Shortsightedness on Brexit

European Commission President Jean-Claude Juncker tries to stop photographs from taking picture of Nigel Farage in the EU parliament
June 28, 2016: European Commission President Jean-Claude Juncker, here seen with Leave campaign leader Nigel Farage, should resist giving in to pique over Brexit (source: dpa)

The United Kingdom decided by referendum on June 23 to leave the European Union, after a very emotional campaign that raised a number of pros and cons.

The divorce process can only start after Her Majesty’s Government submits a formal notification to Brussels, based on an act of Parliament. After David Cameron’s government resigned, the new prime minister, Theresa May, who had sided with the Remain campaign, confirmed that she will take her country out of the EU.

The presidents of the European Commission and the European Parliament – Jean-Claude Juncker and Martin Schultz, respectively –reacted aggressively to Brexit, almost as if they had personally taken offense. Their stance echoed that of some EU governments, giving the impression that they intend to punish the UK for its choice.

Brexit is certainly a problem for the British economy. But it is also one for the remaining members of the EU.

The UK will stay a member of the EU for at least two years after notification is made. This period is needed to dissolve all mutual ties with the bloc and to negotiate future bilateral relations. The process will be tedious and complicated.

However, the UK's biggest problem is believed to be renegotiating its trade agreements with the rest of the world, since these were all formerly EU agreements. These agreements will become void for the UK after expiry of the two-year period stipulated in Article 50 (3) of the Maastricht Treaty, unless all parties agree to an extension.

Australia offered the UK a free trade agreement only two weeks after Brexit. Probably quite a few Commonwealth countries will follow this example.

Test case

Canada has negotiated a very broad and advantageous Comprehensive Economic and Trade Agreement (CETA) with the EU. Due to political squabbling, EU institutions were not quick to sign off on CETA, which still requires ratification by the national parliaments. The irony is that concluding such trade agreements is precisely a responsibility that should be assumed on the Community level, instead of many others where Brussels has taken charge of matters that would be better decided locally or by the market.

It is quite likely that the necessary majorities to ratify CETA will not be found in the national parliaments. Because CETA is also being treated as a test case for the broader free trade agreement with the United States, the Transatlantic Trade and Investment Partnership (TTIP), it is also probable that TTIP will not succeed, to the huge detriment of the European and American economies.

During the referendum campaign, President Barack Obama warned British voters that if Brexit occurred, the UK would move to the end of the line on trade agreements with the U.S. Such an outcome, however, would not be in America’s interest. It is likely that the two countries will conclude pacts along the lines of CETA and TTIP under Mr. Obama’s successor, even as the EU fails to benefit from similar trade deals.

The scale of EU-UK trade suggests that any disruption is not in continental Europe’s interest

The scale of EU-UK trade suggests that any disruption is not in continental Europe’s interest. For example, the UK is Germany’s third-largest export destination. Britain buys approximately $100 billion of German goods each year, while British exports to Germany amount to less than $50 billion.

The EU and its member states would be wise to conclude favorable trade agreements with the UK.

A good model would be a modified version of the European Economic Area (EEA) – an association between the EU, Norway, Iceland and Liechtenstein. Membership provides the four freedoms of exchange of goods, services, people and capital – without the responsibilities of political union.

No doubt the provision that EEA countries have to adopt EU regulations concerning the four freedoms, without a voice in drafting these regulations, will be unacceptable to the UK. Perhaps the EU could make some concessions here.

So far, all we have heard from Brussels is that no special treatment or “cherry picking” will be tolerated. That could prove very shortsighted, since Brexit’s effects could ultimately hurt some EU countries even more than Britain.

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