BRITIAN IN ‘GREAT’ DILEMMA

The impending divorce of UK from the EU is running into one roadblock after another. Come March 29th & we may still be lunging in the dark.

By Mridu Kumari

The scenes emanating of the house of commons of the colossal UK parliament are no less an exhibition, a circus of democracy at its hilarious zenith. One could feel the unease, the uncertainty & the unconvincing arguments on both sides of Brexit divide with neither of the two in a position to claim absolute moral victory. The tweaking & twisting, changing & churning & the never ending debate as a prelude to the D-day may yet not lead to what the British people want or do not want. They are a confused lot to say the least.

Endless arguments British Prime Minister Theresa May is losing her grip over her party and it doesn’t appear she will get support from parliamentarian to pass Brexit deal in the House by the 29 March deadline. The European Union has also made it clear that it will not renegotiate the withdrawal agreement, leaving no scope for Theresa May to breathe easy on an issue which once helped her ride through popularity to become Prime Minister. She has already indicated that she will quit her office after March. Her stand is that she will not compromise on workers’ rights, nor she will undermine environmental concern while renegotiating a deal with the EU over Brexit.

The UK wants to be part of the EU’s Customs Union, even after leaving the 28 European nations club, but there is no hint the latter will agree to the British proposal. The Customs Union is an important element of the EU Single Market. Under its rules, the EU operates as a trade bloc, operating common external tariffs and customs barriers, and negotiating trade deals as one. As a member of the Customs Union, the UK is not allowed to negotiate other bilateral trade deals. If the UK leaves the Customs Union, the former will not be able to get benefit from the EU’s 56 free trade agreement (FTAs), which provide better access to markets outside of the EU, such as Korea, Mexico and Chile. This may mean that UK exporters face higher tariffs and other trade barriers in these markets.

However, as things stand, the UK will leave the EU on 29 March, 2019, regardless of whether there is a deal with the EU or not. Though the European Court of Justice on 10 December 2018 ruled that the UK could remain a member of the EU on its existing terms by cancelling the Article 50 Brexit process without the permission of the other 27 EU members, the Theresa May government has made it clear that the UK will leave the EU.

For the moment, what is irritating is that different ministers in the UK are on different pages on the issue of Customs Union. Liam Fox who is handling Brexit issue has been tasked with striking new international trade deals seems to suggest that the Government does intend to make a clean break from the Customs Union – because, as a member, building these new relationships would not be possible.

But the Prime Minister’s comments in Scotland and Northern Ireland suggest a prioritization of new trading arrangements that are as close to the status quo as possible. At some point soon, these ambiguous signals will have to be resolved.

There is also another important consideration about leaving the EU Customs Union which we haven’t heard much about yet: the UK’s relationship with the World Trade Organization. The terms of UK membership of the WTO are currently governed by its membership of the EU Customs Union. So, when the UK leaves the EU, the UK’s existing WTO commitments will have an uncertain status and will need to be redrafted.

The quickest option for the UK would be to mirror its existing commitments. However, other countries could object to this approach. For example, agricultural exporters such as Brazil and Argentina want better access to the UK market, and might see Brexit as an opportunity to push for it. Some elements of the EU’s membership of the WTO, such as the quota for importing New Zealand sheep meat, would also be affected by the UK leaving the Customs Union. So even a simple mirroring of existing commitments could involve complicated negotiations between the EU, the UK and other countries. Once the UK triggers Article 50 of the Lisbon Treaty, it has two years to negotiate its exit. If the UK leaves the EU without having reached agreement on its new commitments with the WTO, it is likely that the UK will continue to apply its existing trade commitments until the new ones are agreed. This will create uncertainty for UK businesses over timescales and outcomes. An important task for the UK will be to start to rebuild its network of trade agreements to replace the ones it will lose if it chooses to leave the Customs Union.

Chancellor Philip Hammond recently said that Brexit meant the UK could do trade deals with other countries, including ‘countries like China’. Before he became Secretary of State for Exiting the EU, David Davis said that it would be possible for the UK to negotiate trade deals ‘massively larger’ than the EU. However, there are big questions about the sequencing of all these negotiations, and how long they will take. Informal discussions could take place, but the UK cannot actually sign new free trade agreements until it has left the EU. The US Trade Representative has said that informal discussions won’t be possible until decisions have been made about the UK and EU relationship. Even then, many countries will want to be clear about the UK’s membership of the WTO before they open negotiations. There is no doubt that it is important for the UK to signal that it is still open for business. But there are several issues that need to be resolved before it can start signing new trade deals. But nothing is easy. The EU has made it clear that it will not have any trade deal with the UK, signaling the latter’s isolation in Europe and its consequent impact on the economic and trade front.