The outcome of United Kingdom’s referendum on its membership in the EU throws up many questions on the future of the country’s trade relationships with the EU and the wider world, and puts TTIP at risk, experts say.
After its in-out referendum on the EU on Thursday (23 June), Britain went to sleep believing Remain had won, it woke up with Leave victorious. Leave is the victory of the English hinterland over the cosmopolis (London and other thriving big cities), of the old over the young, of the poorer and less educated over the wealthier and more educated. And though nationalism has won, nobody knows if the United Kingdom will actually still be a nation in a few year’s time.
Welcome to “hell”.
What next? Nobody can pretend to know what will happen: there is no precedent of a country leaving the European Union. The next United Kingdom government is expected to trigger Article 50 of the Lisbon Treaty which foresees and automatic exit within two years. But Britain needs a new government first, as Prime Minister David Cameron has resigned, and a new power struggle will set in. The House of Commons is currently largely against leaving the EU – so there could be delays.
No short-term effects on current legal arrangements – but massive uncertainty ahead
In the short term, everything stays the same. This morning President Donald Tusk said: “There will be no legal vacuum. Until the United Kingdom formally leaves the European Union, EU law will continue to apply to and within the UK. And by this I mean rights and obligations”.
The UK business organisation Institute of Directors has told its members this morning: “don’t panic – yet”. A statement issued this morning reads “It is estimated secession would take two years and the repeal of EU legislation from UK law might require an extra year, taking us to 2020. However, some effects – particularly on financial markets – are sure to be felt sooner”.
In practice, “the result has created massive unknowns, in EU members’ as well as Britain’s domestic politics, as well as in the markets”, Guy de Jonquières, former Financial Times veteran and writer on trade policy, told Borderlex this morning.
Knowing this, EU leaders have called for quick action. In a joint statement Council presidency boss Mark Rutte, Commission president Jean-Claude Juncker, and European Parliament President Martin Schulz have called on the United Kingdom to rapidly trigger Article 50: “We now expect the United Kingdom government to give effect to this decision of the British people as soon as possible, however painful that process may be. Any delay would unnecessarily prolong uncertainty”. They added: “We stand ready to launch negotiations swiftly … regarding terms and conditions of withdrawal”. They add: “there will be no renegotiation”.
Decision on future EU-UK trade relationships lies ahead as financial industry eyes Dublin
The UK must soon decide what economic and trading relationship it wants with the EU. If the country wants to drop its free movement obligations, only a classic free trade agreement is realistically envisageable. This could come with consequences for the UK’s flagship financial industry, which would lose the so-called passporting rights that come with being in the bloc’s unique single market, whose core principles are the free movement of goods, services, capital and people.
Many experts believe part of the industry is likely to shift operations to Ireland. That is clearly on business’ minds. The IoD believes this is the right thing to do: “Get an office in Dublin”, its recommends to its members. “City banks have already been looking at relocating within the EU, with the Irish capital the favoured destination”, it adds.
Will the UK civil service be able to cope with the massive state retooling and renegotiations with the EU? In terms of strict trade policy, this is questionable. The Department for Business, Innovation and Skills, which oversees trade matters in London is “staffed for managing Trade Policy Committee and Commission meetings rather than actual negotiations”, Hosuk Lee Makiyama, Director of the European Centre for International Political Economy, says. “Technical expertise on all matters is there, it’s just a very different type of expertise than the tactics and mechanics of trade negotiations”, Lee Makiyama reckons.
Free traders in the EU will regret the loss of a free trading nation. But for the UK, a more profound question lies ahead: will Britain continue its established policy of free trade? “A free trade post Brexit government would aim for unilateral liberalisation”, Lee Makiyama thinks. “That means hard reforms and phase out of EU subsidies on agriculture, for example. But this is not the political mandate that Brexiters come with. They want to turn UK into a 1970s UK”, which was a very closed economy at the time, so Lee Makiyama.
Knock-on effect expected for EU trade negotiations
How will the UK’s decision affect the EU’s trade policy? Will the EU be able to continue negotiating its many free trade agreements? How about the transatlantic TTIP with the United States – which the UK champions?
Peter Chase, Senior Fellow at the German Marshall Fund in Brussels thinks that “the UK and the EU will now be completely distracted as they try to deal with the implications and consequences of the vote. This will make it almost impossible for them to be effective partners”, Chase reckons.
“On TTIP, and indeed all the EU’s on-going trade negotiations — although there is now a premium on trying to keep an even keel, and in that sense stick to “business as usual” where one can, it will be difficult to negotiate a trade deal with the EU when one doesn’t know who or what the EU is”, Chase adds. Chase also questions whether the EU will be in a position to negotiate at all in the coming months.
TTIP was expected to be on the agenda of the coming Council summit on 28 and 29 June. That was put off the table late this week. The 27 other member states will instead focus on devising the next steps for the bloc.
