Brexit; a benefit to all Parties involved?

noviembre 08, 2016

ByLander Michel 

LLM in International Law / Leiden Universiteit


Much has been said regarding the Brexit which will not be in effect until after two years have passed from the formal notification from the UK government to the EU. Notwithstanding most of what has been stated has been a less than favourable outlook for both the EU and the UK. While there will be significant challenges to both the EU and UK it is this author’s belief that, in the long term, the Brexit will benefit both and that the UK will return to the fold, as it were, of the European Union in the long term.

For the EU the Brexit, at first, would appear as its most significant challenge since its inception however, quite the opposite may be true. It must not be forgotten that the relationship between the EU and Switzerland in February of 2017 will also be the object of a significant change following the Swiss referendum to impose quotas on all migrants which the EU has deemed incompatible with the trade agreements it has with Switzerland. In the world of today in the area of economics, a single State which is part of no trade bloc will have less influence than countries which are united by trade or commercial blocs, even when less industrialized. This fact has not been lost upon the leading financials minds of the City of London and Canary Wharf who were leading proponents to stay in the EU and understand that the position of London, currently the most significant foreign exchange center in the world, is at risk as the EU will likely bar the UK from acting as a clearing house for the Euro. This industry is but one of those, along with the insurance industry, automobile, aerospace, airlines and steel industry that will likely feel the consequences from the Brexit as the UK is no longer part of, or the gateway to, the EU. The EU, for its part, and as an organization will benefit from the departure of the UK which has, historically, opposed measures from the EU allowing it to fast track certain decisions without the British “brake” for, lest we forget, the UK has forever supported a less consolidated and politically unified EU whereas other nations have been proponents of the opposite.

Thus, a loss of UK influence in the EU will greatly benefit the future EU project. The challenge lies, however, in defining what exactly is the future of the EU project and, especially, who will lead the project; a handicap of the EU project has been that, for several years, there has been no effective EU leadership to promote and defend a project, whatsoever that project might be, but, rather, there have been several differing views of the future of the EU whereby the absence of the UK represents an opportunity to shape a future EU that should not be disregarded. This author is less than optimistic that this opportunity will be seized and that rather, some fractioning within the EU is likely to occur of disgruntled nations. The EU will also benefit from the Brexit as companies relocate staff from the UK to the EU with the ensuing job creation of highly skilled employment. In the area of research and development EU grants and coordination of research projects will no longer be in the hands of UK research centers but will be centered on the continent, this will likely increase the global ranking, patent registration and prestige of EU research centers whilst also bringing  top talent with the benefits this implies for the creation of wealth in the knowledge economy where, at present, significant EU projects are  coordinated from the UK which benefits from significant continental talent and EU research grants. The EU has also won a victory, of sorts, in the sense that it has not had to comply with the reforms proposed by Cameron which now need not be enacted.

The UK will somewhat benefit from the absence of ties to the EU as it will be able to negotiate agreements without being conditioned by the decisions, or waiting for the agreement, of over 20 nations from the EU. The Brexit has also been a wakeup call for the millenials who, owing to their lack of effective voting participation in the Brexit referendum would have made a significant difference in the end result. The UK will no longer be constrained by the Common Agricultural policy to acquire products from whosoever it desires and will no longer have to deal with quotas for fishing or limiting its production of agricultural goods. The UK will also be able to implement national or protectionist policies for key industries in order to make them as competitive, if not more competitive, than industries in other countries that receive subsidies, and are the subject of protectionist policies for export purposes. It is possible that the UK seeks to reform and liberalize its tax and corporate legislation to become the onshore financial center of the world replacing countries with ultra-low tax rates as well as tax breaks to promote investment leveraging on the strong financial services industry that exists at present which would likely offset losses from the Brexit but would have repercussions when dealing with the EU which could consider the UK a tax have with the ensuing fallout. Nonetheless this is, by no means, an impossibility. In addition the UK will be able to select who enters and lives in the UK and under what conditions which may benefit it as well as appeasing those voters who favoured the Brexit.

The main disadvantage for the UK is that by opting out of the EU it will, for a few years, subject its’ good to tariffs, 50% of UK exports go the EU, as well as find itself in the back of the line of any EU-US trade agreement as well as needing to transform the financial services regulation in order to continue to thrive. Negotiations with different trading blocs or individual countries will be done from a position which is less advantageous than through the EU despite the inconveniences this might imply. The EU, for its part, will be subject to member States questioning its utility and future  and it is not inconceivable that other nations follow the course of the UK, or request ad hocpolicies, however so long as Germany, France and Italy continue in the EU and euro the outlook for the EU and euro is positive although not without significant challenges mainly the EU will need to decide if it continues to be flexible in its approach with regards to accommodating member State interests or, on the contrary decides for a less flexible approach both courses of action will have long term repercussions.

Given the close ties between the EU and the UK it is more than likely that a free trade agreement, at first limited in scope, of some kind will be reached which will also allow movement of qualified EU citizens possibly via a quota system to live and work in the UK and vice versa for the reality is that whatever the UK rhetoric might be talent is a precious commodity in high demand and short supply whereby the UK will enact laws that favour, as nearly all nations have done, talent to reside and develop their projects there. As millenials mature and older generations in the UK which favoured the Brexit pass away there is likely to be a new referendum within a decade to rejoin the EU as full members although there will be concessions that the EU will be able to request up to and including joining the euro which will be a tough sell but which UK millenials will not have an issue about.

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