The UK government looks set to trigger article 50, the formal notification of its intention to leave the European Union (EU). Once triggered, the leaders of the 27 countries within the EU, must unanimously agree how to extricate the UK from the myriad of shared EU regulations by way of transitional and new arrangements.
Two years after article 50 is triggered, the United Kingdom (UK), according to the Lisbon Treaty, will no longer be a part of the EU. What are the implications of Brexit to UK trade, sovereignty and immigration? And how are they linked?
Much has been made of the approach the UK government will take during the two years of negotiations once article 50 is enacted. Will the government take a ‘hard’ approach, a sort of clean break? Or will a ‘soft’ approach to leaving the EU be implemented, so that the UK gives up its power and voice within the EU while managing to claw onto some of the benefits of free trade.
Regardless, of the approach to negotiations, we know with certainty, as a result of the Supreme Court’s judgement of 24 January, that the UK parliament must have a say in the UK’s approach to negotiations. And given the members of parliament’s fear of defying the results of the advisory referendum to leave the EU for reasons of reducing EU immigration and magnifying UK sovereignty, article 50 looks set to be triggered within Prime Minister Theresa May’s proposed timescale of March 2017. The timescales are supported by the government’s ‘Brexit Bill’ which comes before parliament in the week beginning 30 January.
The impact to Brexit on Trade and Sovereignty
The UK’s overall economic growth is mainly dependent upon import and exports. According to the Office of National Statistics (ONS):
‘UK exports have grown at an average rate of 8.7% in nominal terms over the last four decades (1974 -2014), however the level of UK exports as a proportion of world exports has been gradually declining’
The ONS added:
‘World Bank data shows that the UK’s share fell from 7.3% in 1970 to 3.6% in 2014, indicative of slower UK export growth relative to a number of other global economies such as China, Germany and the USA. This decline marks a halving in the UK’s share of world trade since the 1970s. In 1970, the UK held the 3rd highest export share among the G7 economies and China but has since alternated between 3rd, 4th and 5th positions’.
In relation to Brexit, in 2015 (figures for 2016 not yet being available), exports of goods and services to the EU accounted for 44% of the UK’s total exports of goods and service). See ONS’ bulletin
Therefore, leaving the EU, will significantly minimise the UK’s ability to export goods and services to the EU without restrictions. As a third country, the UK will experience an increase in its exporting costs.
To compensate for the impact of trade with the EU post-Brexit, the UK must look to other countries to close the gap.
In her speech of 17 January, Theresa May set out for plan for Brexit negotiations. May said, that she had been given a mandate by the British people to bring about change and outlined her vision for the UK:
‘I want this United Kingdom to emerge from this period of change stronger, fairer, more united and more outward-looking than ever before. I want us to be a secure, prosperous, tolerant country – a magnet for international talent and a home to the pioneers and innovators who will shape the world ahead. I want us to be a truly Global Britain – the best friend and neighbour to our European partners, but a country that reaches beyond the borders of Europe too. A country that goes out into the world to build relationships with old friends and new allies alike’.
Yet, trade deals, by their very nature, require compromise, external overarching controls, subjugation and therefore a limit on the sovereignty of the State. To what extent is the UK prepared to compromise its sovereignty in order to secure trade deals with world leaders? And who will it trade with?
One possible post-Brexit trading partners will be the United States (US) and Prime Minister May has taken steps ingratiate herself with the incoming US president, President Donald Trump with a State visit to the US scheduled for Thursday 26 and a meeting with the President set for Friday 27 January.
ONS data from 2015, indicates that the US is the UK’s largest export partner, after Germany. In 2015, the USA accounted for 19.7% and 11.1% of UK’s total exports and total imports, respectively.
In fact, between 2005 to 2015, the UK continually ran a trade surplus with the US with an average value of £28.1 billion, a figure that peaked in 2013 at £40.3 billion but has since fallen to £39.4 billion in 2015. See ONS’ bulletin for further details
Moving forward, the US has a president that has given voice to a sort of protectionist US environment, one where US businesses will reap the rewards of lower taxation, if they ensure that their businesses remain in the US and employ US workers. Countries have been openly criticised by the President for exporting goods to US citizens, created by overseas workers, ignoring the fact that some overseas companies sell goods to US citizens made in the US by US workers – companies such as Samsung Electronics America Inc. and BMW US Manufacturing Company.
