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The British withdrawal from the EU has been one of recent history's most critical incidents. It's divisive, evokes diverse responses and sensations and heralds a significant shift in global strategy. The referendum on the UK's withdrawal from the EU was scheduled for a very long time, and was expected to deliver a certain result, according to the external signs. In principle, in leaving the EU, the UK can be versatile. The big issue, however, is how easily the status quo in the international trade area can be resumed.
Key words: Brexit, EU, referendum, politics
International Trade Treaties and Negotiations
Through the use of political and psychological strategies, used by the British politicians, Brexit was initially focused on the UK’s exit from the EU. In this regard, the world public is not surprised by the fact that Brexit gained low amount of voices. Indeed, they are surprised that Brexit was supported by only 52 percent of voters, proving that the majority of population did not support the idea of the UK government to leave the EU. This low percentage reflects the real influence of external lobby, foreign political and economic structures and immigrants on political processes in the UK. It should be noted that the outcome of the referendum disappointed British immigrants, political representatives of the EU and Russia. The present research is devoted to the discussion of the role of Brexit on future life of the UK and its relations with the EU, possibilities of new trade agreements with the leading nations and opportunities to renegotiate the existing treaties. In this context, the research will examine the nature of trade negotiations and treaties; the level and amount of the negotiating tasks, with which the UK will likely to confront after Brexit; and possible approaches and ways that may decrease the negotiating load. Finally, the paper identifies the countries, which should become a priority for trading negotiations, and examines the resources, required to undertake the negotiations. Thesis: Processes of Brexit and its consequences may be considered from different angles, however, the most important issue is the effect of Brexit on the international trade treaties between UK and EU and the world, as Brexit called into question signing of the treaties between EU and leading nations.
Brexit from the viewpoint of UK internal politics
Although, UK has declared its stable desire to leave the EU, it may seem that the country has not evaluated the outcomes of the exit. The population of the UK does not entirely understand how these processes will affect the life of ordinary citizens of the EU, international politics on the world economy. Analysts and research institutions predict economic disasters, aggravation of confrontation between the powers and the decline of the population wealth (Dhingra and Sampson, 2016). From the point of view of internal policy of Great Britain, separatism is the most striking forecast.
Many experts believe that, from the point of view of investment, unemployment, industry, banking-financial communications and other sectors of the economy, the UK will experience certain difficulties. However, it is necessary to remember that it the differences in economy related to the foreign policy have become the major reason, having led to suspect of British citizens in the EU. The UK is one of the largest economies in the world that is not independent on investments (Dhingra and Sampson, 2016). Therefore, Brexit, from the point of view of the economy, weakens the EU. After the exit, economic resources of the UK will be used only for the needs of the British population, while unjustified outflow of resources in the so-called PIIGS countries (eurozone nations, considered weaker after the financial crisis: Portugal, Italy, Ireland, Greece and Spain) will not weaken the UK budget (Koutrakos, 2016).
From the point of view of economic and legal cooperation with the EU countries, the collapse of the UK, estimated by analysts and experts, is less likely to occur. With the exception of some aspects that involve expenditure from membership in the EU, those aspects that involve articles of joint income will remain unchanged. Speaking about the mutual benefits, international treaties, agreements and arrangements, they will be slightly changed, while for external demonstration, UK will be presented as a special associate member. UK tries to follow the example of some developed European countries, which flourish without their membership in EU (Dhingra and Sampson, 2016). They are Switzerland and Norway.
Effect of Brexit on international trade agreement and relations between UK and world economies
On March 29, the United Kingdom began the process of exit from the EU. This process is quite complicated and is connected with the number of difficulties for both, the EU and Britain, as they are closely related economically. Therefore, the destiny of many trade agreements as well as participation of the UK in the negotiating process is under question. After Brexit, the United Kingdom cannot officially initiate meaningful negotiations on trade with countries outside the EU block. But it may hold a general discussion. However, the potential trade partners of the UK, including the US, will likely to want to wait for the completion of negotiations on the terms of Brexit and then negotiate with Britain.
