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Post-Brexit Britain Is Unlikely to ‘Take Back’ Much Control from EU

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Since ancient times, the festival of Halloween has been celebrated across Britain and Ireland as a time separating the abundance of harvest from the scarcity of winter.

Traditionally, it also marks a time when the veil separating the living from the dead can suddenly be cast aside.

This coming Halloween — Oct. 31 — many Brits will also be nervous for another reason.

For, at 11 p.m. that night, the U.K. is due to leave the European Union after 46 years as a member of the world’s largest trading bloc, and its earlier iterations.

Some supporters of the now-infamous Brexit departure see it as a chance for the United Kingdom to bring back to life old spirits of global glory.

Yet, Brexit’s detractors see Halloween as the potential start of a terrible winter for the world’s fifth-largest economy.

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Or

Or it could be three months before the harsh cold sets in, if the opposition parties get their way and the three-month extension that lawmakers approved before Prime Minister Boris Johnson suspended Parliament holds up until Oct. 19, when Johnson would be obligated to request the delay from the EU, whose 27 members may or may not agree to it.

MPs from the main opposition Labour Party would then likely move to call an election after Oct. 19, ensuring two factors that could play into their hands: A later election denies Johnson the chance to change the election date until after Brexit, and it shows voters the picture of a chastened prime minister who’s been forced to go to the EU for an extension he vowed not to get. The hope then is that Labour usurps Johnson’s Conservative Party at the polls and can negotiate a softer Brexit landing or even call a new referendum.

Or Johnson calls a vote of no confidence on himself when Parliament reconvenes in October and manages to thwart Labour’s strategy by forcing earlier elections that, ideally, he would win by painting Labour as surrendering to the EU while helping his Conservatives sideline Nigel Farage’s Brexit Party. A victory could give him a stronger working majority, wrangling back rebel Conservatives and other parties to push through his own revised withdrawal plan. Some have speculated that plan could see the Irish backstop applying only to Northern Ireland, instead of the U.K. as a whole, although Johnson recently ruled out the idea.

Still, if a new iteration of Brexit finally passes after three years of deadlock, Johnson emerges triumphant (even if that plan is just a slightly altered version of Theresa May’s original plan). Conversely, if Parliament rejects his plan, Johnson — a political survivor and perennial opportunist — may still cast himself as the hero who stood up to the EU but was thwarted by lawmakers.

Or Johnson resigns but the opposition is able to cobble together a governing coalition, taking control of the negotiations as well as the potential election timetable. 

Or any elections prove inconclusive given the divided electorate, plunging the country into even more chaos as parties jockey to form a coalition ahead of Oct. 31.

Or the EU agrees to remove the Irish backstop that’s held up passage of the Brexit plan in Parliament, although the bloc seems determined not to budge on the issue and staunch EU member Ireland would be outraged.

Or Johnson convinces a sympathetic EU member state to block the three-month extension dictated by Parliament — or French President Emmanuel Macron, who has repeatedly expressed how fed up he is with the British delay, vetoes it. 

Or Johnson just ignores the three-month extension altogether and moves forward with his “do or die” pledge to crash out of the EU on Oct. 31, a move that would further break precedence — and most likely the law, along with British democracy.

Or the colorful prime minister with his signature shock of white hair throws in the towel on his beloved Brexit project and resigns, leaving the mess to someone else.

Or some other wild scenario presents itself between now and Halloween, when scary costumes will pale in comparison to the frightening prospect of Britain plunging off the EU cliff.

Or Not Much Changes 

For all the drama, though, even assuming the Brits do crash out of the EU, the morning of Nov. 1 will still see Europe as the U.K.’s largest trading partner, responsible for around half of all the U.K.’s imports and exports.

a2.brexit.johnson.mogherini.eu.storyThat trade will also still have to comply with EU rules and regulations — although post-Brexit, there will be no U.K. input as to how those rules are made.

At the same time, if the U.K. leaves without a withdrawal agreement in place, British firms may face a range of tariff and non-tariff barriers when doing business with their European customers — and, potentially, vice versa.

So, while the slogan of the campaign to leave the EU was “Take Back Control,” some are now questioning just how much “control” there will really be when the U.K. heads out into the unknown, on All Hallows’ Eve.

