The issue of the United Kingdom (UK) leaving the European Union (EU) of which it has been a member since 1972, has seen two Prime Ministers – David Cameron and Theresa May – resigning from their positions over what is known as “Brexit”. The current Prime Minister Boris Johnson has vowed to take the UK out of the Union by 31 October, the extended deadline negotiated by his predecessor for doing so. The Prime Minister has obtained the Queen’s approval for an end to the current session of Parliament in the second week of September, and for the second session to commence on 14 October. Both the Scottish court and the London High Court have ruled that the Prime Minister’s action was not unlawful. The Supreme Court is expected to hear an appeal against the ruling on 17 September.
On three separate occasions, the UK Parliament had rejected the withdrawal proposals brokered by Theresa May with the EU over concerns about the adequacy of the “backstop” arrangements involving the 499-kilometre border between the Northern Ireland and the Irish Republic. The latter is part of the EU while the former is part of the UK. The Speaker of the House of Commons described the move by the Prime Minister as ‘a constitutional outrage’ and an obvious attempt to prevent Members of Parliament (MPs) from debating Brexit and more generally from executing their duties as MPs. The ruling Conservative Party’s one-seat majority in Parliament has since been eliminated by the defection to the opposition of one of its MPs.
Last Tuesday, 21 Conservative MP broke ranks with their party and joined the opposition parties in voting in favour of a debate on the proposed exit from the EU. The objective was to pass legislation to prevent the UK from leaving the EU if the Prime Minister fails to agree on a withdrawal deal by 19 October that has the approval of Parliament. On Friday, the Bill was passed, and if no agreement is reached, a request will be made to the EU to extend the deadline for withdrawal to 31 January 2020. The UK Parliament also blocked attempts by the Prime Minister to call snap elections before 31 October.
In this article, we examine the implications of UK’s withdrawal from the EU, especially as regards trade.
The EU in perspective
In 1957, the Treaty of Rome created the European Economic Community (EEC) with responsibility for establishing a common market and promoting ‘a harmonious development of economic activities, a continuous and balanced expansion, an increase in stability, an accelerated raising of the standard of living and closer relations between the States belonging to it’. Specific responsibilities include:
(a) Eliminating customs duties and removing quantitative restrictions on
imported and exported goods;
(b) Establishing common customs tariffs and commercial policies for goods
entering the EEC;
(c) Providing for free of movement of people, services and capital; and
(d) Adopting a common policy for agriculture andtransport.
The EEC became the EU in 1993 following the Treaty on the European Union (TEU). In 2007, the Treaty on the Functioning of European Union (TFEU) amended the TEU and the Treaty of Rome. Today, the EU comprises 28 members, including the UK and the Republic of Ireland.
Events leading to Brexit
In 1975, the UK held a referendum to confirm its continuing membership of the EEC. The results showed that two-thirds of the voters were in favour of remaining in the EEC. Since 1983, however, there were suggestions for holding a second referendum. These were initiated by the British Labour Party. However, it lost the elections of that year. The newly-formed Referendum Party did the same but failed to win a seat in the 1997 elections. In the years that followed, there were intense debates and disagreements about whether the UK should remain in the EU. However, it was not until June 2016 that a second referendum was held. The results showed that a slim majority of voters wanted the UK to leave the EU.
Nine months later, the UK Government notified the European Council of its intention to withdraw from the Union. The Council approved of the withdrawal plan on 25 November 2018 which was subject to the approval of the UK Parliament.
Key issues giving rise to the second referendum include:
(a) Concern about EU legislation taking precedence over UK national laws which, according to critics, impinge on national sovereignty and independence. This is notwithstanding the provisions of the European Communities Act 1972 allowing for such arrangement. In the absence of a written constitution, the UK Parliament is considered the supreme authority;
(b) Concern about what some believe are cumbersome, inflexible and bureaucratic EU procedures that have to be followed;
(c) Influx of migrants and refugees into the EU, fleeing the armed conflicts in the Middle East and their possible entry into the UK, given that there is no restriction on the movement of people within the EU. With a population density of 267 persons per square kilometer, the UK is seventh most densely populated country in Europe;
(d) Terrorist activities within the EU which have the potential of spilling over to the UK; and
(e) Financial contribution to the EU budget which critics argue is excessive compared with the benefits derived. For 2018, the UK’s net contribution to the EU budget was £8.9 billion, which makes it the third highest contributor with 13 percent of the total net contributions of the 28 member states. The two highest contributors are Germany and France.
Following the passage of the Referendum Act 2015, the referendum took place on 23 June 2016. The results showed that 51.9 percent of voters favoured leaving the EU. Although it was not mandatory for the results to be acted upon, the UK government notified the European Council on 29 March 2017 of its intention to leave the EU. Article 50 of the TEU provides for the Council to negotiate with the UK a formal withdrawal agreement. All EU treaties will no longer apply on the date of withdrawal or two years after the notice of withdrawal. However, the latter date can be extended by unanimous approval of the Council. The UK can also rejoin the Union as provided for by Article 49.
On 26 June 2018, the UK Parliament passed the European Union (Withdrawal) Act 2018 repealing the European Communities Act 1972 and paving the way for the formal withdrawal from the EU.