Brexit will have some influence not only on the economics of the EU and UK, but will make the UK to renegotiate a wide range of agreements, which have been concluded during the period of UK membership in EU. A number of trade agreements, which are currently obligatory for the UK, are signed and negotiated by the EU alone. After the Brexit, these would stop apply to the UK. There are also some trade agreements to which the UK is a party, however, after the Brexit, these agreements would no longer be applied to the UK and would be renegotiated. Although, Brexit can potentially become beneficial for the UK, it is obvious that renegotiation of the trade agreements would become long and complex process, which would require application of law and engagement of the third parties. Therefore, successful renegotiation of the agreements would depend upon the good will of the third countries, which have to be provided with good and winning conditions so that not to change the terms of those agreements that have been used by the EU members for years. Moreover, the terms may be changed not in favor of the UK, as it has not negotiated those agreements for years, having transferred this competence to the EU (Koutrakos, 2016).
One of the major UK concerns is its application of the WTO rules. However, it would not be automatic. UK’s application to the WTO rules renegotiates its membership in WTO, while the UK will have to get approval from all the WTO members, thus being engaged in additional negotiations. In addition, following the Brexit, the UK has to renegotiate a range of trade agreements, concluded with the third countries or the treaties, which have been concluded by the EU alone (Koutrakos, 2016). These are the agreements with South Africa on trade in wine, treaty with Israel on government procurement, or the agreement with Australia on mutual recognition in relation to conventionality evaluation (Koutrakos, 2016)) These agreements bind the UK on the basis of the EU law; therefore, UK separation will require its complete upgrade in the sphere of international trade.
Priority targets for negotiations and international treaties
Although Brexit will lead to the necessity of the UK to renegotiate a wide range of agreements and trade treaties, signed during the period of its membership in the EU, the negotiations with the WTO and the EU are the most pressing. The reason is that reestablishing of these relationships is of extreme importance for resetting of the existing trade arrangements and development of new trade opportunities for both, EU and UK. Trade relations of between the UK and EU will provide the basis for the relations between UK and rest countries of the world. In addition, it is impossible to predict the way of concluding agreements with the third countries until the UK concludes new agreements with WTO. Only then it can be clear about the baseline, which will be the measure to estimate the value of preferences in the UK, in relation to WTO commitments and EU competitors. One of the ways out for the UK is to start concurrent negotiations with the WTO and the EU, which will be forwarded for establishing independent WTO status of the UK by making the less changes in the commitments schedules (Gideon, 2016). On the other hand, in case new UK-EU relations lead to the rise of trade barriers, this will result in the rise of additional problems in WTO, because both parties, UK and EU may start objecting that their interests have been damaged by the split. The only way to respond to the problem for the UK will be shaping its relationship with EU. “Subject to negotiations within the WTO and with the EU running smoothly, and ‘peace clauses’ allowing existing EU FTAs and GSP to be dealt with over a longer time frame, attention can be turned to how to prioritize and negotiate new FTAs” (Lydgate, Rollo and Wilkinson, 2016).
Renegotiation of the existing mixed agreements
There are some agreements, in which the UK is a party, together with the EU and other Member States. These are mixed agreements, such as Free Trade Agreement with South Korea and, after the Brexit, UK membership and participation in those agreements are not automatic and will have to be renegotiated. The reason is that all the mixed agreements have bilateral character, because they have been concluded by the EU and its member states as a one part, and, for example, South Korea, as the other part. The UK has a status of the Member State; therefore, it would cease to be a party of the Agreement in case Brexit takes place.
The argument of UK as a member state is a clause in a number of other mixed agreements on the territorial application. For example, the EU-Central America Association Agreement is applied only to the countries, which are EU members. the conditions of the agreement are applicable only to “the territories in which the Treaty on the European Union and the Treaty on the Functioning of the European Union are applied and under the conditions laid down in those Treaties” (Article 360). Therefore, based on the major conditions of these agreements, UK membership in them should be renegotiated, because package deals are applicable only for the countries, which are Member States of the EU. In addition, third contracting States may argue that Brexit would be a basis for the change of provisions (Article 62 Vienna Convention on the Law of Treaties) (Koutrakos, 2016). Therefore, the other party would have the right to terminate agreement with the UK.
