British elections: what are the implications for Brexit?
Usefulness of the article: With the UK elections approaching, there is still considerable uncertainty about how Brexit will unfold. This article outlines the possible scenarios to date and their implications for the future of trade relations between the United Kingdom and the European Union.
Brexit has kept Europe on tenterhooks for the past three years and will have major economic and political consequences in the years to come. The uncertainty that has prevailed since the referendum remains very high. It is still unclear when Brexit will take place, or even whether it will actually happen. The outcome of the December 12, 2019 elections will determine the direction it takes.
The » flex extension » granted by the European Union (EU) stipulates that the United Kingdom can leave no later than January 31, 2020. However, we cannot rule out the possibility of a further extension. The agreement approved by Brussels and presented to the British Parliament last October could be put back on the table by the new government. However, this scenario is highly unlikely if Labour wins the election. Even if this agreement is ratified, the process is far from over: the United Kingdom will then have to negotiate an ambitious free trade agreement with the European Union within a very short time frame.
After presenting the possible scenarios following the elections, this note briefly reviews the proposals of the two main British parties regarding the nature of Brexit.
Possible scenarios
The diagram below attempts to summarize all the possible scenarios. Obviously, some are much more likely than others.
Proposal from the Conservatives (« Tories »)
If they win a majority in the elections, the Conservatives plan to continue along the path outlined by Boris Johnson last October. According to the withdrawal agreement, which was approved by Brussels on October 17, 2019, the United Kingdom and the European Union should negotiate a free trade agreement similar to the one signed between the EU and Canada. It is important to note that a trade agreement of this type takes a very long time to negotiate. For example, the negotiation and ratification process between the EU and Canada took nearly eight years. It is therefore highly unlikely that the agreement can be negotiated and ratified before the end of the transition period, currently set for December 2020. The United Kingdom will certainly have to extend the transition period.
Once the agreement is ratified, the UK will leave the single market and the customs union, but will be able to trade with the EU without customs duties or quotas on most goods. The UK will also be able to conclude trade agreements with third countries independently of the EU. In order to avoid the reintroduction of a border between Northern Ireland and the Republic of Ireland—still a very sensitive issue—a specific status is planned for Northern Ireland. This territory will remain in the single market and customs union, and controls will be carried out in the Irish Sea.
Leaving the customs union not only means the reintroduction of border controls between the European Union and the United Kingdom, but also the need for British companies to prove compliance with rules of origin in order to benefit from customs duty exemptions. Leaving the common market requires the introduction of new controls to verify that exported goods and services comply with EU regulations and standards. If regulations and standards differ significantly, companies will be forced to differentiate their products intended for the British and European markets.
Labour Party proposal
The Labour Party’s position on the issue is somewhat more « vague » than that of the Conservatives. What is certain is that they favor a « softer » Brexit in which the UK would maintain a closer trading relationship with the European Union. If they win a majority in Parliament in December, they plan to resume negotiations with Brussels to establish a new withdrawal agreement. Any new agreement would likely be subject to approval by British citizens in a referendum.
The Labour Party wants to remain in the customs union. In this scenario, British companies could continue to trade their goods without customs duties within the union, apply the same tariffs on imports from third countries as other union countries, and benefit from the absence of rules of origin.
If they also decide to remain in the common market, goods and services will be able to move freely between the United Kingdom and European Union members. This is based not only on the absence of customs tariffs between its members, but also on the harmonization or mutual recognition of rules and standards.
[1]The Comprehensive Economic Trade Agreement (CETA) between the EU and Canada goes beyond the simple elimination of customs duties by proposing, in particular, an alignment of regulations and standards that is particularly ambitious compared to previous trade agreements.
[2]Negotiations began at the Prague Summit on May 6, 2009, the agreement was signed on October 30, 2016, and it entered into force on September 21, 2017.
