Brexit is about to begin. Here's what you need to know. - Macleans.ca
 

Brexit is about to begin. Here’s what you need to know.

Five questions – and five answers – to help you understand what Britain’s exit from the European Union might mean


 

All analysis from the past nine months about how Britain’s exit from the European Union will affect both sides will—finally—soon be put to the test. For though a small majority of Britons voted last June to have their country leave the EU, nothing has officially happened yet. This week that will change when the Brexit process officially gets underway. Here’s a primer on what’s about to unfold:

Why is Brexit back in the news?

This week U.K. Prime Minister Theresa May will officially trigger Article 50 of the European Union’s Lisbon Treaty. Article 50 is a short, somewhat vague, clause that sets the basic rules for any nation that wishes to leave the EU. On Wednesday, March 29, Britain’s government will send a letter to the head of the EU, Donald Tusk, officially notifying him that the nation wishes to separate itself from the union. Sometime in the following six weeks, the EU will respond with what it’s calling “draft Brexit guidelines.” The leaders of the remaining EU nations are due to meet on April 29, but it’s unlikely we’ll see the guidelines prior to that.

What happens next?

Article 50 stipulates that any state wishing to separate has up to two years to figure out how to do it. Britain is the first major economy to exit the EU in its modern iteration, so nobody is quite sure how that will actually play out.

The reality is that a full severing of ties between the U.K. and the EU might prove impossible for a few reasons. The Financial Times reported Monday that “the U.K. is starting to recognize that it will have to keep Britain under the remit of some EU agencies after leaving the bloc in 2019.” Why? An official told the FT: “We simply don’t have the expertise in some areas and wouldn’t have time to start up new agencies from scratch.”

Having expertise is one thing—having the people to act on it is another.

Back in November, an unsolicited memo from Deloitte suggested that Britain needed anywhere from 10,000 to 30,000 more civil servants to handle the workload of exiting the EU. The government criticized the report for being compiled without direct government input, and Deloitte later apologized for the “unintended disruption it has caused government.” But while another report, released two weeks ago, didn’t predict the exact same, it did make clear that the strain on British bureaucrats will be immense. And it suggested the government may have to spend more money, and perhaps hire more people at the 11th hour, to get Brexit accomplished on time.

Further complicating matters for the Brexiters who want a full and complete severing of ties are industrial regulations those irreplaceable EU agencies enforce. Breaking from EU regulations will affect British businesses that are accustomed to operating with existing rules in mind, and in conjunction with European partners. As the FT also noted, British government officials are realizing that “complying with many EU regulations will be essential if the U.K. is to have any chance of signing a successful free-trade deal with the EU.”

Traders from BGC, a global brokerage company in London's Canary Wharf financial centre react during trading June 24, 2016 after Britain voted to leave the European Union in the EU BREXIT referendum. (Russell Boyce/Reutres)

Traders from BGC, a global brokerage company in London’s Canary Wharf financial centre react during trading June 24, 2016 after Britain voted to leave the European Union in the EU Brexit referendum. (Russell Boyce/Reutres)

Will there even be a replacement trade deal between the U.K. and EU?

Maybe not.

Theresa May (and others) has said that from Britain’s perspective, “no deal is better than a bad deal.” In other words, the current government believes it would be better for Britain to exit the EU having not negotiated a new relationship with Europe, than to have been rushed into one that doesn’t suit its needs, just to meet a deadline. If a no-deal exit were to occur, it would be what’s being termed a “hard Brexit”.

How would a hard Brexit work?

Nobody’s exactly sure, but what’s clear is it would be disruptive.

Earlier this month, the U.K.’s minister in charge of exiting the EU, David Davis, testified at a House committee that, to this point, the government has not carried out a full assessment of the implications on the economy were Britain to leave in a so-called hard Brexit. “They made an estimate during the referendum campaign,” Davis told the committee, “but I think of of the issues that’s arisen is that those forecasts don’t appear to have exactly been very robust since then.”