The possibility to use the ‘rolling-over’ argument in the process of the treaties renegotiation
Before the Brexit, it has been long argued that the UK will have to agree with the third parties to roll over the provisions of the existing treaties, as it would be easier to make some minor changes in the provisions of the UK, than renegotiate their major terms. However, this argument would lead to considerable uncertainty. The reason is that many treaties are the result of the long negotiations and package deals, adopted in a complex and specific policy context (Stonehem. 2016). It seems that UK relies on the good will of the third parties and hopes to extend the deals of the previously signed agreements in a new context and upon the conditions, favorable for the UK in its new political status. However, there is no guarantee that the third parties would be able to resist a temptation not to tighten terms for the UK. For example, it is difficult to foresee the automatic rolling over of the existing trade agreements, signed by the EU without proper adjustment of the quotas, which are already relevant in trade between the UK and the third country (Koutrakos, 2016).
Renegotiation of agreements between UK and EU will likely to become a huge problem because this process is going to become an extremely complex and expensive process. The reason is that the UK has not been engaged in the negotiation process for almost 40 years (Koutrakos, 2016). Although, Britain has a wide choice of skilled and talented lawyers and diplomats to be assigned for this process, they have not practiced negotiations for a long time, so have lost their skills.
International treaty-making process is characterized by a tendency to be big package deal. If to apply them to the EU, these agreements are titled Deep and Comprehensive Free Trade Agreements (Koutrakos, 2016), and their negotiations have been advocating by the commission since the mid 2000s. These agreements are more ambitions, compared to traditional trade agreements, because they are less focused on straight-forward trade restrictions (such as tariffs), but are aimed at reaching the highest degree of liberalization services and investment. In addition, one of the most important aims, which they follow, is covering intellectual property rights and competition, as well as including terms and conditions on labour and environmental standards, accepted by most leading economies in the world. On the account of EU there are several agreements of that type: agreement with South Korea, a Comprehensive Economic and Trade Agreement with Canada (Koutrakos, 2016). As soon as CETA enters into force, EU companies will be provided with the “access to public procurement of federal, provincial and municipal authorities (with certain exceptions) in Canada” (Lydgate, Rollo and Wilkinson, 2016). In addition, the EU is involved in the negotiating process of the Transatlantic Trade and Investment Partnership with USA (Lydgate, Rollo and Wilkinson, 2016). In order to provide support for such big deals, big markets are required, however, until the position and state of the UK in relation to the EU is unclear, it is hard to imagine the future destiny of the UK in the above mentioned agreements. One of the reasons is that such agreements require long and sufficient process of negotiation to consider all the provisions to take into account interests and opportunities of each country. For example, CETA negotiations stated in 2009, however, the agreement has not put into practice yet (Koutrakos, 2016).
In addition to the period of negotiations and its questionable state, because of the Brexit, it is necessary to mention that according to the agreements, previously negotiated by the EU, in which UK had winning terms and provisions, there are certain limits on trade liberalization. Therefore, no one can predict what restrictions and limitation the UK would have after it leaves the EU. For example, under CETA, the export of UK beef and sheep to Canada, which exceeds a certain quota, is subjected to a higher tariff. In addition, there are certain restrictions the manufacture of airlines and motors (Stonehem, 2016). In this respect, a question of UK’s position, when it leaves the EU, arises. What would the UK do and what way it would negotiate the agreements with South Korea and Canada, considering that these agreements are more comprehensive, ambitions and demanding (Stonehem, 2016).
Negotiations and trade treaties with English-speaking countries
Except negotiations with the countries, with which UK has been cooperating, Brexit presupposes renegotiating the trade agreements and treaties with other English-speaking counties, where the legal systems and objectives are the same. In this respect potential of the cooperation between these counties and UK is possible and very attractive for both. One of the potential countries for negotiations of the trade treaties is Australia. In this respect, “the Commonwealth is one potential source of priority partnerships, according to the recent preliminary discussions between the UK and Australia” (Lydgate, Rollo and Wilkinson, 2016). One more option for the UK to consider is applying to join the existing mega-regional agreement, particularly, the Trans-Pacific Partnership (TPP). The subject to this agreement is being ratified and implemented by the US (Lydgate, Rollo and Wilkinson, 2016). One of the biggest advantages of the TPP for the UK is the opportunity to have the FTA with 12 countries, such as the US, Japan, Singapore, Australia, New Zealand, Malaysia and Vietnam (Lydgate, Rollo and Wilkinson, 2016). They are the potential trade targets of the UK as an independent state with independent trade policy. However, the critics state that negotiations in this direction will not likely to lead to the fruitful results, but the signing ceremony without any influencing terms. It is unlikely that any member would be interested to recast an agreement, which took more than five years, in order to satisfy the UK’s desire to act as a state, free from EU.
