BREXIT- TIGHTROPE WALK FOR BRITAIN

The new draft legislation, which has to be passed by the UK Parliament to become a law, includes a clause that says that the EU charter of fundamental rights will not be part of domestic law after Brexit. However, both the Labour Party and Liberal Democrats have opposed the exclusion of the EU charter from the Bill and the Labour Party has said that it would not support the Bill in its current form. The British Government last week published a draft Bill that will formally end the United Kingdom’s membership to the European Union (EU). The new legislation will repeal the 1972 law through which Britain became an EU member and convert 12,000 EU regulations into British law. Britain’s decision to quit the European Union does not seem to have lost steam. Though the Tories suffered a major reverse in the recent Parliament elections, Prime Minister Theresa May is steadfast in her pursuit for Britain to quit the European Union on the basis of last year’s Brexit vote. This is despite the uncertainties and divisions over the Brexit issue within Britain itself.

Snap election backfires

Theresa May’s gamble in holding a snap election to Parliament was to strengthen her position to negotiate for a ‘smooth’ Brexit. This misfired with the Conservatives losing their parliamentary majority and forcing May to form a minority government with the support of the Democratic Unionist Party. May’s miscalculation was overestimating the pro-Brexit sentiments among the British voters. Brexit was ratified through a referendum by a slight majority of 52 per cent voting for Brexit and 48 per cent voting against it. May-led Government had invoked Article 50 of the Lisbon Treaty for the UK to leave the EU in March this year, giving two years for the UK and EU to agree to the terms of the split. The British Prime Minister has been an advocate of ‘hard’ Brexit, and has taken a tough stance in negotiations with the European Union. The ‘hard’ Brexit option included a drastic clampdown on immigration and withdrawal from the European Union’s customs union and legal jurisdiction. Further, the UK would leave the single market and customs union with no deal in place. However, the setback for May in parliamentary elections is likely to force her to reassess her approach. Need for a comprehensive negotiation approach

One of the major challenges for the new British Government would be to negotiate the terms for a ‘softer’ Brexit by taking a flexible line in its talks with the European Union and the other 27 EU members. Without an agreement with the EU on trade issues, the UK would have to operate under World Trade Organisation (WTO) rules, which could mean customs checks and tariffs. The European Union single market is seen by its proponents as the union’s biggest achievement. The UK government will have to take a flexible approach in working out an UK-EU free-trade arrangement, (FTA) which the country is keen to conclude. Fairness, openness, and transparency are vital to enable both sides to study the prospective gains accurately and efficiently. Call for a better UK-EU understanding

One of the flaws in the British approach towar ds the EU so far has been on its focusing exclusively on British interests. Fruitful negotiations between countries are possible only if they have a better understanding of the other side’s interests, priorities, and constraints. As for the European Union, it is already engaged in negotiations for some 10 FTAs, from the Gulf Cooperation Council to the United States. On the issue of working out an FTA, Britain expects to get priority because of the scale and depth of its economic relationship with the EU. However, if the EU shows undue haste in finalising an FTA with Britain, it could face a backlash from other countries. Though the UK hopes to conclude an FTA with the EU within the allocated two-year period, there is no guarantee that it could be negotiated in the given timeframe. Similar negotiations with other major EU partners, such as Canada, have taken about nine to ten years. EU’s FTA with Canada began with the launch of a framework for negotiations in 2004. It took nearly nine years to reach an “in principle” agreement in 2013. The actual deal was struck only in September 2016. Then the process of approval by European institutions began, ultimately gaining the European Parliament’s approval in February this year. And the process is still not complete because the national legislatures of the EU member- states have yet to ratify some elements of the pact. In view of the possibility of substantial delay in concluding an FTA, the UK’s best hope is to complete a framework agreement with the EU, within a two-year period. A final deal would almost certainly take much longer, not least because parts of it would require ratification by individual member-states. Meanwhile, the UK must commit to securing an interim agreement with the EU. Some 40 per cent of British exports go to the EU market, and Britain’s factories rely heavily on exports heading to Europe. The UK cannot afford to sacrifice its open trade with the EU, even temporarily, as it awaits an agreement on a final deal. It certainly cannot afford to lose these markets in the long run, as that would probably happen if no deal is reached, within the allotted two years. If there is no deal, it would mean reverting to standard WTO rules. That would mean a 14.4 per cent tariff for Britain’s agricultural sector, which will suffer from the loss of financial support through the European Common Agricultural Policy. As for services – by far the UK economy’s largest sector – the WTO rules governing exports are outdated and woefully inadequate. To get a sense of just how inadequate WTO rules are, it is to be noted that all but six of the WTO’s 164 members either have an FTA with the EU, or are working to establish one. Shortage of human resources post-Brexit

