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The Effects of Brexit on International Trade Law

July 19, 2017
In this period of increased globalization, the international economy is as relevant as the domestic. So when British citizens voted to seriously disrupt their domestic economy by leaving the European Union, Americans watched with curiosity, wondering what international consequences this break was to spur.

Roughly one year ago, the citizens of Britain voted to leave the European Union, an unexpected result for domestic voters and international audiences alike. The political 180 took pollsters by surprise. Basing predictions on countless sources and diligent research, pollsters failed to see this unprecedented disruption to the deeply institutionalized Union as a probability [1]. Still, the results of the referendum were clear: Britain was tired of operating under the authority of the European Union. Seeking the freedom to enforce its own policy regarding immigration and refugees [2], the nation chose to forfeit all the benefits of the Union for the privileges of sovereignty. Despite the gains of leaving, the loss of easy, effortless Free Trade Agreements with the 27 other nations in the EU will prove problematic. Losing trade with this massive market of 50 million consumers [3] would devastate their economy, forcing Britain’s conservative leader, Theresa May, to get creative with the country’s international trade policy before time runs out.

Image: UK EU Referendum Polling. Source: Wikimedia Commons.

Image: UK EU Referendum Polling. Source: Wikimedia Commons.

On March 2019, Britain will officially lose its status as a member state of the EU. But before that happens, they must undergo countless negotiations to create new trade agreements. So, Prime Minister May’s schedule will be pretty busy in the next couple of years, full of negotiation soirees with the political leaders of the EU, in an attempt to conduct a graceful exeunt from the EU. As the country shops around for a new status regarding Free Trade Agreements, it has various options to try on for size [4]:

  1. The familiar: becoming a member of the European Economic Area. This would leave them in roughly the same position as before they left with slightly fewer rules.
  2. The consolation: joining the European Free Trade Association. This option is attractive due to its lack of “EU-style state aid rules”, but there are only four member states, which would hardly replace the EU market.
  3. The hard-to-pull-off: renegotiation of bilateral or multilateral agreements. Much like challenging fashion trends like Gauchos or the choker, negotiating a new status will be hard for the country to don effortlessly, but if successful, the results are fabulous. This is the goal: to establish FTAs that give both sides what they want: trade and sovereignty without losing face. The difficulty lies in the relative negotiation skills on either side, and whether both can afford to sacrifice partial pride for the sake of international trade. While Britain seeks a similar trade status as before without the restriction, the EU seeks to sanction the country for leaving the Union. Although the treaty allows for such an exit [5], allowing Britain to leave without punishment of some kind sets a precedent for other nations, which could undermine the legitimacy of the EU. After all, if Britain can reap all the benefits of the EU without suffering any of the restrictions, why would any other countries stay? As a result, the EU will use Brexit as an example of what happens to you when you try to get out of the game. Speaking with what may just be political cordiality, German foreign minister Sigmar Gabriel assured, “we will negotiate fairly, and fair means that we want to keep the British as close as possible to the EU- but never at the price that we divide the remaining 27 EU states” [6]. Although his words seem positive enough, only time will tell whether the EU will fulfill this promise. At the same time, he is clear in stating the EU’s intention to withhold various privileges from Britain. In a slightly more aggressive method of punishment, the EU is also attempting to get some 40 billion-60 billion euros from Britain in these negotiations [7]. Just a slight castigation for their insubordination.
  4. Finally, the last resort: reliance on the WTO. At the very least, they will always have these minimum guidelines for the promotion and practice of international trade. The international body ensures access to European and global markets [8]. Nevertheless, the guidelines are nothing close to trade access they are used as members of the European Union [9]. This would require renegotiating various FTAs with the member nations of the EU; it would not only be a lot of work but also likely that Britain would end up with unfavorable terms. This could be their reality if they fail to finish negotiations before the deadline.

Certainly, there are countless other nuanced details and statuses for the politicians to consider. After all, leaving the EU begs Britain to consider many aspects of international trade policy including taxation, foreign and security, external trade, fraud, budget, enterprise, economic and monetary affairs, competition and many others. Leaving the EU is no small task.

Not only will Britain have to renegotiate with the EU, but also other sovereign nations, like the United States. President Trump has commented on Brexit assuring, “We’re going to work very hard to get it done quickly and done properly. Good for both sides.” Noting the value of sovereignty, the President has promoted Brexit as a smart and beneficial move for Britain [10]. His positivity suggests his willingness to enter into a similar Free Trade Agreement to benefit both Britain and the United States. However, his words parallel those of German foreign minister Sigmar Gabriel. Only time will tell.

Some fear Brexit will be the downfall of Britain’s economy [11]; others see it as the initiation of the fall of the EU [12]. But at least we learned one thing from Brexit: democracy is alive and well in Britain. The country followed the will of the people in this risky plunge into the political unknown. Whatever the result, at least the people chose their own fate.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

 

References

  [1] Hanretty, Chris. “Here’s Why Pollsters and Pundits Got Brexit Wrong.” The Washington Post. WP Company, 24 June 2016. Web. 25 June 2017.

  [2] Hjelmgaard, Kim, and Gregg Zoroya. “Exploding UK Immigration Helped Drive ‘Brexit’ Vote.” USA Today. Gannett Satellite Information Network, 28 June 2016. Web. 25 June 2017.

  [3] “External Trade.” EUR-Lex Access to European Union Law. European Union, n.d. Web. 25 June 2017.

  [4] “Brexit: Global Tax Implications.” Journal of International Taxation (2016): 1-13. Westlaw. Web. 25 June 2017.

  [5] External Trade.” EUR-Lex Access to European Union Law. European Union, n.d. Web. 25 June 2017.

  [6] Erlanger, Steven. “‘Brexit’ Talks Open in Brussels, With a Mountain to Climb.” The New York Times. The New York Times, 19 June 2017. Web. 25 June 2017.

  [7] Erlanger, Steven. “‘Brexit’ Talks Open in Brussels, With a Mountain to Climb.” The New York Times. The New York Times, 19 June 2017. Web. 25 June 2017.

  [8] “WORLD TRADE ORGANIZATION.” WTO | What Is the WTO? World Trade Organization, n.d. Web. 25 June 2017.

  [9] “Free Trade Agreements.” EFTA. European Free Trade Association, n.d. Web. 25 June 2017.

  [10] “Donald Trump Says UK ‘doing Great’ after Brexit Vote.” BBC News. BBC, 16 Jan. 2017. Web. 25 June 2017.

  [11] Tilford, Simon. “Why ‘Brexit’ Will Make Britain’s Mediocre Economy Worse.” The New York Times. The New York Times, 29 May 2017. Web. 25 June 2017. [12] “What Would Grexit Look Like?” The New York Times. The New York Times, 20 Feb. 2015. Web. 25 June 2017.

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