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Staying Clear Of A Disastrous Brexit

06/03/2017 15:03 GMT | Updated 06/03/2017 15:03 GMT
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Britain's Prime Minister Theresa May has stated that "Brexit means Brexit" but it has been unclear what that actually means. She clarified in a speech last month that Britain will completely leave the European Union but it would like to maintain a special relationship with the EU that will be based on a "new and equal partnership between an independent, self-governing, Global Britain...[and] friends and allies in the EU." Although Britain will not be staying in the Single Market it desires, "...the greatest possible access to it through a new, comprehensive, bold and ambitious Free Trade Agreement."

A recent blog piece on the London School of Economics and Political Science titled "What Trading Outside the Single Market Looks Like," outlines some extracts from the LSE Commission Report which states the U.K. would have to return to its World Trade Organization (WTO) membership and would have the same relationship as other non EU countries unless it is successful in obtaining a deal with the EU. It may not be able to stay in the Customs union as it would curtail its ability to negotiate its own trade deals which along with border patrol is one of its priorities.

Although there are benefits to being outside the Single Market, such as the fact that Britain can prioritize its own interests when dealing with countries outside of the EU and in the future open up new opportunities for itself to trade with China and India, it would have significantly weakened its position after leaving the "largest trading bloc in the world." Also if Britain is not looking for a "Soft Brexit" the piece argues there is a risk of a more complete "hard Brexit" referred to as a "cliff edge scenario" or disastrous exit that can prove costly for Britain both in the short term and in the long term. It needs a better deal brokered with the EU as opposed to simply re-joining the European Free Trade Agreement (EFTA) which would not result in free trade in services. And if new regulations are put in place by Britain that don't comply with WTO or EU standards Britain could face further market restrictions.

But May has also said that 'no deal would be better' for Britain than a bad deal. Analysts have pointed out that a new Free Trade Agreement would likely not be negotiated within the next two years but could even take dozens of years. Once Britain officially notifies the European Council of its decision to withdraw it invokes Article 50 of the Lisbon Treaty, which gives any member state the legal right to withdraw, after which negotiations will begin, as May stated, no later than the end of March. In those negotiations Britain will need to keep tariffs low and restrict non tariff barriers to trade. High tariffs would result in more expensive imports and while it would be in Britain's interest to lower tariffs the report claims it risks "losing its bargaining power." The EU also carries a greater advantage in those negotiations and it may not accept a transitional phase and can also play tough in return.

The May government has faced internal opposition to its call for leaving the Single Market. Former Conservative Prime Minister John Major called May's rhetoric "over-optimistic" and warned that it would hurt the most vulnerable to leave the Single Market and that the government was not being forthright about the real life consequences. But on Feb. 28 the Lords voted against an amendment to remain in the single market, granting victory to the government's stance.

Still uncertainty remains in many areas. The Single market allows for free movement of goods, services, capital, and also of the labor force. Right now Theresa May is trying to guarantee the rights of citizens living inside Britain as she also want the EU to protect the rights of British citizens living in countries of the EU. Their right to residence is in jeopardy. Many fear the citizens on both sides would become "bargaining chips" and instead if Britain ensures the rights of EU citizens living in Britain it will have a better opportunity at negotiations. Ultimately any withdrawal agreement would require a "qualified majority" for approval as well as the approval of the European Parliament. To stay clear of an unfavorable or even disastrous exit from the EU it would be perhaps be wise for Britain to resolve the issue of migrant workers, as will continue to need these workers post Brexit. It can do this by ensuring their rights as a priority and working to ensure their own with a more friendly EU partner in return.