And if a hard Brexit were to occur, and the U.K. loses access to the EU market, trade regulations could then default to whatever rules have been set by the World Trade Organization. If that happens (it’s never been tried before), it might mean a huge headache for many British businesses.

The same day Davis testified to the House committee, a Lords committee on exiting the EU released a report that summarized the potential impact of WTO trade terms on some UK manufacturing and commodities sectors. It was, in sum, bleak. Tariffs set by the WTO vary “considerably between sectors,” it noted. “[W]hile tariffs are zero on civil aerospace parts… EU tariffs set at the WTO are 10 per cent on cars and can be more than 200% on some agricultural products.” Similarly, a hard Brexit and default to WTO rules could mean more non-tariff barriers and customs borders that would cause further obstacles for business.

May’s government has worked hard on pushing the idea that the U.K. could sign a free trade agreement with the United States, but, as the Guardian reported, EU diplomats have said that “while no one can stop Britain from talking to future trade partners, any concrete attempt to negotiate free-trade agreements before Britain leaves the bloc could rapidly sour Brexit negotiations.” Though that, like the idea of a tax haven, could be a bit of a bluff. Even then, Trump’s “America First” mantra doesn’t, on its face, bode well for Britain’s already inferior negotiating position.

The bottom line: So far, business in the post-Brexit era has done generally okay, but consider that period a ‘phoney Brexit’. Many indications suggest that, no matter what happens, uncertainty will reign for a while yet.

The Union Jack (bottom) and the European Union flag are seen flying, at the border of Gibraltar with Spain, in the British overseas territory of Gibraltar, historically claimed by Spain, June 27, 2016, after Britain voted to leave the European Union in the EU Brexit referendum. REUTERS/Jon Nazca

The Union Jack (bottom) and the European Union flag are seen flying, at the border of Gibraltar with Spain, in the British overseas territory of Gibraltar, historically claimed by Spain, June 27, 2016, after Britain voted to leave the European Union in the EU Brexit referendum. REUTERS/Jon Nazca

What’s at stake?

Beyond the economy—a lot.

If a free trade deal is negotiated in good time (even perhaps past the two years) and it ends up being generally favourable for Britain, and the economy remains stable in the meantime, May could go down in history as one of the country’s finest prime ministers. But there are a lot of ‘ifs’ in that scenario. And if May manages to hang on to power until Brexit occurs—whether in good standing or not—she is then scheduled to face the electorate in 2020, a year after the two-year separation deadline. Plenty of time for people to assess how successful the process will have been to that point.

But even before that, Britain—and May—could face substantial domestic political obstacles. That includes another possible independence referendum in Scotland, slated hypothetically for sometime between the fall of 2018 and spring of 2019, should Scottish first minister Nicola Sturgeon have her way. Should it occur (May says it won’t, but if there is momentum for it in Scotland, it’s difficult to see how it could be reasonably prevented), it would make things infinitely more befuddling.

There might also be trouble brewing in Ireland over the soft border that currently exists between Northern Ireland and the Republic of Ireland—the only land border between the U.K. and the EU. How will that work once the U.K. has exited the EU? Ireland could suffer economically, too. Already, a weakened British pound has hit Ireland’s exports to Britain. And then, of course, there are those in some corners who think that Ireland and Northern Ireland ought to unite.

In other words, in an extreme scenario, by 2019, there might not be a whole lot of Britain left to Brexit.


 

Brexit is about to begin. Here’s what you need to know.

  1. Not happening. This is just a last stand.

    • Other things there were “not happening”:
      Man on the moon.
      Collapse of Eastern Europe.
      Trump elected POTUS.
      Wynne’s approval rating < 12%.

      • I said nothing about them. Pay attention.

  2. Scotland is holding another referendum.

  3. England’s members of the House of Commons sit like canned
    sardines. We realize that England is Europe’s most densely
    populated country, but can’t the English build a larger building for
    these government officials. They look ridiculous on TV news.