This month, Prime Minister Theresa May delivered what is arguably her most comprehensive assessment of what the post-Brexit future might look like for the UK. The Prime Minister is quite clear that the UK will leave the EU. She is also quite clear in her desire to create a new and equal partnership between the UK and the EU. She ruled out the possibility of partial membership of the EU or a ‘half-in, half-out’ situation. She does not want the type of model adopted by other countries, presumably meaning countries such as Norway and Switzerland, who have access to the single European market, but at a price.
She is adamant that the UK will not be part of the Single European market (SEM), but that it will be able to do a trade deal with the EU. She does not envisage that the UK will remain a full member of the Customs Union, as this would mean having to apply the EU’s Common External Tariff, and would prevent the UK from being able to independently negotiate a trade deal with non-EU countries.
The Prime Minister laid out 12 objectives in the negotiation process, of which the following are the most significant:
- To create certainty along the way – she recognises that compromises will be required on both sides, but that whatever deal is finally agreed, both Houses of the UK Parliament will vote on it.
- To create a stronger Britain by taking control of its own affairs and bring an end to the jurisdiction of the European Court of Justice in the UK. Furthermore, powers will continue to be devolved to the members of the United Kingdom, but the UK will be able to negotiate trade deals as a single union. She pledged to try to maintain the Common Travel Area with the Republic of Ireland, while protecting the UK’s immigration system. That will prove difficult.
- To build a fairer Britain and ensure that immigration is controlled from the EU and elsewhere. She does want to guarantee the rights of EU citizens who came to Britain from Europe, and of British citizens in other member states.
- To build a ‘bold and ambitious free-trade agreement with the European Union’. She wants an agreement that will allow the freest possible trade in goods & services between the EU and the UK, but this would not involve being a member of the Single European Market (SEM). Membership of the SEM would necessitate the freedom of movement of goods, services, people and capital. She is suggesting that the relationship may take in some elements of the SEM, including the export of cars and lorries, and the freedom to provide financial services across national borders. Britain must be able to negotiate trade deals with non-EU countries, and so most likely will not be part of the EU Customs Union.
- She expressed a desire that British citizens would be welcome in the EU just as EU citizens would be welcome in Britain; that Britain would continue to trade freely with the EU; and that the British intelligence services would be available to the EU in the fight against terrorism.
- The Prime Minister intends to have the negotiations concluded by the time the 2-year Article 50 process has ended. At that stage, there would be a phased process of implementation of new arrangements. The aim is to avoid a ‘cliff edge’ at the end of the 2-year period and give business enough time to plan and prepare for any new arrangements.
- The Prime Minister went out of her way to convince her EU partners that the UK decision to leave the EU is not borne out of a desire to become more distant from the member countries, but rather to maintain close relations with the EU. However, she also wants to build closer relationships with the rest of the world, free from the shackles of the EU.In contrast to Donald Trump, who has used a lot of protectionist rhetoric to date, her vision is of a Britain that will remain outward looking and whose people will desire to ‘travel to, study in, trade with countries not just in Europe but beyond the borders of our continent’.I am not sure that many of the EU members will actually take this assertion at face value or that her speech will smooth troubled waters. The instinct in the EU remains one of negativity in relation to the UK decision and this will make the negotiations over the next 18 months or so very difficult and potentially fractious. Regardless of how important the UK is to the EU the reality is that a relatively painless exit for the UK is not something that all EU leaders would be enamoured with.
While the Prime Minister has laid out quite clearly what she wants to achieve, it is important to remember that much of this could well be at odds with what the EU will want to achieve. The period of negotiation will be difficult; compromises will have to be made; but from an Irish perspective it has to be hoped that the Prime Minister will achieve her objective of creating a free trade relationship between the UK and the EU.
The Prime Minister was also categoric in her suggestion that no deal would be better than a bad deal for the UK, suggesting that if a ‘good’ deal cannot be agreed, the UK would be willing to rely on World Trade Organisation (WTO) rules. This would not be good news for the Irish agri-food sector in particular. Furthermore, she threatened that in such an eventuality, the UK could change its economic model, with a sharp cut in the corporation tax rate a distinct possibility in order to attract foreign direct investment (FDI).
The markets have reacted positively to the speech to date, with sterling stronger against the euro and the dollar. The markets had built in considerable bad news over the past couple of weeks, and have reacted positively to a less bad outcome than was possible.
We now know a lot more about the UK’s intentions, but the EU’s intentions are a lot less certain. The next couple of years promise to be incredibly interesting.
Chief Economist with Friends First
The views and opinions expressed in this article are those of the author.