Brexit means Brexit
The new UK Prime Minister, Teresa May, has made it clear that although she did not vote to leave, that there will be no attempt to remain inside the EU or to return by some backdoor mechanism, like a second referendum.
So the only question to be answered is what kind of divorce will it be?
The answer to this question will depend on the extent to which the negotiations can achieve a balance between the value to the UK of access to the single market versus the pressure to control immigration.
The biggest issue to be sorted out is how trade will be managed between UK and EU – so what are the options:
- ‘Hard’ exit – UK does not participate in the single market and relies on the World Trade Organisation rules for trading with EU or negotiates a completely new bilateral trade deal with EU.
- ‘Soft’ exit – UK joins the European Economic Area (EEA) which is made up of EU member states plus Norway, Iceland & Liechtenstein. EEA provides for free movement of goods, services, capital and people; however, participation in the single market comes at a financial cost and requires free movement of people, two of the main arguments for leaving the EU.
The Brexiteers would probably have a preference for the Swiss model – UK joins the European Free Trade Association (EFTA); access to the EU market is governed by a series of bilateral trade agreements by economic sector. Switzerland is excluded from certain sectors, most notable Financial Services.
Control of Immigration
The Brexiteers propose an end to the automatic right to enter for EU citizens; increased border security checks and a new points system for entry based on skills and availability of employment.
What happens next?
There is still a high level of uncertainty which will not be resolved until substantive negotiations have begun. We do know that there will be changes in trade and regulatory arrangements which will have a particular impact on the Agri-food sector.
- Volatile exchange rate
Sterling has devalued by 18% in the last nine months and 10% in the week following the decision. The rate has stabilised in the past few weeks @ 0.83 – 0.84, however the prospects for the next six months are very pessimistic.
- Cost of trading with the UK
Increased administrative and regulatory control will come at a cost for exporters to the UK – estimated at between 5 to 10%.
The EU applies tariffs of 13%on agricultural products from outside the single market.
- Border controls
The border between ROI and NI is where the two political and economic entities meet – it is hard to see how the objective of controlling immigration can be achieved without some sort of increased restrictions on the movement of people and goods in this area.
The UK was to hold the Presidency of the EU in the second half of 2017; the new PM has decided that the UK should forego the office to concentrate on the exit negotiations.
The PM will attend her first European Council Meeting in October, when she will be under pressure to outline her exit strategy.
26th July 2016