Brexit Impact 

In 2018, official U.K. statistics showed that the EU was responsible for 46% of the country’s exports and 54% of its imports, making the bloc by far the U.K.’s largest trading partner.

While Europe has long had a leading position in British trade, the creation of the EU single market in 1993 undoubtedly spurred the development of this multibillion-dollar business. Since then, there have been minimal controls on goods and services traveling between the U.K. and the other 27 member-states. With EU member Ireland, too, there is also an open border, with no passport controls, either.

This has helped keep the peace between Ireland and the U.K.’s troubled province of Northern Ireland, which was plagued by decades of sectarian strife that ended with the 1998 Good Friday Agreement, which ensured an open border.

This history is also why passage of a Brexit divorce agreement has been held up by the British Parliament. The EU insists on a backstop that would ensure a seamless border crossing between Ireland and Northern Ireland if London and Brussels fail to reach a comprehensive trade agreement by the end of 2020. Critics say that if this Irish backstop is implemented, the U.K. would by default remain within the EU customs union, curtailing its ability to negotiate free trade deals with other countries — one of the main reasons for Brexit (also see “Irish Backstop Threatens U.K.’s Divorce from EU, and Northern Ireland’s Fragile Peace” in the March 2019 issue).

An open border between Northern Ireland and Ireland currently allows frictionless trade between the U.K. and EU. British goods and services speed across the continent, exempt from any checks other than periodic random inspections.

This is not an advantage enjoyed, however, by non-EU traders trying to enter the bloc from the outside.

“At the moment, a truck going from the U.K. to the EU takes on average two minutes to pass through customs,” Andrew Wishart, a U.K. economist for Capital Economics, told The Washington Diplomat. “A non-EU truck doing the same thing takes an average 20 minutes.”

Post-Brexit, British trucks would become non-EU entities, likely creating longer delays at busy channel ports such as Dover in the U.K. — which currently handles around 10,000 trucks a day — and at Calais, on the opposite coast in France.

How long those delays would be remains unknown, as this will also depend on whether or not the U.K. leaves with a withdrawal agreement in place. If it does, trade may continue as before, at least for a transitional period. But if the U.K. leaves without any arrangements in place, all bets are off. Delays will likely depend on the readiness of both U.K. and EU port and airport authorities to conduct a raft of new checks — and their willingness to apply the full force of the law.

“Customs officials could decide to inspect every single ship,” said Wishart. “This could lead to many long queues developing.”

 

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 Not in Time

This would be particularly damaging for refrigerated products and goods that are part of a “just-in-time” supply chain, requiring speedy delivery. The result could be shortages of fresh produce or a spike in the cost of food. Critics of a no-deal Brexit also argue that Britain could face a raft of other shortages because of disruptions to closely connected supply chains, causing a run on everything from antibiotics to toilet paper.

Beyond a run on items that can’t be reasonably stockpiled, the “just-in-time” supply chain could cripple certain industries that rely on fast, frictionless trade. Big manufacturers such as Toyota, Airbus and Jaguar Land Rover all operate such systems, with parts moved across a number of their European and U.K.-based plants before final assembly.

Goods coming into the EU from outside may also be subject to tariffs. While these are currently generally low, “one area that is impacted a lot by these is automotives,” said Meredith Crowley, senior fellow with the UK in a Changing Europe, a think tank based out of King’s College London. “The bulk of the tariffs in this sector are 5% to 10%, with some at 15% to 16%. Post-Brexit, U.K. firms exporting spark plugs to Germany, for example, might have to pay this and find a way of dealing with the extra cost.”

Those extra costs, considered “non-tariff barriers,” will be necessary for U.K. businesses to conform to the EU’s standards and regulations.

Beyond the added paperwork, new border checks and other supply chain disruptions, British exporters will suddenly lose the largely tariff-free access to the vast EU market that they currently enjoy and be forced to revert back to the rules set out by the World Trade Organization. This in turn could dramatically increase tariffs on automobile, agriculture and apparel exports.

A recent report by the U.K. in a Changing Europe predicted that trading with the EU on WTO terms would reduce Britain’s per-capita income by between 3.7% and 8.7% over the course of 10 years. Meanwhile, the U.N. estimated that a no-deal Brexit could cost the U.K. $16 billion — and possibly much more — in lost EU sales as tariffs for British goods rise from zero to the basic WTO “most favored nation” tariff rate that the bloc offers countries without preferential trade deals.

a2.brexit.mini.auto.market.storySome EU companies that import from the U.K. in sectors that might face higher post-Brexit tariffs are already switching to non-British-based EU suppliers to avoid potential future costs.