Rules governing trade in the EU
The EU is the second largest economy in the world with a GDP of €15.3 trillion as of 2017, accounting for 15.6 percent of global trading activities. It is also the largest single trading block as well as the largest exporter of manufactured goods and services to some 80 countries. Tariffs on imported goods are low, and more than 70 percent of imports enter the EU tariff-free or at reduced tariffs.
The EU has a Single Market and a Customs Union which provide for goods, services and capital to move freely within the Union once they have cleared customs and other formalities in one Member State. All Member States are required to apply the same tariffs, and the borders are to be treated as “combined customs territory”. The objective is to prevent an entity in a Member State from importing goods ‘at cheaper prices due to lower tariffs and then re-exporting the items to another member with higher tariffs’.
Tariffs are determined by the European Commission and the Council of Ministers. Trade agreements with non-EU Member States are negotiated by the Commission and approved by the Council of Ministers and the European Parliament. An individual Member State is not allowed to negotiate any such agreements. All goods manufactured in the EU are tariff-free if sold within the EU.
Brexit
On 6 July 2018, the British Prime Minister Theresa May met with her Cabinet to agree on a withdrawal plan. The next day, she released a 12-point action plan for exit from the Union. Shortly thereafter, the Prime Minister presented to the UK Parliament a White Paper providing for specific details on the plan. In essence, Brexit requires the UK to do the following:
(a) Apply its own tariffs and other related procedures for goods intended for the UK. However, it will charge EU tariffs for goods destined for the EU, thereby avoiding the need for a physical border between Northern Ireland and the Irish Republic;
(b) Maintain a ‘common rulebook’ for goods and services which will involve the application of EU rules but for which the UK Parliament will provide the necessary oversight;
(c) Negotiate a special free trade agreement with the EU;
(d) Negotiate separate trade deals with non-EU member countries;
(e) End the free movement of people thereby having control over people entering the UK. However, UK and EU citizens will be allowed to travel to each other’s territories and to apply for work and study;
(f) Establish a joint committee to interpret the various EU agreements, and decisions by UK courts will be taken with due regard to EU case law on the common rulebook; and
(g) Continue to refer cases to the European Court of Justice (ECJ) as the interpreter of EU rules but with no role in the deciding on any dispute.
On 25 November 2018, the EU Council approved of the withdrawal plan. Voting was set for 11 December 2018 but was delayed at the request of the Prime Minister mainly due to disagreements over the proposed common rulebook and the “backstop” arrangements aimed at ensuring that there is no hard border between the Irish Republic and Northern Ireland. She indicated that the EU would be asked to provide greater assurances to avoid what critics argue the UK being subject to EU rules indefinitely. The new date for voting was scheduled for mid-January 2019. Subsequent events saw the UK Parliament rejecting the withdrawal plan on three separate occasions, precipitating Theresa May’s resignation.
In November 2018, agreement was also reached on a “backstop” for the Irish border, a way to provide a guarantee that there be no hard border on the island of Ireland no matter what future trade arrangements are agreed between the EU and UK. This cleared the way for a draft withdrawal agreement and final talks on a political declaration outlining the principles for future negotiations. This draft needed to be ratified politically by both sides. The process was subsequently thrown into crisis after Theresa May failed to secure support from the House of Commons for her deal. Boris Johnson succeeded Theresa May as Conservative leader and British Prime Minister in July 2019.
If Brexit fails despite re-assurances given by the EU, there are three possible options for the UK:
Re-negotiate Brexit in its entirety with the EU;
Leave the EU without a Brexit deal and revert to the application of WTO trading rules; and
Hold another referendum.
In relation (a), it may be desirable for the UK to recall its notice of withdrawal before the extended deadline of 31 October 2019 to allow for enough time for the re-negotiation to take place after due consultation with the main political parties, the business community, civil society, academia, trade unions and other stakeholders. This is necessary so as to arrive at a consensus on the way forward. The ECJ had ruled that the UK can withdraw its notice without penalties. Alternatively, the UK may request an extension of the deadline for formal withdrawal, which would require unanimous approval by the EU Council.
The EU’s decision not to agree to a renegotiation of Brexit might have been influenced by the need to protect the integrity of the Union as well as its achievements over the last 61 years. By agreeing only to the minimum of conditions as set out in the withdrawal agreement, the EU hopes that other members will be dissuaded from leaving the Union. The UK will be first member to leave the EU since its establishment. Given the above, there are only two options left for the UK: leave the EU without Brexit; or hold a third referendum. As indicated above, legislation has since passed to prevent the former from happening without parliamentary approval. There has also been the suggestion that the UK government could resign, and new elections held, thereby paving the way for any new government to take a fresh look at UK’s relations with the EU.
More than three years have elapsed since the June 2016 referendum, and it is possible that some voters may very well have a change of heart. In fact, a recent poll indicated that more people prefer the UK remaining in the EU. If the results of another referendum confirms this, then the European Union (Withdrawal) Act will have to be repealed. However, such a referendum appears unlikely since the Government is not in favour of doing so. Therefore, the only option is for the UK Parliament to approve of Brexit or reject it. If the latter happens, the exit from the EU will be without a plan. However, parliamentary approval is needed before the Government can implement certain taxation measures.
To be continued –
