Britain’s divorce from the EU would inevitably impact more than 800 Indian companies in UK in crucial sectors of British economy reportedly generating more than 110,000 jobs
By Chandan Kumar
Does Brexit represent a challenge or an opportunity? Brexit was like a global tsunami. Neither Europe nor India had been prepared for Brexit, with pollsters confidently predicting that the “Remain camp” would prevail. Brexit therefore, represents a huge challenge, on one hand to the India-EU strategic partnership and, on the other, to its bilateral relationship with the UK.
When and how will Brexit happen? The impending divorce with Britain, the European Union’s second largest economic and military power, will result in divisive debates about the terms and conditions of that separation. It will make Britain inward looking, less prosperous and isolated from Europe. Ian Bremmer, President of the Eurasia Group and an American political scientist, has said, “Britain’s withdrawal from the EU burns the bridge that helps Americans and Europeans understand one another and reach a compromise.”
The complex nature of the EU-UK divorce is only now being analyzed and understood. It involves not only separation of UK from EU and the single market it represents but also separation from the World Trade Organisation (WTO) to which it is a party as an EU member. Every free trade agreement that UK enjoys with the other 53 WTO member countries has to be renegotiated by UK. These negotiations cannot commence until a final free trade agreement has been worked out between UK and EU post Brexit.
The soft Brexiteers and their supporters have been able to impact the shape and scope of Brexit by insisting that Article 50 be invoked through Act of Parliament. Prime Minister Theresa May’s Government’s brief ‘EU Notification of Withdrawal Bill’ has now been adopted by Parliament. Theresa May’s Government on 1st February, 2017, won a clear majority (498 to 114 votes) on the EU (Notification of Withdrawal) Bill. It gives the government the necessary parliamentary approval to trigger Article 50 of the Lisbon Treaty. The Bill was supported by both Conservative and Labour Party. It was strongly opposed by other Parties, including Liberal democrats as well as rebels in the two major parties.
In a far reaching speech on 24 January 2017, Prime Minister May outlined the course that she would take leading, emphasizing her determination to regain control of migration from EU and rejecting the supremacy of the European Court of Justice, at the risk of losing unfettered access to the single market. She also ruled out: “partial membership, associate membership, or anything that leaves us half-in or half-out.”
On 2nd February, 2017, the May Government published a White Paper setting out the first principles that will govern its negotiations with the EU in preparation for Brexit. The paper also outlines plans to forge ‘ambitious free trade relationships across the world’, including with India. It covers issues such as transitional arrangements and a phased process of implementation for exiting the Union. It reiterates plans to leave the EU Customs Union and EU Single Market.
What could be the impact of Brexit on India and the India EU relationship? From an Indian perspective, there would be an urgent need to negotiate agreements with EU and Britain separately. This can only happen post Brexit as per EU regulations. A hard Brexit would inevitably impact more than 800 Indian companies in UK in crucial sectors of British economy reportedly generating more than 110,000 jobs as well as flows of tourism and business from India to UK. The huge Indian diaspora, most of who are in the ‘remain’ camp, is also worried about the future. Virendra Sharma, MP, representing London constituency of Ealing Southall since 2007 and a vocal campaigner for the Remain camp, was one of the 47 Labour MPs who rebelled against the party line to oppose Brexit legislation. He has noted that if immigration from Europe was stopped, it would be unrealistic to imagine an easier immigration regime for South Asia. He predicted that ultimately India will bypass UK to deal directly with Europe. This would be to the detriment of the bilateral relationship.
The Indian Ministry of Commerce has confirmed that India and the UK can work on a FTA only after the latter is officially out of the EU. In a hard Brexit, Indian business in UK will be denied access to the EU market. This could lead to flight of Indian business from UK to Europe. The situation is complex since India will insist on inclusion of Mode 4 of WTO in a post Brexit India UK FTA. If the UK is interested in a trade deal with India, it will have to be flexible on Mode 4 and open up its immigration. This seems highly improbable.
There is no doubt that Brexit is a challenge. Whether it is an opportunity remains to be seen. How does Brexit work out in the context of India EU relations? Optimistic predictions appear to be unrealistic. Despite Prime Minister May’s threat that “the EU would be committing an act of calamitous self harm if it tries to punish UK with a bad deal”, the reality is that a bad agreement will harm UK much more than the Continent. Prime Minister May has noted that UK would then open itself up to markets across the world and re-discover its past as a trading nation, like a “Singapore-on- Thames”. The Economist points out that truly “Brexit is May’s paradox”. The reason is that the liberal vision of a pro-Brexit future in which UK embraces free trade and lower taxes would be strongly opposed by those who voted for Brexit, since the pro-Brexit camp also voted against free trade and globalisation.
From India’s perspective, the multiple crises within Europe are beginning to negatively affect EU’s image among Indian media, public opinion and policymakers. Brexit has made Europe appear to be in accelerating decline, not ascent. The need of the hour is for the European Union to project itself as a major global power centre, whose strategic perceptions globally and in India’s neighbourhood, coincide with India’s perspectives. How will it do so after Brexit? The EU will lose one permanent seat in the Security Council after Brexit. How will it demonstrate that, despite these crises, it continues to be a global political player? EU continues to be in collective self denial which is neither useful nor reassuring for India.
Where does India stand now? Are we hanging in a void or should we look to a new future? It has been said that “Britain is heading out of the EU and it will survive. But the chances are that it will be a poorer, more inward-looking place – its draw-bridge up, its influence diminished”. There is also the cost of departure from the EU, which is estimated by the Centre for European Reform, an important think-tank, at between US $26 billion and US $72 billion. Discussions on this issue could lead to an immediate breakdown of talks. The May Government has not prepared public opinion on this sensitive issue. The only agreement between both sides is that a deadlock is inevitable.
At this point, definitive predictions are not advisable. Evidence however points to the many adverse consequences for the UK in the post Brexit scenario. These in turn will adversely impact the bilateral relationship with India on one hand and, on the other, diminish EU’s status in India and globally.