the customs union.”

A Refresher on Customs Unions

A customs union is a type of trading block that unifies the tariff policy of all members. Customs unions are defined by two key features: 1) a free trade area between members (members do not charge duties on goods imported from other members) and 2) a common external tariff (any goods imported from non-member countries are charged the same import tariff, regardless of which member country the goods enter the union). Here, we should distinguish the EU customs union from the EU single market. The customs union unifies external tariffs, but the single market is what allows the free flow of goods, services, people, and capital. Thus, it is possible to be in the single market, but not the customs union (like Iceland, Liechtenstein, Norway and Switzerland), or be in the customs union, but not the single market (like Andorra, San Marino and Turkey).

May’s Position and the Way Forward

Leaving the customs union risks seriously disrupting the lion’s share of UK trade. The EU is the UK’s largest trading partner, comprising 43% of all UK exports and 54% of all UK imports. Exiting the customs union will put up new tariff barriers, depriving UK-EU traders of the duty-free access they currently enjoy. On the other hand, leaving the customs union would allow the UK to escape the confines of the common external tariff, thereby making it possible for the UK to implement its own tariff policy and negotiate its own trade agreements with non-EU members. As the EU itself has recognized that 90% of global growth is expected to come from outside the EU, this could be a worthwhile tradeoff for the UK.

Still, May is holding on to hopes of both having her trade cake and eating it too. In August of last year, May’s trade team released a “future partnership paper” outlining what is still the UK’s stance for negotiating the future UK-EU trade relationship. Most notable from the paper was the proposition of a “customs partnership.” Under this scheme, the UK proposed that it would synchronize its import policies for intermediary goods brought into the UK that are part of a supply chain for final consumption in the EU. Thus, for American widgets meant to be consumed in the UK, the UK could charge x%; but if those same American widgets were to be used in other products that would eventually be shipped to the EU, the UK would be charge the EU rate, y%.

Unfortunately for May, EU officials are underwhelmed at the idea, calling the UK’s proposal for a customs arrangement “unrealistic.” Even more doubtful is whether such an arrangement would comply the WTO’s non-discrimination principles. As the negotiations proceed, the UK will need to be warry not to compromise its obligations to the world trading system in the hopes of maintaining current access to the EU market.

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February 15, 2018

By Cameron Peek

Photo: Pixabay/R. Berns, Creative Commons License

In her speech from Florence, Italy on September 22, Prime Minister Theresa May of the United Kingdom (UK) delivered words of hope and optimism, but little substance, for progressing the stalled negotiations regarding the UK’s exit from the European Union (EU) in 2019. “When we come together in the spirit of ambition and innovation…open[ing] our minds to new thinking and new possibilities, we can forge a better, brighter future for all our peoples,” said May, suggesting that the new relationship to be forged is just a matter of thinking creatively. 

The fruit of May’s creative thinking was her proposition of a two-year post-Brexit transition period, during which the UK would still abide by EU regulations and enjoy market access while the final economic relationship continues to be negotiated. Under such an arrangement, May suggested the UK and EU could avoid forcing stakeholders to adapt to a set of interim rules while the final relationship is hashed out. The EU’s chief Brexit negotiator, Michel Barnier, expressed hope that May’s proposal would allow room for negotiations to proceed, so long as UK negotiators understood that during such time there would be no wiggling out of any EU regulatory, budgetary, supervisory, judicial or enforcement instruments and structures.

Other EU leaders were less satisfied with May’s general lack of concreteness. “It is not a matter of creativity,” retorted German MEP Ingeborg Grässle, speaking specifically about the future UK-EU trade relationship, “It is a matter of logic and respect of basic EU law.” In response to May’s vague assurances that the UK legal system would continue to protect the rights of EU citizens living in the UK and that the UK was hopeful in finding a no-physical-barrier solution along the Irish-UK border, French President Emmanuel Macron simply stated, “Before we move forward, we wish to clarify the issue of the regulation of European citizens, the financial terms of the exit and the question of Ireland.”

Perhaps the best hope for progress came from the conspicuous absence of the hardline Brexiteer mantra that “no deal for Britain is better than a bad deal for Britain.” Originally put forth in her January speech at London’s Lancaster House, May’s departure from this rhetoric indicates she may intend to step away from the inflexible position that contributed to stalling negotiations thus far and towards a more realistic recognition that a hard Brexit would be catastrophic for the UK economy. Still, while this softer approach may open doors towards advancing negotiations with the EU, it is equally likely to cause problems for May back at home. There, the uncompromising faction of May’s Conservative party, who according to EU critics insist the UK be allowed to “have its cake and eat it too,” await May at the Conservative conference in Manchester being held from October 1-4. There, it waits to be seen whether May will stay the course in her optimistic reliance on “creative thinking.”

