A Fresh Start for Britain? An Analysis of the Post-Brexit Landscape
As the clock ticked, the ballot box piled up with votes. Tension brewed as voters patiently awaited the results of the referendum. June 23 was indeed a crucial day for Britain and more so for the people who wished to determine the sovereignty of their country. As the results were out, an instant shockwave tumbled the world, affecting the global stock markets as the pound sterling plunged to a 31-year low.
Now, as the negotiations for the withdrawal agreement proceed, Article 50 of the Treaty of European Union (TEU) must be triggered. Member states of the European Union must invoke this Article when they decide to exit the European Union. As a member state decides to invoke Article 50, there is a complex procedure to be followed for formal withdrawal which can be classified into two situations.
The first situation is where the UK leaves the European Union (EU) after a lapse of the two year time period (i.e. two years after the notification date); and the second situation is where the UK enters into a withdrawal agreement with the EU explicitly specifying the date when they plan to exit. There is a possibility that the UK may postpone the date of withdrawal from the European Union. However, a consensus would be required from the member states and the parties of the withdrawal agreement for this to occur.
The negotiation phase would be definitely the most uncertain period for government institutions and companies within the European Union. The UK government would want to make the most of this decision in terms of framing a suitable trade agreement with the EU. It is imperative for the UK to hasten negotiations, which would not be limited to the withdrawal agreement but also to the future trade relationship between the United Kingdom and the European Union.
Determining the impact of Brexit on existing UK legislation is quite complex as it would require a broad-based understanding of the legal system of the European Union. Though the UK has made its vote to leave the EU, the laws that affect the UK would not change overnight. Since 1973, the UK has been a member of the EU, receiving the benefits of the single market and the four freedoms: free movement of goods, capital, services and people. The EU enforces rules which must be followed and immediately effectuated by the member states. As the UK is a part of the single market, it automatically is bound by these rules and regulations of the EU.
The topical issue to be considered at this time is how will these rules be affected? With reference to directives, as a directive is introduced it gets transposed into a member’s state national law. On lapse of the two-year period or the withdrawal agreement, the directives would not be ineffective as legislators may retain or amend them according to the requirements of national law.
One can argue that forming new legislation to replace the directive would be time consuming and ambiguous. Instead, altering them according to national requirements would be a commendable option. Regulations introduced in the EU become a part of national law automatically. There is no requirement of transposing regulations into national law by framing replacement legislation.
Therefore, Brexit regulations would be inapplicable in UK. Courts in United Kingdom would not consider other forms of law, including decisions from the European Court of Justice. The value of precedent would severely be affected if Brexit becomes a reality.
The government have to negotiate a viable trade policy which would be beneficial for the country’s current economic scenario. The following trade models have been taken into consideration:
One might ask why the UK would opt for the Norway Model. In order to understand this model, it is important to determine the political and economic standing of Norway in the European Union. Norway is not a member state of the European Union, but it is a member of the European Economic Area (EEA).
With the EEA, Norway is also a member of the European Free Trade Association (EFTA). For framing a beneficial trade policy, the advantages and disadvantages of this model must be assessed. As Norway is a member of the EEA and the EFTA, it enjoys the four freedoms of the single market.
In terms of capital, Norway is considered to be a significant contributor to the EU. Norway is subject to some policy regulations in the EU and therefore has to mandatorily follow these regulations. Norway has independence in policy making for some areas, such as in fisheries and agriculture. If the UK wants to opt for the Norway Model then they would also receive the benefits of the single market. Brexiteers stressed that the UK contributes substantial capital to the EU every year and that this could be invested judiciously in other areas if the UK exited the EU, but if the UK opts for the Norway model it would still be affected by certain rules and regulations from Brussels.
The Swiss Model consists of many bilateral agreements into which Switzerland has entered with the EU and other member states. Forming these agreements with the EU would be fairly cumbersome for the UK. However, the Swiss Model does not give full access to the EU, especially when the vote of a member state is required for policy making in the EU. Switzerland has entered into a separate agreement regarding financial services. If the UK opts for the Swiss Model, then London’s pre-eminence as a global financial centre would be endangered.
On choosing this model, the UK may negotiate a separate financial service agreement with the EU in order to maintain the stability of financial markets. Switzerland has about 120 bilateral agreements with the EU. Bargaining another similar model would be quite a vexatious task for the institutions of the European Union. In terms of capital contribution, the Swiss Model is similar to the Norway Model and requires certain amounts of capital to be provided to the EU every year.
Turkey is not a part the European Union nor is it part of the EEA or the EFTA. One should think how a similar model could be beneficial to the UK. Turkey has negotiated a custom’s union model with the European Union. Under this agreement, there will be no tariffs/duties or quotas imposed on the goods which are exported or imported to the member states of the European Union from Turkey. External tariffs have to be applied to goods that are imported from non-EU countries.
The customs union will be only applicable to some products and it will not cover services. Under this model there is a single market policy only for goods traded within the EU. Nonetheless, there is no financial contribution to the EU under this model. As the UK’s main forte remains in the financial services sector, the UK might bank on this model to support financial services.
The main focus of the Canadian Model is to strengthen trade relations with the European Union. This model is also known as the Comprehensive Economic and Trade Agreement (CETA). The CETA has similar rules to the North American Free Trade Agreement (NAFTA). The members of the CETA maintain external tariff for goods and services. This model supports preferential treatment for certain goods and relies on the rule of origin of goods. However, this model allows the country to make its own policies and rules pertaining to border controls.
Some believe that the above model would not be feasible for the UK, citing the fact that Canada entered into this agreement to increase trade and improve their overall relationship with the EU. Furthermore, critics highlight that this agreement took years to negotiate and is not yet into force.
The UK is a member of World Trade Organisation (WTO). However, after the referendum, Britain has a policy to renegotiate its current membership with the WTO on the terms that it becomes a more active member of this international organisation. One can argue that the Brexit WTO Model will maintain normal trading relationships throughout the world. Moreover, with this model, the UK can frame its own rules regarding trade and border-control.
It can therefore be understood that the UK is undergoing seismic economic and political change. Though these models have been propounded by Brexit supporters, all have both benefits and drawbacks. Currently, the UK should abstain from hastily choosing a particular model to follow. Britain must practically measure their country-specific trade obligations and match them to any appropriate models outlined above. Alternatively, the UK could create its own model within the EU. The true outcome of the referendum is yet to be decided.