Another option for the UK after Brexit is joining the Transatlantic Trade and Investment Partnership (TTIP). In this case the question remains whether the process will end by the signature and joining or UK will still be engaged in the process of negotiation. “Like TPP, however, TTIP would likely be a case of ‘take it or leave it’ for the UK” (Lydgate, Rollo and Wilkinson, 2016). Nevertheless, signing TTIP for the UK could be a better deal rather than getting a status of the most-favored-nation (MFN) with the US and signing new deal with the EU. Despite the desire to join the TTIP, UK understands that becoming a member of the TTIP and using its trade framework with the EU would unlikely lead to a successful market access that the UK would get if it preserves its positions in the single market. Moreover, taking into account significant regulatory terms and provisions of the TPP and TTIP, they may lose their sovereignty, thus resulting in the public opposition. If UK has a smaller market, it will unlikely have strong negotiating position, as it used to have when being a part of the EU. EU, in its turn, will likely to have the same problem without UK. Therefore, both are interested in facilitating solutions.
Negations of the EFTA membership
In case that after the Brexit, the UK would have a desire to apply for EFTA membership, it will be necessary to negotiate its membership with the existing member-states: Norway, Iceland, Switzerland and Liechtenstein (Dhingra and Sampson, 2016). In case these countries would demonstrate their willingness to accept the UK as the member of EFTA, the UK will appear in the winning position. Although, UK membership in EFTA is possible, it will lead to additional difficulties, related to the necessity of the existing EFTA countries to reconsider the aspects of the package deal, which serve the basis of the agreement.
Significance to reset the place in WTO
It to suppose that the UK leaves the EU without renegotiating any of the agreements, which has been signed in the period of its membership in the EU, it becomes clear that the terms and provisions of the UK’s trade with both, EU and other countries, will be controlled by the WTO. In general, WTO comprises 161 member-states, with major and less developed economies (Dhingra and Sampson, 2016). According to the rules and provisos of the WTO, every member –state has to grant the same MFN market access. Moreover, all the members should charge the same tariffs. There are, however, certain exceptions to the principle. “Thus, countries are free to choose entering into free trade agreements such as the EU or EFTA and can give preferential market access to developing countries” (Dhingra and Sampson, 2016). Taking into account that UK is a WTO member, its exports to the EU and other WTO members would become a subject to the MFN tariffs of the importing countries (Dhingra and Sampson, 2016). In comparison with the membership in EU or EFTA, it will lead to the raise of costs of exporting to the companies of the EU and UK (Dhingra and Sampson, 2016). In addition to the export and import issues, the services of UK will become the subject to the rules of the WTO. Considering the fact that the progress of WTO in liberalizing trade in services, being subject to the WTO rules will automatically mean that the UK services and product manufacturers would have reduced access to the EU market.
The WTO does not presuppose any provision regarding the free movement of labor in the members-courtiers, therefore, in case with Brexit, UK and EU would be forced to cease free labor movement between them. However, the free movement of capital between UK and EU will likely to continue, since there are EU restrictions on capital mobility within the EU and outside it. In addition, after successful implementation of the Brexit, UK will be free to refuse from the common external tariffs of the EU, while it will have the right to set its own free MFN tariffs on imports (Dhingra and Sampson, 2016).
Despite the opinion of leading economic experts that the UK’ exit from the EU would have severe economic and political consequences for the EU, UK’s standing outside the Single Market would provide the opportunity to set its own regulatory and political policies without the necessity to consider EU. On the other hand, any deviation in regulation between the UK and the EU will be considered as a non-tariff barrier to trade, thus leading to the increased costs of doing business with Europe (Lydgate, Rollo and Wilkinson, 2016).