This raises a number of questions. How much will UK companies have the accede to Trump’s vision of protectionist US? Will UK companies be welcomed, as early indications show, to enter into trade deals as long as they are heavily weighted in the US’ favour? Will UK businesses be expected to open more branches and sites in the US in order to better access the US market, to the detriment of UK workers? And is it a price worth paying when figures show that even if the US doubles its exports from the UK, this will still fall short of the numbers needs to meet the EU trade shortfall.
Can the UK even expect an equitable trade deal with the US in two years’ time once it has officially left the EU? After all, the UK can only negotiate and agree terms with the US government while it remains part of the EU, with the deal being solidified post-Brexit. However unlikely it may be, it is possible for the US to renegotiate terms once the UK’s economic position becomes clearer post-Brexit which is possible if the UK (and US) find themselves in economically and politically weakened positions in 2020.
For this reason, the UK will have to look for trade deals with not only the US but other countries further afield.
In line with her vision of Global Britain, Theresa May has expressed a desire to negotiate trade deals with India and Australia. Both India and Australia share this view, at a price. Favourable immigration controls for their citizens, something which Theresa May has refused to do.
Under current immigration laws, anyone entering the UK from outside of the European Economic Area, is subject to a very strict Points Based System, unlike EU nationals who have freedom of movement. (For the avoidance of any doubt, yes, we do indeed have a Points Based System in place).
During Foreign Secretary Boris Johnson’s address to the second Raisina Dialogue event in New Delhi, India in January, Johnson insisted that by leaving the EU, the UK would be free to enter into trade partnership with India, the world’s fastest growing economy. In response, Dr S Irudaya Rajan, an adviser to the Indian government on migration issues reaffirmed the importance of mobility stating that that free movement of its citizens and the free flow of goods and services and investments were inseparable.
Dr Rajan went on the say:
‘India is an important country for the UK and curbing the flow of good minds, whether they are students or skilled workers, cannot be good for the UK’.
This view was supported by Yashvardhan Kumar Sinha, the recently appointed Indian High Commissioner to the UK who commented that the issue of visas is not going to go away, and expressed concerns on the UK’s restrictions on Indian students and IT professionals under the Points Based System.
Such proclamations were echoed by Alexander Downer, the Australian High Commissioner to the UK and former Foreign Minister of Australia. Alexander Downer told BBC Radio 4 listeners during an interviewer, that:
‘We want to see greater access for Australian business people working in the UK and that’s often been a part of the free-trade negotiations-it hasn’t always been that way, but it’s often been a part of our free trade negotiations’.
‘For example, an Australian company that invests in the UK might want to bring some of its executives to the UK. That can be done now with what are called tier two visas, but could be made a little bit easier’.
Given the views openly expressed by Indian and Australian government representatives, can Theresa May maintain tight immigration controls in keeping with her reign as Home Secretary? Or will India and Australia bide their time until they secure beneficial terms on the lifting of visa restrictions? If visa restrictions are relaxed for some overseas nationals, this may be seen to compromise to the UK’s ability to determine its own immigration policy in the way that ‘Brexiters’ did not envisage. In fact, some Brexiters may feel betrayed if immigration increases rather than falls. EU nationals living in the UK may also feel betrayed if, having paid the price of Brexit, they too were to see an increase in immigration.
Brexit has proven to be a complex outcome based of the premise of greater self-determination and immigration controls for EU nationals. And though there is an element of crystal ball gazing, there is a strong reason to believe that, post-Brexit, the UK may have less sovereignty and greater immigration as a direct result of trade deals with countries outside of the EU. Immigration has many benefits for the UK, but without proper debate and understanding about the possible consequences of Brexit on trade, sovereignty and immigration, we may unwittingly see continued resentment towards those who travel to the UK from overseas.
Carla Thomas – Managing Director at Thomas Chase immigration.
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