By Ulvi Hagverdi
Your commercial awareness dose!
The people of the UK voted for the country ceasing its EU membership and leaving the Union on 23 June 2016, which started ever-lasting Brexit negotiations. Previous Prime Minister Theresa May failed to meet her deadline to come to a mutual agreement with the Union regarding the conditions of the leave and handed over the task to current PM, Boris Johnson. The UK officially withdrew from the European Union on 31 January 2020, while a Brexit withdrawal agreement setting out the conditions of the leave was ratified by both parties.
The agreement importantly approved Northern Ireland an entry point into the EU Customs Union, although the country will be subject to any UK trade deal. However, the UK and EU are still yet to agree on the future economic, financial and commercial relations. If such an agreement is not reached till 15 October (deadline set by Boris Johnson), a no-deal Brexit, which is also regarded as hard Brexit, will be the only way possible for the parties.
Although everything might seem feasible so far, the UK cabinet has hinted to break the international law by passing the Internal Market Bill. The bill will give discretion to the cabinet ministers to override certain parts of the withdrawal agreement with the EU and the power to make unilateral decisions, independent of the abovementioned agreement. This would be an inevitable breach of international law, given that both parties have ratified the agreement in January 2020. But what would be the ramifications of this breach and the hard Brexit for Boris Johnson and his cabinet?
First of everything, it needs to be highlighted that the EU is the largest and strongest trading block in the world. By depriving himself of the access to this block, the UK is stipulated to face drastic practical and commercial costs, such as border checks. And EU leaders are well aware of these factors. The UK’s other prospective trade partners might be severely discouraged from the latest developments, which would impede serious economic benefits for Britain.
Two former Prime Ministers, Sir John Major and Theresa May condemned the breach in question. However, David Cameroon, another former PM who actually led the Brexit referendum, described Mr. Johnson as ‘a rational, intelligent person’ person, despite emphasizing importance of a future trade deal with the EU.
From the legal aspect, the breach has quite a high potential to damage the reputation of the UK as an international legal centre. The Economists reporters regard the UK as ‘a proud founding father of international law’ and point out that some other totalitarian jurisdictions, such as Russia and China, may take advantage of this breach in the future.
Notwithstanding the UK GDP already decreasing 20% in the second quarter, the academic team of London School of Economics forecasts that the hard Brexit will impact the UK three times stronger than the Covid’s impact so far. In case of a no-deal, the UK government should prepare itself to significant hurdles. The disruptions will be felt as enormous sectors, such as transport, travel, and scientific co-operation in the event of hard Brexit.
As mentioned before, the transmission period of the UK leaving the Union will be ceasing on 31 December 2020. As there are no tailored, exact World Trade Organisation (WTO) terms to fall back on, particularly the UK may find itself in the middle of political and commercial chaos. Undoubtedly, the biggest impact for both parties will be felt in the service industry as London is doubtlessly Europe’s main financial centre.
Some argue that Boris Johnson is not simply happy with the terms of the withdrawal agreement and makes use of the breach to pressurize the Union for a better deal. Simon Jenkins argues that Britain should settle the agreement as an offshore island of a broader trade zone (European Union). According to the Financial Times, the cost of a no-deal Brexit is estimated at 7.7% growth loss over the next 15 years. Despite all these forecasts and opinions, the Conservative Party and Boris Johnson is still optimistic about more prosperous Britain following the leave.
According to 2017 data, there were 3.2 million EU citizens residing in the UK and 1.2 million British citizens in the EU. Both of these groups will require clear laws on rights of movement, education, social support and medical treatment, and the payment of pensions; and the extent to which these rights apply to family members. Taking highly-skilled EU workers in the UK and British employees in the EU, the giant multinational corporations will also be utterly interested in the progress of the mentioned issue.
To conclude, arguably the Brexit talks have already been unnecessarily extended, and businesses in the EU and UK are adversely affected. Some economists might even prefer a no-deal Brexit to have certainty in the market. The next few months are expected to provide a clearer picture of the future EU-UK relationship.
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