“Since the referendum in 2016, you’ve seen an increasing ‘exit rate’ among companies trading with U.K. firms that have this tariff risk,” said Crowley.

This has depressed U.K. exports to Europe, despite the positive impact of another Brexit-related factor: the depreciating British pound. The pound has dropped some 15 percent against the euro since the referendum and 17 percent against the U.S. dollar, causing an uptick in inflation in the U.K., but theoretically making British goods cheaper abroad.

But many economists doubt that a depreciated pound can make up for the higher tariffs and non-tariff barriers that British exports could face under a no-deal Brexit. The country’s agriculture sector could be particularly hard hit. Sugar cane brought into the EU, for example, is subject to a 200% charge. The EU also has different and often more stringent sanitary and phytosanitary (SPS) standards than many other countries, a popular example of this being chlorinated chickens.

In the U.S., battery farm conditions mean that for health reasons, chicken is washed in a chlorine solution before being sent to supermarkets. In the EU, this is not the case, with chickens reared differently and imported U.S. chlorinated chicken prohibited on health grounds. If a future post-Brexit U.K. concluded a trade deal with the U.S., agricultural products such as chlorinated chicken might be allowed in, yet they could not be allowed to cross the channelor the Irish border requiring further SPS checks on British trucks trying to enter the EU.

Keeping Standards in Line

The possibility of a new multi-tiered compliance bureaucracy will only happen if there is some future divergence in standards between post-Brexit U.K. and the EU — which may not necessarily happen despite Britain’s divorce from the bloc because conforming to EU norms will continue to benefit British businesses.

“At the moment, all U.K. trade with Europe is in compliance with EU regulations, as the U.K. is still an EU member and in the single market,” said Wishart. “You wouldn’t expect this to change the day after Brexit, even if there is no deal on a future trading relationship.

At the same time, “in international trade, regulation is always at the point of consumption,” said Crowley. “If you are going to eat a steak in Japan, that steak will be in compliance with Japanese law.

Likewise, all U.K. products exported to the EU will have to be in compliance with EU lawas they are now creating a strong incentive for British exporters to continue following EU rules, even after Brexit.

Large international manufacturers also tend to produce products that meet the laws of a variety of different countries and trading blocs simultaneously, in order to sell the same product to different markets and avoid the expense of needing multiple production lines.

“Companies also often want to stay at the ‘cutting edge’ with new technologies and [thus] try to meet the highest standards, rather than the lowest, so as not to lose ground to rivals,” Crowley said.

a2.brexit.parliament.storySticking to EU laws may therefore be vital for post-Brexit U.K. companies if they are to maintain their competitiveness beyond Europe.

Advocates of Brexit, however, say they are also looking beyond the EU, arguing that the U.K.’s departure will enable it to make deals with other countries that are more specific to British needs.

But even if the U.K. does eventually negotiate free trade deals with lucrative markets such as the U.S. and Japan, any such agreements could take years to hammer out.

Meanwhile, the U.K. currently trades as an EU member under some 40 EU trade agreements with 70 non-EU countries ranging from Canada to Turkey to Mexico, giving it tariff-free access to those markets. Since the 2016 referendum, the U.K. has been attempting to secure post-Brexit access to these markets by “rolling over” the EU agreements so that the same terms would continue to apply to the U.K. even after it leaves the bloc.

By August 2019, 13 rollover deals covering 38 countries had been agreed, with the British government scrambling to cover the others before Brexit.

Once again, though, under the terms of these rollovers, the U.K. would continue to follow EU terms, even in its dealings with many key non-EU markets.

So while the spirits of Halloween may vanish on the morning of Nov. 1, the realities of international trade will not with Britain’s economy still very much in the shadow of the European regulations that advocates of Brexit had hoped would be a ghost of the past.


About the Author

Jonathan Gorvett (jpgorvett.com) is a contributing writer for The Washington Diplomat and a freelance journalist specializing in Near and Middle Eastern affairs.

Last Edited on October 1, 2019