The Post Brexit Logjam

The die is cast. Britain has woken up to the sobering aftermath of Brexit and the pitfalls ahead

Vox populi has decided. Brexit has won with 51.9% of the votes against 48.1% for those in favour of remaining in the European Union. Britain woke up on Friday 24 June 2016 to the reality that the ill-thought-out referendum had left a profoundly divided nation.

Within the United Kingdom, Scotland and Northern Ireland had voted to remain in the EU whereas England and Wales had voted to leave the EU. Gibraltar was left stranded in Europe. In England the divide was also geographic with the main cities like London, Manchester or Leeds voting to remain in the EU whereas most of the regions of England from the Midlands or Yorkshire to the North, South East and South West voted to exit the EU.

The analysis of the referendum poll results reveals that England is also deeply divided by class, age and education. Thus, regions of England with low income and education levels have voted overwhelmingly in favour of Britain leaving the EU. While those aged 18-49 voted by a large majority in favour of the remain campaign, with some 75% of those aged 18-24 voting to remain in the EU, those aged above 50 voted to leave the EU, with a higher percentage of those aged above 65 backing the leave campaign.

However, the young had a lower turnout than the 50 plus and the elderly. In one of the many cruel distortions of the referendum, the overwhelming choice of the young to remain in the EU and enjoy a future which takes advantage of Europe’s opportunities, plurality and cultural diversity has been thwarted by the angst and hangovers of the elderly. No wonder the young of Britain are flabbergasted and extremely distraught about their future prospects in the light of the uncertainties generated by the Brexit vote. Similarly, whilst degree holders voted largely to remain, those with high school, sixth form or higher non-degree education voted in favour of Brexit.

The Brexit victory does not mean the immediate exit of Britain from the EU. This process must be triggered through a formal notification under Article 50 of the Lisbon Treaty. Until that happens and exit terms are negotiated and agreed by the parties, Britain remains a member of the EU with the rights and obligations of a member state. This notification will not happen until a new Prime Minister is elected through a complicated process initiated this week, which is not expected to unfold before September. The decision to trigger Article 50 as well as the guiding principles to negotiate both the exit terms of the UK and the post exit trading terms of Britain with the EU, its largest market, will probably have to be first voted in Parliament on the initiative of the new Prime Minister.

Question of legitimacy

Britain therefore faces an unprecedented situation which puts its parliamentary democracy on test. Although the voters who are paramount in a democracy have voted in favour of Brexit, the declared stances of the current elected Members of Parliament (MPs) on the EU referendum on the eve of the poll last week showed that a large majority of the 650 MPs of the House of Commons were in favour of remaining in the EU. Put simply, the declared pro-Brexit MPs currently represent a minority and a fraction of the 650 elected MPs of the British Parliament. Similarly, of the 30 government cabinet Ministers, only six supported and joined the leave campaign.

The decision of David Cameron, who spearheaded the campaign for Britain to remain in the EU and lost the gamble, to step down was expected and in line with the best traditions of democracy in the world. However, the present configuration of predominantly pro-EU MPs in Parliament raises the question of legitimacy. How can a vote be called under such circumstances in the House of Commons on key decisions relating to the Brexit vote such as triggering Article 20 of the Lisbon Treaty to start the process of negotiations of the terms of the exit with the EU or the parameters of the future trading terms and conditions with the EU, etc?

These decisions will define and shape the post Brexit landscape of Britain’s relations with not only the EU but also with Scotland and Northern Ireland who voted to remain in the EU and with other countries in the world. In the light of the turn of events, shouldn’t Parliament be dissolved and the British people logically asked to go to the polls to enable it to elect a new parliament which is more representative of the Brexit vote?

However, it must be clearly said that such a vote may not necessarily result in a majority of pro-Brexit MPs being elected in the state of turmoil that Britain finds itself in the wake of the Brexit vote.

As expected, Brexit has led to immense turbulence in the stock markets across the world and in currency values with the pound sterling plummeting by some 10% to its lowest level against the US dollar since 1985 before rising slightly. Britain was stripped of its AAA credit rating. The Brexit vote has also spawned a surge of racism and xenophobic attacks in England against foreigners and immigrants, in particular against the Poles who have become the target of racist ire especially among the working classes, owing to the fall out of the single market rule of free movement of people in the EU.