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October 02, 2017

By Nicholas Nalbantian 

Pre-Brexit

Prior to the decision to leave the European Union, David Cameron, then the Prime Minister of the United Kingdom, attempted something new in EU politics. In January 2013 Cameron promised to negotiate a “new settlement” with the EU, including winning an array of concessions from Brussels in order to convince the British people to remain in a reformed EU. On February 20, 2016, Cameron finalized a deal with the (now dubbed) EU-27 who, even at the time, seemed incredulous of the idea that a state would leave the EU. Nonetheless, Cameron managed to secure some changes for the UK, chiefly that bloc workers will be limited to “in-work” social welfare benefits for four years and a pledge that the UK will not be responsible for the maintenance of the Euro, the European common currency. Of existential significance, Cameron also got a pledge that the UK would be excluded from any commitment “to an ever closer union” and the introduction of a “red-card” mechanism to block EU Commission proposals that were not to Britain’s liking, provided 55% of national parliaments agree.

With the UK’s vote to leave, these concessions by the EU-27 will not be implemented. However, as anti-EU sentiment grows in Europe, it will be up to Brussels to consider whether Brexit could have been avoided if Cameron’s moves for reform had been taken more seriously. Although any future EU reform may be a forlorn hope as Guy Verhofstadt’s (leader of the Liberal MEPs) decision to make a deal with Antonio Tajani’s center-right European People’s Party (EPP), which won Tajani the presidency of the European Parliament. The EPP was the same political party in power from 2009 – 2011 during the fallout of the Great Recession. The EPP now controls all three leadership roles in the EU with Jean-Claude Juncker as President of the European Commission and Donald Tusk as President of the European Council. The text of the agreement between the EPP and the Liberals, both pro-EU parties, reads like a diagnosis that the remedy for the EU’s woes is “more Europe.” The move is also seen as a rebuke of Eurosceptics and Socialist parties who had hoped for greater dialogue on systemic EU reform.

Brexit

On June 23, 2016, the United Kingdom held a referendum to decide whether or not the country should remain a part of the European Union. In the early hours of the morning on June 24 2016, the results emerged as a 52% to 48% victory for the Leave campaign, Prime Minister David Cameron would resign later that same day. The 71.8% turnout for the referendum vote was the highest turnout experienced in a British election since 1992. In the wake of David Cameron’s resignation, Theresa May, the former Home Secretary and long-time Member of Parliament, became the second woman to serve as Prime Minister on July 13, 2016.

The referendum to leave the European Union would be the first time that a nation state has voted to leave the European Union, thereby reducing its membership to 27. While Greenland voted to leave in 1985, it also remained a member of the Kingdom of Denmark so its relations with the EU are more akin to European overseas territories, like French Polynesia, than a true withdrawal. With the EU often described as the pinnacle of multinational integration, the significance of the UK’s decision to quit the bloc cannot be overstated. 

Un-United Kingdom

An almost immediate consequence of the Brexit vote, aside the falling value of the pound, was the threat to the relationship of the UK states. On October 2, 2016, the Belfast High Court heard legal challenges whether the UK Government needs the consent of the Northern Irish Assembly to leave the EU, it was rejected. In a similar vein, Nicola Sturgeon, First Minister of Scotland, announces that a second Scottish Independence referendum is likely by 2020, if not earlier. Perhaps most damaging of all is the threat to the Good Friday Agreement, with the Brexit vote splitting along sectarian lines, with 85% of Catholics voting remain, and the unsettled issue of the open border between Northern Ireland and the Republic of Ireland. 

Spilling into 2017

With little consideration for “Years in Review,” the events of Brexit continued into this year and it would be inaccurate not to mention some of the more recent developments. The UK High Court, one of the Senior Courts of England and Wales, rule in November that the May government could not invoke Article 50 of the Lisbon Treaty without Parliament’s consent. The UK Supreme Court confirmed that decision in January. Despite some difficulties with the House of Lords, Parliament has now authorized Prime Minister May to invoke Article 50. As of printing, May is expected to trigger Article 50 on Wednesday, 29 March, but with elections soon European officials suggest formal talks won’t start until June.

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March 22, 2017