From a business perspective, one of the biggest Brexit-related concerns relates to human resources. As it stands, the UK economy is faced with skills shortage: more than two-thirds of firms are not confident they can fill vacancies for high-skill jobs over the next 3-5 years. The long-term solution is better education and skills training in the country itself. But, in the short term, free flow of human resource talent is vital. EU migrants – from seasonal workers harvesting fruit and vegetables to academicians and doctors and nurses – currently make major contributions to the UK economy. In many British organisations and firms, EU citizens comprise more than 40 per cent of employees. The UK business community is keen to ensure that the EU citizens currently working in the country continue to do so. Likewise, UK citizens working in EU countries should be granted the right to remain there. This would be beneficial to both sides. Britain needs skilled people from other EU countries to meet its growth needs. The UK is keen to conclude an effective immigration system that would put a cap on unrestricted immigration from other EU countries, while permitting skilled workers to come in. One of key issues that prompted holding the Brexit referendum was the unrestricted influx of migrants from Eastern Europe. Migration within Europe was negligible when the EU was mainly West European. This changed when the EU began incorporating the low-wage East European countries. The ensuing migration eased labour shortages in host countries like the UK and Germany. Studies have shown that net immigration lowers the wages of competing domestic labour. These fears have long underpinned sovereign states’ insistence on the right to control immigration. The case for control is strengthened when host countries have a labour surplus, as has been true of much of Western Europe since the financial crisis of 2008. Support for Brexit was essentially a demand for greater curbs on immigration. Norway-model Solution

‘Hard’ Brexit involves Britain refusing to compromise on issues like the free movement of people even if it means leaving the single market. At the other end of the scale, a ‘soft’ Brexit approach will be to follow the path adopted by Norway, which is a member of the EU single market and has to accept free movement of people. In this context, the EU could offer a formula to Britain to maintain reasonable links with the EU based on the model that is offered to Norway. Norway, which remains outside EU’s institutional structures, however, accepts most of the obligations and costs of EU membership in exchange for the commercial benefits of the single market. An EU relationship similar to Norway’s is the only model that could attract public and political support in Britain, without threatening EU principles or inflicting serious economic costs on either side. The institutional arrangements for this option already exist, in the form of the European Economic Area (EEA), a sort of anteroom to full EU membership. In addition to Norway, there are two other small but prosperous European countries, Iceland and Liechtenstein, within the EEA grouping. These countries considered EU membership in the late 1980s, but for various reasons decided not to join. An upshot of the relationship based on the EEA model is that it will allow Britain to keep most of the benefits of the EU customs union and single market alongside free movement of people and most importantly would be economically less painful than a ‘hard’ Brexit. The British are likely to support free movement of people if it is offered as something on a reciprocal basis that both British and EU citizens enjoy. The combination of single-market membership and free movement would be particularly popular with young people of Britain who consider the ability to live, work, or study anywhere in Europe as a major benefit of EU membership. For other EU countries, a Brexit negotiation based on EEA membership would be acceptable. EEA membership would not amount to British “cherry picking” EU benefits, which other countries have understandably refused to accept. This is because, by almost any standard, EEA membership is clearly inferior to full EU membership. In addition to accepting free movement of people, EEA members must follow EU commercial rules and accept decisions by the European Court of Justice, without any formal role in making these rules and decisions.