Brexit: What Happens Next?

At the end of June last year, the UK voted to leave the EU. Almost half of the country celebrated, almost half were distraught and many in the middle wondered if their vote against the EU was a mistake. Now that the dust is starting to settle, people are wondering what this really means for them and how we should proceed.

Amidst the pound crashing, the FTSE 100 dipping and global concern, David Cameron announced his resignation as Prime Minister and that he would leave the invocation of Article 50 for his successor – who we now know to be The. Rt. Hon. Theresa May. This was a smart move – giving markets the best opportunity to stabilise over the summer, emotions could cool and negotiations could begin to discuss what a Brexit might actually entail.

One of the major difficulties in considering what leaving the EU might look like is the lack of precedent. Greenland and Algeria have both exited the EU, in 1984 and 1962 respectively, but the EU was a very different union at the time. Along with the obvious difficulties in extricating ourselves from the EU, there are myriad issues purporting to our own Union, with Scotland demanding a second independence referendum and the obvious difficulties in managing Brexit given the relation between Northern Ireland and the Republic of Ireland.

Questions have been raised about how and when a Brexit could occur. The most likely occurrence is for the British Government to trigger Article 50. This is the exit clause which would start the two-year period during which the “divorce” could be negotiated and terms could be agreed.

The clause is quite clear. Only the British Government can trigger this exit from the EU – we cannot be forced out. Despite pressure from senior EU officials, the UK could hypothetically wait years to trigger Article 50 – particularly useful given the scale of the negotiations that will be required. Whilst Merkel has claimed that informal negotiations are not a possibility, the balance of power lies with the UK and it is highly likely that this is simply political posturing.

There are several options for what a Brexit could look like, although each of these comes with its pros and cons.

1)      The Norway Model – Norway is a member of the single market (European Economic Area) and it pays a contribution to the EU budget and has to sign up to all EU rules including common regulation and standards. Although it has no say in the making of the rules, Norway is exempt from rules on Justice, Home Affairs, Fisheries and Agriculture. EU citizens have the right to live and work in Norway. The per capita fee for Norway is the same as the current per capita fee Britain pays.

2)      The Switzerland Model – Switzerland belongs to the European Free Trade Association but not the single market. Switzerland has access to the EU market through over 120 bilateral agreements that cover most areas of trade and sells over 50% of its exports to the EU. Switzerland makes a financial contribution which is smaller than Norway and whilst they only have to implement some trade regulations, they do still have free movement of labour – although deals are at risk at the moment after a referendum two years ago meant the people voted to restrict workers from the EU. This hasn’t been implemented yet but Brussels responding by stalling agreements and freezing joint projects. Switzerland does not have access to the single market for banking or for parts of the services sector which makes up almost 80% of the UK economy.

3)      The Turkey Model – Turkey has a customs union with the EU so it faces no tariffs or quotas on industrial goods exported to the EU and has to apply the EU’s Common External Tariff on goods imported from outside the EU (which it has no say in setting). The Customs Union does not apply to agricultural goods or services.

4)     The Canada Model – Canada’s free trade deal hasn’t come into force yet but the agreement is to remove tariffs on most goods although it does exclude some food stuff and services. Canadian exports also need to prove their goods are made entirely in Canada and the deal does not include financial services rights that the UK needs and wants. The deal took 7 years to negotiate and still means Canadian exports have to satisfy EU regulations, although they have no say in setting these.

4)      The WTO Model – The UK could adopt a unilateral free trade policy where it relies on the WTO’s framework with minimal trade restrictions. However, this could have a large impact on the UK’s manufacturing and agricultural sector as we could import these goods at a much cheaper price than we are able to produce them.

These are just some of the options that the UK could consider as it looks to negotiate its Brexit deal – make sure you stay abreast of this topic as it is likely to come up in the interview. Consider it from a social, political and economic point of view so that you can demonstrate a depth of consideration and understanding!