Bulk Distributor Jul/Aug 16 - Page 2

2 Shipper BULKDISTRIBUTOR Into the unknown July/August 2016 After the Brexit vote a dark shadow of uncertainty looms over the entire British economy, writes BD’s managing editor Neil Madden A recent cover of The Economist newspaper summed it up pretty well – Anarchy in the UK! Non-UK readers of that publication could be forgiven for not seeing that the reference also carries a cultural nuance. The song of the same name by punk rock pioneers The Sex Pistols was released in 1976. One of the key themes to emerge from polls among older voters in the UK’s EU membership referendum is that many wished for a return to an imagined past roughly dating around that period. But it is to the future that Britain and the EU must turn. So what happens now? Basically, no one really knows as it’s never happened before (see notes about Greenland below). This absence of precedent gave ammunition to both sides of the debate as there was no counterfactual against which to gauge their respective claims. Nevertheless, various questions, and some plausible answers, abound. As Bulk Distributor went to press, it was not even known when new Prime Minister Theresa May would invoke Article 50 of the Treaty of Lisbon (which formally triggers the withdrawal process). Assuming she does just that, a two-year period is stated in Article 50, following which European treaties would no longer apply to the UK. However, that does not mean to say a two-year negotiation period is inevitable. The official date of exit can be extended by agreement, or, alternatively, the negotiation phase can continue past the official date of exit. When Greenland, which at the time was still part of Denmark, opted to leave the European Economic Community (as it was then), it took almost three years of discussion just over fishing rights to formalise its post-exit relationship. Given that the UK has been a member of the EU for far longer – and obviously has a much bigger economy – many observers anticipate that the withdrawal negotiations will extend beyond the two-year deadline, and quite possibly beyond the next UK general election, due to take place in 2020. This is compounded by the fact that senior British civil servants have already sounded warnings that the UK lacks sufficient legal eagles with detailed knowledge of EU law to unravel decades of common law making. Eurovision? A regularly touted argument of the Leave campaigners was that the UK will still maintain trade relations with the rest of the EU, and that there is little reason to think that much will change. Objectively, the first assertion is undoubtedly true; the second is much more questionable. So what are the options for a post-Brexit UK-EU relationship? The list of models currently runs to about seven, although many permutations could also apply. However, four of them look the most realistic. This is not the place to examine their pros and cons in great detail, but in summary: Custom made An argument of the pro-leave campaign was that the UK could negotiate a unique structured agreement, effectively cherry-picking the bits it wanted. Leaving aside the fact that German Chancellor Angela Merkel has clearly stated this would not be possible, the UK approaches the negotiations with a weak hand. First, in simple economic terms the UK is far more dependent on the EU than the other way round. Britain sends just under half its exports to the Continent (and Ireland), whereas the rest of the EU sends around 16 percent of its exports to Britain. Moreover, the UK’s two overriding aims – to control immigration and to maintain preferential access to EU markets – are well known to the other side. It is a big disadvantage for one party to negotiate on a wide range of issues with its bottom line on priority areas revealed in advance. The EU could play these issues off against each other, and use their importance to the UK to extract major concessions elsewhere. Norway-light Britain could follow the Norwegian example by rejoining the European Economic Area. This would have the advantage of simplicity as the legal framework exists. It entails participation in large parts of the single market and the ‘four freedoms’ (free movement of products, capital, services and, of course, people) without the obligation to take part in other EU policies such as agriculture, home affairs or foreign and defence policy. The sticking points, though, are not limited to the free movement of people. EU rules on competition, including state aid, have to be followed. Also, since those countries are outside the EU’s Customs union, the EU applies ‘rules of origin’ to its trade, which means that if goods contain significant content from non-EU countries, EU tariffs are applied. The UK would still be bound to EU law without having a say in its design, and would still have to contribute to the union’s budget. Swiss cheese Over the years Switzerland has concluded around 20 major agreements and more than 100 sectoral agreements with the EU. Geography plays a role here. Large volumes of intra-EU physical trade have to pass through Switzerland simply because of where it is. This hardly applies to Britain, with the exception of Ireland’s imports and exports. But Switzerland has no agreements on financial services, and while the country is under no formal obligation to adopt EU legislation, Brussels’ rules are still prevalent. Importantly, the formal bilateral relations have become difficult since the Swiss people in a referendum voted against unlimited immigration from the EU, which would breach EU Treaties. A proposal by Switzerland to allow the country to introduce quantitative limits was rejected by Brussels, and the current stand-off has confirmed the long-held view of Bru