Brexit: the story so far

Brexit is the one-word description given to the decision of the UK to leave the EU. It was taken by the UK Parliament following a referendum in June 2016 in which 52% of voters voted to leave the EU, with 48% voting to remain.

That referendum was the culmination of over two decades of internal Conservative Party wrangling on the UK’s relationship with the EU.

A number of opt-outs for the UK had been secured in all big EU negotiations, including a large financial rebate by Margaret Thatcher in the mid-1980s, and the decision to retain its own currency rather than adopt the euro in the early 1990s.

When David Cameron was prime minister in the coalition government with the Lib-Dems between 2010 and 2015, he promised a referendum in the next Parliament on UK membership.

Gamble

That was partly to appease his own backbenchers, and also to take the wind from the UKIP sails. Cameron thought he would win, and, when he did, it would put the issue to bed once and for all. He gambled, and lost, and the next day resigned.

One of the striking features of the campaign in the runup to the referendum was the various promises and threats made on both sides with little, or no, factual basis. In addition, the British government did not want to be seen to be contemplating a Leave vote, so there was minimal planning done by civil servants.

It was only when the result came in that the process began of thinking what the future relationship might be with former EU colleagues.

One certainty from an EU perspective was that it wouldn’t look like EU membership – a non-member should not enjoy the benefits of membership while outside.

On 23 January 2013, British Prime Minister David Cameron promises an in–out referendum if the Conservatives win the next general election. This is what followed

23 June 2016 – EU referendum date. 51.89% vote Leave, 48.11% vote Remain.

29 March 2017 – British Prime Minister Theresa May signs Article 50, which formally starts a two-year process of exiting the EU.

8 June 2017 – A snap UK general election leaves the Conservative government reliant on the support of 10 DUP MPs for a majority in the British parliament.

15 December 2017 – The EU and UK agree to move to phase 2 of negotiations.

28 February 2018 – The EU publishes a draft text of a withdrawal agreement that includes a proposal to keep Northern Ireland inside an EU customs union if no other solutions are found – the so-called Irish border backstop.

19 March 2018 – Both sides agree terms for a transition period that is to last to the end of 2020.

7 July 2018 – The UK government publishes its Chequers plan, which includes a common rulebook with the EU for goods. It prompts the resignations of David Davis and Boris Johnston.

31 October 2018 – The deadline for a withdrawal agreement to be in place, but a deadline that looks set to slip

1 Membership of the single market and customs union – soft Brexit

If this was the UK’s preferred option, it would be accepted by the EU, and from a trading perspective it would be business as usual. However, it has been rejected already by the UK because it would mean that EU rules continue to prevail and the UK would not have the freedom to do its own trade deals or control immigration.

Membership of the customs union means all members have a common tariff and cannot negotiate external trade deals at a different tariff rate. Turkey, for example, is part of the customs union without being an EU member, but it is bound by all EU tariff negotiations. The same would apply to the UK after it leaves.

Membership of the single market means the rules of production are standardised across all members and trade can take place totally uninterrupted between countries. It is based on the principle of four freedoms: free movement of capital, goods, services and people between member states. Therefore, a Polish national can choose to work, invest in or tender for contracts on an equal basis with any other EU nationality in any EU member state. This doesn’t appeal to the UK as the UK wants to control immigration.

2 Trade under World Trade Organisation (WTO) rules – hard Brexit

This is the worst scenario for business, and agriculture in particular. Trade under WTO rules is conducted on a most favoured nation (MFN) tariff system. Some products, such as forestry, carry little or no tariff at WTO level whereas beef, sheepmeat and cheese carry huge tariffs, up to 100% in some cases, which would make trade prohibitive.

It should be remembered that up to the second half of the 20th century, countries set their own tariffs independently and the trend was that each country protected its sectoral interests whether it be agriculture or other forms of industry.

After World War II, there was a coming together of the major trading nations under the General agreement on tariffs and trade (GATT) to reduce and standardise tariffs and encourage international trade. This was the basis of international trade until the establishment of the WTO in the mid 1990s. It currently has 164 members, with the main aim to further liberalise world trade.

In trading terms, the WTO was much better than anything that had existed historically, but it is still nowhere near the frictionless trade that operates within the EU single market and customs union.

If the UK reverts to trading under WTO, it means tariffs and border inspections, including on the island of Ireland.

The assumption is that the UK would initially accept the same tariff schedule as the EU. But, that could potentially force up food prices in the British market, given that it is only 61% self-sufficient.

What hardline Brexiteers want is for the UK to unilaterally declare as a tariff-free country to all members of WTO, which would open up the UK market for agricultural goods to the major global traders from South America, the US, Australia and New Zealand.

3 A Comprehensive free trade agreement (FTA)

The EU has been active in negotiating FTAs, and has deals already in place with over 50 countries, and is currently in negotiation with the likes of Australia, New Zealand and the Mercosur group of countries. Their FTAs allow trade to be conducted on a tariff-free basis, with some limitations imposed by quotas.

The most recent and high-profile FTA has been with Canada, and it is often suggested that an enhanced FTA is the way to go between the UK and EU.

When compared with a no-deal Brexit, a FTA has considerable merit. But it still brings border controls and inspections, which all parties are anxious to avoid, particularly in the case of the Irish border.

It is also unappealing to Irish farmers because it leaves the UK free to make its own trade deals with high-exporting agricultural countries, which would undermine the value of the UK market to Irish farmers.

This would apply to a lesser extent to farmers in NI and Britain. While the domestic product would still likely command a market premium, the premium would be on top of a much lower base if the imported alternative was South American as opposed to Irish.

The UK government position is that it wants a comprehensive deal with the EU after Brexit, that is better than a free-trade agreement. It would allow the free movement of goods to continue unhindered across the Irish border, and render an Irish border backstop unnecessary.

But it also wants to be able to strike its own free-trade deals with whomever it likes.

One or other is relatively straightforward, but both together still looks an impossible dream.

Something will have to give on the Irish border issue, whether it is the UK staying in some form of customs union with the EU, or NI alone following the rules of the single market and customs union, with increased checks on imports from Britain.