By Phil Sutter, GTM Governance, Global
The Brexit Referendum vote in the United Kingdom (UK), on 23 June 2016, has produced much uncertainty about Britain’s future. The referendum was an expression of the will of the people for Britain to exit the European Union (EU), a bloc of 28 countries. However, apart from the finality of the vote, many different scenarios are possible over the next several years.
Brexit did result in the changing of the guard from Prime Minister David Cameron to new Prime Minister Theresa May. Cameron opposed Brexit, and took a political gamble to offer the vote. He resigned shortly thereafter and left fellow conservative May to execute the details of Brexit.[1]
Ms. May has quite a task in front of her. Her first step in the process was to announce that legislation on the exit of the UK in the EU Parliament will be tabled by the end of March 2017. This legislation will detail the nature and timing of the UK’s invocation of Article 50[2], which outlines the protocols for exiting the EU. Remaining to be decided is how the UK will transition and move forward from its position as one of the leading EU countries.
David Davies, appointed head of the Department for Exiting the EU, hopes to make it a public process; but he says nothing will be revealed until they are ready to invoke Article 50.[3] Several approaches have been under consideration that take into account existing relationship scenarios with the EU[4], although both the “Norway” and “Switzerland” models have been rejected, as they both mean accepting the free movement of EU citizens –– one of the key triggers for Brexit.
The “Turkey Model” requires that the UK engage in a customs union with the EU. This provides free tariffs on all industrial and processed goods, but not on raw materials. The union offers no agreement on services. There is no free movement of people and no budget contribution. A difference for the UK adopting such a model is that Turkey is seeking EU membership, while the UK would not.
The “Canada Model” would have the UK reach a free trade agreement with the EU similar to the yet-to-be-ratified Comprehensive Economic Trade Agreement (CETA) between Canada and the EU. CETA provides free duties on industrial goods but has quotas for sensitive industries. It provides for some flexibility on services. There is no agreement on the movement of people or budget contributions. The downside is that CETA negotiations began seven years ago, and as of this writing ratification has not occurred.
Finally, the fallback position is simply using the UK’s standing as one of 164 members of the World Trade Organization (WTO). The UK would receive most favored nation status and pay duties and interact with the EU at arm’s-length. With this option (and the various models or potential combinations), there are many details to consider.
To further complicate matters, the UK must try to hold its own kingdom together.[5] Within the UK; Ireland, Scotland, and Gibraltar individually voted to remain. They may each seek their independence or a compromise with the UK to retain EU membership. Also, the UK must convince corporations to stay the course. For example, London enjoys its status as a financial capital. Brexit may cause some companies to rethink their London residency.[6]
It is in the UK’s interest to initiate a decisive and well-thought plan. Uncertainty is never good for business or government. Can it work out for the best? History tells us that the UK had centuries of prior experience operating on its own. So, as Britain told its people in 1939 at the outset of war; “Keep calm and carry on”.