June 6, 2017
The UK and EU Must Moderate Brexit and the US Must Get Smart About What is Unfolding
By Ilana Bet-El
Over the past few months, a group of Brits in Brussels has been working unofficially on Brexit scenario planning, attempting to delve into what the UK, EU, and transatlantic relations will be facing with Brexit. Laid out in such detail—which we will do in the next few weeks—is a veritable catalogue of daunting mountain-size challenges. While it’s true the UK faces some of the biggest knots to disentangle, the EU and transatlantic relations won’t be spared. Viewed all together, it is clear that breezy statements such as “Brexit means Brexit” hide a veritable catalogue of hurdles and hardships, mostly on the British side, but also for the EU.
This is the first of four blogs, examining key aspects of the divorce—in line with four core scenarios we believe possible, each of which we feel to be a train crash.
Train Crash #1: UK/EU Collision
The UK White Paper on the UK’s exit from the EU published last February is confident that the EU is more dependent on the UK than the other way around and that this will translate into decisive traction in negotiations. We looked at the following key sectors one by one and got a wholly different view.
In the field of energy, Britain currently has access to tariff-free electricity trading with Europe due to its participation in the so-called internal energy market (IEM). UK withdrawal from this market could bring to an end the development of new power links with the UK's neighbors designed to help avert a looming supply shortage and drive up the cost of imported European electricity (accounting for 9 percent of UK energy needs). UK energy companies are also suffering from the UK's departure from the single market. In the field of gas and electricity, the UK would likely be excluded from the solidarity mechanism intend to help in the event of a severe disruption to gas supply.
The UK's signaled departure from EURATOM means the UK has to establish its own regulatory structure able to satisfy its safeguarding obligations vis-a-vis the IAEA. It will have to recruit, hire, and pay for staff and get approval from the EU that the new agency conforms to EU standards. This is an enormous undertaking within a two-year timeline and in the context of continuing cuts to the Civil Service. Existing UK nuclear trade, which is significant, both within and outside the EU, depends on common safeguarding arrangements satisfied currently via its membership of EURATOM and thus at risk pending recognition of a new national system. Any transitional deal to buy time would require the European Court of Justice continuing to exercise its jurisdiction in this area, a prospect which Prime Minister Theresa May wants to avoid. The UK will also be required to conclude a host of new nuclear trade agreements, also currently covered by EU agreements, and underpinned by EURATOM safeguards.
The UK could take a hit in the environment sphere. In the field of cloning and GMOs, where the UK is at the leading edge of innovation, continental attitudes are generally less positive and the loss of UK capacity to shape and block European legislation potentially harmful to this important sector will be damaging. Regarding food safety, the UK would have to set up its own Food Safety authority, ensure it complied with EU law and received the agreement of the EU, otherwise it would risk losing the ability to trade any agri-food products. The departure from the UK of the European Medicines Agency would mean that it, again, has to set up a new agency and gain EU consent for mutual recognition. Pharmaceutical companies would need to appoint authorized representatives in Member States and there is a risk of exclusion from the single market could end UK participation in multi-centered clinical trials. The EU would have to agree to UK engagement with the European Centre of Disease Prevention and Control.
Brexit will mean the unparalleled creation of new bureaucracy and red tape in the UK, establishing new agencies from air and nuclear safety to food safety.
On trade, there is the obvious need to negotiate new trade agreements and agree new WTO schedules. Not to be forgotten is also the need to negotiate a UK's schedule under the WTO government procurement agreement (the UK is not a member of the WTO GPA, being subsumed under the EU membership). All this would have to be agreed by all 164 WTO Members, including the EU, in 5000 product areas. Many of these areas are sensitive and have subsidies and tariff quotas.
Major consequences are to be expected in the field of justice and home affairs. The UK is likely to lose access to a series of European databases and collaborative platforms such as: ECRIS (dealing with criminal records), EURODAC (asylum seekers fingerprints), PNR (passenger name records), and the Schengen Information System (SIS II), as well as use of the European Arrest Warrant and its place in and capacity to work with Europol. Taken together this makes for a significant loss of capacity in the fight against crime and terrorism.
