Brexit Set to be Announced This Week, Clean Break or Regulatory Cooperation?

Did you honestly think it had gone away? In the week that the U.K. government is set to announce article 50, formally notify its European partners that it plans to leave the E.U. within two years, we’re reminded of the ongoing political process which is likely to add significant volatility in the year ahead.
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The U.K.’s (or at least Great Britain’s, Scotland is vowing to hold its own referendum on staying in the U.K.) decision to leave the E.U. will have far-reaching consequences but, realistically, does not look likely to signal a breakup of the E.U. itself. Recent elections in the Netherlands saw a swing back to liberal pro-E.U. political parties and a rejection of more xenophobic and anti-E.U. sentiments as espoused by Geert Wilders and his Party for Freedom. Although she is likely to do well in the first round, the Dutch result does not bode well for Marine Le Pen in the upcoming French elections with pro-E.U. parties doing well in the polls. The E.U., politically, is currently showing a united front particularly in its pre-negotiating stance with the U.K.

Clean Break? Or Regulatory Cooperation?

Britain, on the other hand, is waging what can the politely be called an internal debate between those who are lobbying for a hard Brexit or clean break from all E.U. laws and institutions, and those on the other side taking a more pragmatic view that it could be in Britain’s interest (if it genuinely wants some form of open access to E.U. markets) to maintain compliance with many E.U. regulations and institutions.
A series of articles in the FT this week defines not just what article 50 means but the consequences in terms of accepting E.U. structures and regulations if Britain truly wants some form of free trade or open access agreement by the end of this decade. The benefits of maintaining open access cannot be overstated, particularly in the face of a relentless stream of hard Brexit briefings which suggest, yet offer up absolutely no evidence, that a complete break from the E.U. and acceptance of World Trade Organization rules would have minimal consequences and huge benefits for the U.K. economy. The fact is the U.K. is totally unprepared for the impact of suffering import duties and possibly quotas on its trade with the world and does not have anywhere near enough negotiators or experience to create alternative free trade agreements that hard Brexit supporters claim are possible in months, but all the evidence from free-trade negotiations elsewhere suggest could take five to 10 years to complete.
The FT reports that research by the House of Commons library suggests that ministers could import up to 19,000 E.U. rules and regulations into the British statute book. The CBI employers’ organization has estimated that Britain may need to set up domestic versions of as many as 34 E.U. regulatory agencies, covering areas such as agriculture, energy, transport and communications.

Say Goodbye to EU Regulatory Agencies

A white paper on Brexit published by David Davis, the minister responsible for Brexit, last month identified transportation, energy and communications as industries that are substantially governed by E.U. regulations which will need to be translated into domestic law. Particularly heavily regulated areas are said to include gas and electricity trading, road hauling, aviation carrier licensing and broadcasting — the U.K. is the E.U.’s biggest broadcasting hub and a major part of its aviation infrastructure. Such moves are not going down well with those in the Conservative party committed to a total break from E.U. influence, but a leaked memo by Deloitte last year claimed that 30,000 new civil servants would need to be hired to cope with the workload required by Brexit and Theresa May’s government is already positioning itself with the argument it simply does not have the manpower to renegotiate everything from scratch, not just with the E.U. but with equivalent bodies and parties around the world.
The good news for firms outside the E.U. currently invested in or dealing with the U.K. is that in many areas existing E.U. regulations and regimes may prevail and the UK is coming around to seeing that adoption is in its own best interests. Indeed, if the U.K. genuinely wants some form of negotiated settlement with the E.U. that includes a free-trade deal or relatively open access without undue border controls, then adoption of the same or equivalent regulatory standards and procedures is inevitable.
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The downside to some politician’s egos in being seen to adopt E.U. regulations is a minor price to pay for the greater good to the U.K. economy of maintaining access to its largest market. Let’s hope the current more pragmatic approach to this argument continues once the negotiations begin in earnest.x

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