Brexit: Reset

The Outcome of Brexit Is Now Uncertain After Theresa May’s Electoral Defeat

In-depth negotiations on Britain’s withdrawal from the EU are set to begin on June 19. Since British Prime Minister Theresa May’s unexpected electoral defeat in the parliamentary elections on June 8, the outcome of these negotiations is as uncertain as ever:

 

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Before the election, Theresa May had threatened to proceed with a “hard” Brexit, that is, a complete phase-out of the European internal market and customs union. Her goal was then to conclude a free trade agreement with the EU based on the country’s own conditions, not unlike the CETA free trade agreement between the EU and Canada. This would lead to extensive new hurdles for imports and exports, such as higher customs duties and complicated import regulations, changes to Intrastat reporting obligations as well as different regulations on value added tax and general compliance requirements. Legal aspects such as consumer and data protection requirements, competition law and applicable legal venues would also be affected by the extensive changes.

Such profound reforms would be disastrous, particularly for small and medium-sized enterprises, because often the complexity and costs associated with the reforms would exceed these companies’ resources.

 

Leading up to election, it was already clear, however, that the EU would continue to be very critical of a free trade agreement unless Britain made significant concessions with regard to maintaining the right to free movement for EU citizens. On Wednesday following the election, the British Government seemingly indicated a willingness to concede on this point. This could be the first sign that the weakened new government in Britain will yield to pressure from all political camps as well as the British economy.

 

This does not seem to come unexpectedly, as Theresa May now feels compelled to cooperate with two political groups whose ideas of Brexit are a far cry from her own: Within the party, a Scottish group of conservatives behind Ruth Davidson has suddenly gained a powerful position. The Scots, however, seek a “soft” Brexit, which is characterized by more freedom instead of increased economic barriers. For example, they want Britain to remain within the EU internal market, with all the legal consequences this may bring.

 

May is seeking an alliance with the Democratic Unionist Party (DUP) in Northern Ireland, led by Arlene Forster, which would ensure the Conservative Party has the absolute majority in important government decisions. However, given their geographical location, the Northern Irish would also like to remain in the EU internal market and preserve freedom of movement for citizens. Unlike their political adversaries, Sinn Féin, they reject creating a special status only for Northern Ireland within the UK, but rather strive for a uniform solution for the entire kingdom.

 

Given this situation wrought with conflict, we can expect to see the Brexit negotiations change course several times in the coming months. One thing is certain for now: the longer it remains impossible to predict the exact consequences for companies, the more this will harm trade relations between the EU and the United Kingdom, and as a result there will be fewer innovations and investments spanning the English Channel.