As anticipated, Britain is also under threat of being dismembered. Scotland, who emphatically voted to remain in the EU, has already stated that a new referendum on Scottish independence is on the table as the Scots wish is to stay in the EU. The Labour Party is also facing increasing calls for a change of leadership to grapple with the post Brexit challenges and for its leader, Jeremy Corbyn to step down.

The range of adverse collateral impact of Brexit on both the financial and political fronts has entrenched uncertainty in Britain, the EU and markets. Prolonged uncertainly is damaging to business, trade, investments, growth and the economic outlook. A weaker pound sterling and Euro will erode export revenue, bearing in mind that our main exports to the UK and the EU are sold on a forward basis.

Red lines and straightjackets

Going forward, the challenges facing Britain in its intent to skilfully negotiate the best exit and trading terms with the EU are daunting. It will require all the skills and acumen of seasoned trade negotiators of Britain to broker the best deal possible. To this end, David Cameron has already asked the relevant Whitehall top brass to prepare an appropriate negotiating game plan.

It is clear that the anti immigration rhetoric of the leave campaign which fed on the deep resentment against immigration and the mandatory EU single market rule of freedom of movement of people in the EU space have been amongst the main drivers of the Brexit vote. Against such a backdrop, will the negotiating game plan of Britain draw a red line to block the conditionality of free movement of people (agreed in the EU trade agreements with Norway and Switzerland) imposed by the EU in return for market access of goods and services in the EU?

Full market access in the EU, the world’s biggest single market is very important for Britain and in particular for its financial services sector as almost half of Britain exports are taken by the EU whereas Britain imports less than 10% of EU exports. In the shadow boxing already taking place ahead of the negotiations, Germany and France have already warned against Britain negotiating à la carte whereby Britain would cherry pick free market access for its goods and key services’ sector without adhering to the rules of the single market. These comprise the free circulation of goods and services, people and capital.

Brexit is not a divorce. It is two long standing trading partners who have already been there before negotiating to find a common ground for a new mutually satisfactory trade agreement, respectful of the people’s vote in Britain. It is vital that these key negotiations, important for both parties, are carried in a cordial mode without precipitation, unnecessary gamesmanship or acrimony, aware that this is a novel and unprecedented situation requiring all the care necessary.

Those who are savvy about trade negotiations know that models of trading agreements permitted under WTO rules can be straightjackets not allowing much flexibility. In simple terms, it seems preposterous that Britain should have to compromise on issues which have been the main causes of the Brexit vote such as the free movement of people, contested contributions to the EU budget and compliance with EU rules it will no longer have a say on, in return for free access in the EU single market.

These causes coupled with the austerity measures and the pervasive encroachment of the Commission’s policies, laws and rules over the sovereignty of EU countries and the livelihood of European citizens are at the root of the growing revolt across countries in the EU against its disputed blueprint for Europe. Any compromises sought on these decried conditions for market access will however depend on agreement by the EU.

The fallback of trading with the EU under WTO rules will not provide equivalent special market access conditions to Britain for its key services’ sector and would entail tariffs as well as the obligation to grant same trading conditions to other trading partners.

New partnerships

The world trading landscape has changed considerably with the emergence of China and India as trading giants, the Gulf States as global investors and Africa as a promising new frontier. In the light of the above constraints, shouldn’t Britain, exiting from the ponderous EU juggernaut, initiate a paradigm shift in trading relations from a Euro-centric posture to forge a synergic and broad partnership encompassing trade and services with these new key players of the global market? Such a strategy could provide a much needed impetus to Britain and boost its future prospects.

Despite diversification of our markets, Britain with some Rs 10.9 billion of exports in 2015 representing 12.6 % of our total exports as well as some 130,000 tourists or 11% of tourist arrivals in 2015 remains an important market which must be safeguarded, the more so, in a global context of reduced growth prospects. In view of our long standing ties with the UK, bilateral talks are more likely to meet our trading objectives. A broader trade partnership with Britain also including the financial and other services sectors of the economy could provide a welcome game changer to the emerging services based economic pillars of the country.

The die is cast. Britain has woken up to the sobering aftermath of Brexit and the pitfalls ahead. Taking back control will remain hobbled by negotiating logjams so long as Britain’s trading arrangements remain predominantly Euro centric. It would thus be judicious and timely to think out of the box.

* Published in print edition on 1 July 2016

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