Despite everything mentioned above, there is no unique and common opinion on how leaving the Single Market would influence the economic policies and trade regulations of the EU. Therefore, it is yet unclear what changes ad regulations would be beneficial. However, there is one obvious thing: resetting relations with WTO is necessary for the UK.
In case the UK does not manage set relations with WT before it leaves the EU, it could come out in an unclear position and, what is more undesirable, open the doors to political and economic problems and trade conflicts. In order to prevent such negative outcomes, UK is required to initiate active and rapid diplomacy with the EU partners and WTO (Lydgate, Rollo and Wilkinson, 2016). From the side of the EU, it is require helping the UK to regularize its schedules to make them appropriate for both parties, UK and the EU. Finally, Brexit potentially leads to the rise of the EU demand from the WTO to renegotiate EU schedules; therefore, both are equally interested in their reestablishment (Lydgate, Rollo and Wilkinson, 2016).
Resources, required to undertake the negotiations
The above presented information initiates discussion that UK exit from EU will require many efforts to be taken to renegotiate old agreements and conclude new ones. Taking into account the amount of the agreements and treaties to be renegotiated, UK will require approximately 700 negotiation-capable staff (Lydgate, Rollo and Wilkinson, 2016). In order to meet these needs and be able to satisfy all the conditions of the EU, UK will be forced to recruit and educate “dozens of trade negotiators from within Whitehall” (Lydgate, Rollo and Wilkinson, 2016). In order to have access to the experienced staff, UK will have to call for the service to the former policy officials of the UK and those, who have worked at the European commission and ex-trade officials from the countries, which are not current members of the EU, such as Australia, Canada or New Zealand (Gideon, 2016). In other words, it is necessary to engage all the countries, which could become potential victims of the conflicts of interests in the process of renegotiating agreements with the UK in its new status.
The referendum on the UK's membership in the European Union has created countless expert evaluations, publications and opinions. They range from moderate to radical, from optimistic to very pessimistic, predicting the collapse of the UK, EU and the whole modern world. However, all the opinions have one common feature: the UK and the EU entered the stage of unpredictable dynamics and added a number of new, though still fuzzy variables to the difficult situation in Europe and the world. The expert community has developed a relative consensus about the predictions of events, which are as follows: the longer will be maintained the uncertainty, the worse the consequences will be for all involved parties; the more direct and indirect negative impacts on integration processes and the global market will be observed. The Brexit has created a new, unexpected reality, the change of roles in regional and global processes of some countries, is possible.
The step, taken by the UK in favor of Brexit will start a new two-year period of renegotiation of the place of the UK in Europe and in the world. In case, UK chooses to cease all the relation with the rest European world, the renegotiation of international treaties and trade agreements could essentially change the political, economic and legal aspects of UK;s position in Europe and will eventually weaken its reputation, which has been carefully built during the years of UK’s membership in EU. At the moment, UK is at the beginning of its long path of shaping new life and renegotiating international treaties and agreements and fighting for its place as a decent free member of WTO. Finally, UK has to work hard for finding the resources for undertaking the negotiations, as its staff of diplomats is insufficient to cope with the amount of treaties to be renegotiated.
Dhingra, S. and Sampson, T. (2016). “Life after BREXIT: What are the UK’s options outside the European Union?” Retrieved from Center for economic performance website: <http://cep.lse.ac.uk/pubs/download/brexit01.pdf>
Gideon, R. (2016). Brexit and Beyond. London: Council on Foreign Relations
Koutrakos, P. (2016). “Negotiating International Trade Treaties after Brexit”. European Law Review, 41(4), pp. 475-478. doi: 10.1163/22119000-12340020
Lydgate, E., Rollo, J. and Wilkinson, R. (2016). “The UK trade landscape after Brexit”. UK trade policy Observatory. Retrieved from the University of Sussex Website: <https://www.sussex.ac.uk/webteam/gateway/file.php?name=briefing-paper-2.pdf&site=18>
Stonehem. B. (2016). Brexit: The Global Economic Effect. NY: CreateSpace Independent Publishing Platform
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