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Brexit: why and what it might mean

Brexit: why and what it might mean

On June 23, 2016 the UK public will vote on whether or not to remain in the European Union in a referendum known as Brexit.

Conservative Prime Minister David Cameron promised to hold an in-out referendum on Britain’s EU membership if his party won the 2015 general election, delighting Eurosceptics and securing their vote in that election in the process.

Following this promise Cameron began a renegotiation of Britain’s EU membership terms across areas such as economic regulation, competitiveness and migrant benefits culminating in a package of reforms known as the "new settlement". The intention is that the reforms will appease the Eurosceptics and see the British public voting to remain in the EU project.

This article gives a brief overview as to why the British are threatening to leave the Union and what Brexit might mean for expats living on both sides of the Channel.

Background

Eurosceptics have long been a vocal force in British politics and the centre-right Conservative party has been plagued by the "Europe issue" since the 1980s.

The central tension lies between demands for national sovereignty coming from the "true-blue" Conservatives versus the economic benefits accrued via the EU’s Single Market given primacy by the more liberal wing of the party.

The EU has been designed in part as a response to globalisation, trade blocs and the power of nations such as America and the rise of China and so on.

Within the EU, individual nation states pool elements of political will in order to realise greater degrees of economic power across all 28 members. It’s this pooling of political agency which is regarded as a loss of sovereignty by British Eurosceptics.

As the referendum nears Brexit has increasingly divided the party, resulting in bitter in-fighting with David Cameron on one side and the likes of Boris Johnson the former Mayor of London on the other. This has led some to speculate as to whether Brexit is being used as a cynical means to engage in a leadership challenge by certain Conservative politicians rather than a pure expression of political belief.

How Britain would exit the EU

Were Brexit to occur, Britain would need to invoke Article 50 of the Treaty on European Union, the only lawful route available to withdraw from the EU. Article 50 would entail extensive negotiations between Britain and the remaining 27 member states with a two year time limit given to complete discussions. Any extensions to this deadline would require unanimous EU-27 agreement.

During this period, Britain would continue to be treated as a member of the EU but would be barred from private EU-side discussions regarding the terms of Brexit.

Possible consequences of Brexit

Literature on Brexit points to three broad possible outcomes:

Joining the European Economic Area (EEA)

Also known as the "Norway option", with this option the UK would maintain access to the Single Market via the EEA. However, British exports would need to meet "rules of origin" requirements in order to enter the EU duty free, a cost borne by UK firms.

Britain would still need to make contributions to the EU budget, accept the free movement of people and implement single market regulations whilst having zero influence over their creation.

A bilateral Free Trade Agreement

Both Switzerland and Turkey have variants of the FTA model. A UK-EU FTA would depend upon unanimous agreement of the remaining EU-27, and any degree of access to the Single Market would be linked to the obligations the UK would be prepared to accept in return.

One issue is the length of time it would take to negotiate an FTA, as trade agreements are notoriously complex and the UK would need an agreement as soon as possible to encourage market stability. It took over five years for the EU-Canada FTA (CETA) to be negotiated and final ratification is expected to take another two.

World Trade Organisation rules

If a country does not have an FTA in place the default position is WTO rules. This would represent a definitive break with the EU and the Single Market.

The UK would face immediate costs trading with the EU and the wider world due to WTO tariff rules and would face charges on exports under the EU’s Common Customs Tariff. The UK would realise greater political sovereignty but would still need to apply EU regulatory standards to UK goods and services or risk further increases to the costs of trade.

Further ramifications of Brexit

It should be noted that Brexit would see an economy consisting of 4,82 percent of global GDP negotiating with a combined bloc of 27 nations anxious to prevent further break-up of their Union and representing over a quarter of global GDP.

In addition, access to the European Single Market is incredibly important for Britain accounting for 44,6 percent of all UK exports and 53,2 percent of UK imports in 2014, imports necessary for UK supply chains and to maintain the British standard of living.

The UK also depends on foreign direct investment to off-set her growing current account imbalance, almost 50 percent of the UK’s inward investment came from the EU in 2014. All these issues would come to play in any negotiations between the UK and the EU.

Access to the Single Market depends on the acceptance of obligations such as the free movement of labour, this is true if the UK remains in the EU or not. Due to the growth of developing economies the UK economy could over time re-orientate toward Asia and the Americas.

However, during the two years plus following Brexit the UK would require as much market stability as possible, soothing investors, interest rates and employment figures. It is unlikely therefore that the UK would risk access to its largest export market during this difficult time with punitive freedom of movement policies.

For the first two years following Brexit at least it is likely that the UK would extend favourable conditions to the three million EU migrants living and working in Britain in return for reciprocal arrangements concerning the 1,2 million Britons living and working on the Continent.

Conclusion

Whilst over the longer term the details of Brexit for expats are uncertain what is understood is that given the near historic levels of public and private debt and the precarious state of the global economy in general Brexit poses an opportunity for significant economic instability.

This would have knock on effects for both the British and EU economies and affect jobs and opportunities for expats and nationals on both sides of the Channel alike.

Sam Mee is a British national who has been living in the Netherlands for almost ten years, he has an MSc from the University of Amsterdam in social research and manages his own website lumiopluto.org.

Sources: Centre for European Reform; European Commission; Full Fact; HM Government; the House of Lords European Union Committee; the London School of Economics & Political Science; Open Europe; World Trade Organisation.

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Sam Mee

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