Imagine a household of seven individuals. A referendum is held to decide if they should stay or move. Three vote to stay, and four vote to move out. However, it turns out that among the four, one wants to move to the seaside, another to the mountain, while the other two would like to remain in the same building to take advantage of all the benefits of city living, but without belonging to the condo association and without paying the association’s fees.
Welcome to Brexit, the U.K.’s version of “repeal and replace”; what appeared simple and straightforward in theory turned out to be complex and economically counterproductive in practice.
I had written a year ago on Making Sen$e that Brexit was going to be a long and complex process. Since then, the reasons why have become clearer. Here they are, one at a time.
1. No coherent exit strategy
The analogy I described in the opening paragraph highlights the divergent views of current government ministers and their factions. Ask “What is the best deal for Britain?” and you will get a variety of contradictory answers. Some would like to keep things as close to what they are now; others would rather sever all commercial ties with the European Union regardless of economic repercussions.
The crux of the matter can be summarized as follows: Which of the current trade benefits are we willing to sacrifice for the sake of the still ill-defined “regaining control of our borders”?
2. Wishful thinking
To avoid confronting the hard reality that we can’t keep all the things we want without bearing any of the costs, some supporters of hard Brexit will tell you it’s not the reality at all: The European Union needs the U.K. more than the other way around, and the EU will ultimately bow to our demands.
Their argument is that the U.K. imports more from EU than it exports to the EU, and therefore the EU will protect its economic interests. The fact is true, but the concept is deeply misleading. The U.K. needs the EU more than the other way round for a simple reason: U.K. imports from the EU and U.K. exports to the EU account for somewhere between 40 and 55 percent of all U.K. trade. But for the EU, trade with the U.K. represents only a small fraction of the EU’s total trade, because the EU also trades within itself and with the rest of the world as well: the U.S., China, Japan, Russia, South America, Africa and Canada. In fact, the EU has just signed a free trade agreement with Canada known as CETA.
CETA embodies the contradictions and the enormity of the task ahead for the U.K. government. It’s a contradiction because Theresa May stated during a G20 summit in 2016 that the U.K. would become the “global leader in free trade.” Setting aside the notion that some people voted Brexit, because they wanted less free trade, not more, one doesn’t become a leading free-trade nation by leaving the largest free-trade bloc, one that is engaging in new free-trade deals while the U.K. is trying to pull out. And it complicates the task ahead, because the U.K. will eventually miss out on the deal and will have to negotiate one of its own with Canada. (A similar agreement between the EU and Japan is in the works.) Thus the U.K. will have to make major efforts just to keep up with the EU’s new trade initiatives.
3. “Oh, I didn’t think of that.”
In addition to trade issues, crucial structural problems that weren’t mentioned during the debates are coming to the fore. This is because the U.K. has spent four decades integrating its economy with other EU nations. Trade relations have become so smooth that we take them for granted.
For instance, planes flying to and from the EU are regulated by a common framework called the Open Skies agreement. Any airline registered in any EU country can fly to any other EU country. If the U.K. pulls out, that framework could suddenly be null and void. As many airline chiefs remarked, this could negatively impact the ability of airlines to operate seamlessly as they do now. The U.K. might have to renegotiate all the flying agreements the EU has in place with the rest of the world.
Ditto for pharmaceuticals. The European Medicines Agency is currently based in London. It will shut down and move after Brexit. The agency is responsible for approving the safety of medicine and drugs in the EU, serving around 500 million people. Aside from the loss of jobs, it will also lead to the increased complexity and duplication for U.K.-based drug companies. Up until now, a U.K.-based pharmaceutical company only needed the approval from European Medicines Agency to sell its drugs to this large market. After Brexit it will need two: one from a similar U.K. agency and one from the European Medicines Agency.
4. Ill-timed “own goal,” as we say in soccer
A year ago, I wrote here that the special circumstances of U.K. members of Northern Ireland and Scotland would add to the complexity of Brexit negotiations. This was without knowing that Theresa May would have called for a snap election last June which spectacularly backfired. Her government lost seats and is now beholden not only from without, but from within. Its majority has been given temporary life support by 10 Democratic Unionist members of parliament from Northern Ireland and 13 Scottish conservatives. Each group will put pressure to get its own parochial version of the “best deal for Britain.”
5. All for naught?
The easiest path — the one that would minimize uncertainty — would be to keep things as similar as possible to how they stand now. But I suspect that this outcome would infuriate both those who voted to remain and those who want a sharp exit from the EU. It would mean we went through all this to wind up back where we started, with the population even more agitated and divided than ever.