The UK is also likely to lose passporting rights in the field of financial services, which are generally not available to third countries, and whilst certain areas may be accepted as being subject to equivalent regimes in the UK, this comes with significantly reduced rights of access. There is also the likely loss to the UK of the seat of the European Banking Authority and a forced move of euro clearing operations out of London and into the EU (and probably the eurozone).
Overall, this brief and incomplete appraisal shows the vulnerabilities of the UK, as well as those of the economies of the 27. For the UK, it points to some large gaps between the self-perception of the UK and known EU realities. Brexit will mean the unparalleled creation of new bureaucracy and red tape in the UK, establishing new agencies from air and nuclear safety to food safety. Even assuming that mutual recognition can be agreed, the EU would need to ensure compliance.
The EU Is Not Immune Either
The EU is set to agree to its next seven-year financial framework from 2020, and it will face a stark choice: either member-states agree to increase their contributions to replace the UK contribution, or else they must decide on cuts of up to 14 percent. Such choices point to the potential for a deep restructuring of some core elements of the EU.
Second, the EU may well be forced to renegotiate many of the over fifty Free Trade Agreements and WTO schedules, as partner states could claim the agreements were based on a larger market containing the UK.
Third, a deal is needed to protect the rights of EU citizens remaining in the UK and UK citizens remaining in the EU. Indeed, this issue has become a prerequisite for the EU27 to move on to negotiating a future EU-UK relationship. Until recently, both sides have emphasized that it is their intention to settle this quickly and smoothly. It is however intensely complicated and will likely require specific arrangements in each member-state. There are also growing signs from May’s meeting of April 26 with Jean-Claude Juncker that the UK has a much more limited view of what it will offer than is contained in the European Council’s negotiating guidelines. Not only could this precipitate a crash, it would have important consequences for all. It would likely accelerate the drain of qualified EU workers from the UK, the loss of remittances to Poland, for example, hardship for UK citizens staying on the continent, and strain on welfare support in the UK as young contributing foreign workers in the UK are replaced by non-contributing pensioners.
Finally, any EU-UK agreement must be ratified by the member states and the European Parliament. Moreover, any future trade deal including investment and resolution dispute elements would need to be ratified by all member states—any of which may refer the entire process of withdrawal, and especially the final agreement, to the European Court of Justice. This reality hangs over the UK no matter how far it seeks to distance itself from the union and the ECJ.
Train Crash Already Happening
There has been a marked deterioration in rhetoric, especially since the April 26 May-Juncker dinner. The following day, apparently after an early morning briefing from Juncker, Chancellor Angela Merkel noted in a speech to the German Parliament that some (politicians) in the UK still harbored “illusions” about the rights it can retain after it leaves the EU. In turn, May accused the EU27 of conspiring against the UK. Continuing in this vein, on May 3, the day the UK election campaign officially started, May accused EU officials of meddling in the election, attempting to influence its outcome. Senior EU officials refuted the claim. However, tensions remain high and are unlikely to subside as pressures on politicians and negotiators on both sides continues to grow, with a tight timeline for Brexit talks wedged between the UK and German votes on the one hand and the spring 2019 European elections on the other. This suggests that almost a a year after the referendum vote, the prospects of a calm, orderly, and amicable Brexit are somewhat low.
With the EU/UK train crash scenario already unfolding; the question is really how it can be limited to minimal damage. With Lloyds, the most iconic of British companies, setting up an outpost in Brussels the day before Article 50 was invoked, and many banks and industries openly talking of doing likewise, the UK position is clearly compromised. With a fight over the next long-term budget looming after the withdrawal of the UK—the second largest net contributor to union funds—and a significant export market on the line, the EU position is likewise undermined. The danger is that there be a further poisoning of these perspectives as both sides negotiate a multitude of contentious divorce issues.
Next up is the Potential Train Crash Within the EU, to be forthcoming.
Dr. Ilana Bet-El is a Strategic Advisor, writer, and historian based in Brussels. With a background in the UN and academe, she has worked extensively on complex multilateral issues and published widely on security, defense, the EU, and European history.
This post was created in consultation with a number of senior officials in Brussels.