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Brexit: ‘Til Regulations Do Us Part?

By Rachel Rizzo

August 8, 2017

Theresa May

On June 23, 2016, British citizens voted by a four percent margin to leave the European Union, sending shockwaves across Europe and unsettling world markets. The Brexit vote also set into motion months of head scratching by European and British leaders. The goal: to figure out how, exactly, to make Brexit happen. After all, Article 50 of the Lisbon Treaty—the EU’s exit clause—had never been invoked.

The “divorce” negotiations are now underway. Yet after months of maneuvering and preparation, virtually nothing has been clarified, and there are some major sticking points. What rights will EU citizens have to reside in the United Kingdom? Will border controls be re-erected between Northern Ireland (part of the UK) and the Republic of Ireland (part of the EU)? Perhaps most importantly for Britain’s economic future, will it retain privileged access to the European single market? If so, on what terms?

Complicating things further is that all of this must be resolved within Article 50’s two-year timeline. If a deal is not struck by March 2019, Britain will fall off what some have termed the “cliff’s edge,” losing in one stroke tariff-free access to its most significant export market.

Internal UK politics leave the Conservative government little room for maneuver. Prime Minister Theresa May has announced her willingness to accept a “Hard Brexit,” meaning that on March 2019, the UK would leave the EU’s single market and customs union, reacquire full control over its borders, and no longer be bound by EU law.

However, there are a few other alternatives. The UK could retain full access to the European single market if it accepted the EU’s principle of “free movement of people,” meaning that European citizens would remain free to settle in Britain. That option, however, would be anathema to many Conservative voters, who supported Brexit largely, if not primarily, to regain control over Britain’s borders. And after losing their parliamentary majority by holding a snap election in June, May’s Conservatives preside over a fragile majority coalition.

Another option is a “transition period” to avoid what former Conservative Party leader William Hague called “the greatest economic, diplomatic and constitutional muddle in the modern history of the UK.” During the transition period, the UK would adopt an “off-the-shelf” arrangement mirroring the EU’s relations with non-members Norway and Switzerland, under which key features, including access to the single market, would remain “very similar to how they were the day before we exited the European Union,” Chancellor Philip Hammond said in July. This would give the parties more time to negotiate a final agreement and for Britain to build new customs institutions.

The catch is that under Hammond’s approach, Britain would be obliged to permit some degree of free movement of people, which many hardcore Brexiteers strongly oppose. For that reason, the prime minister’s office rebuffed Hammond’s proposal: “We are not looking for an off-the-shelf model. Precisely what the implementation model will look like is up for negotiation.” 10 Downing Street has since reiterated that free movement of people will end the day the UK leaves the EU.

Another challenge is that Britain does not control the timing or sequencing of the Brexit process. UK Secretary of State for International Trade Liam Fox has optimistically claimed that a new trade deal between the UK and the EU could come quickly, and that it should be “one of the easiest in human history” to negotiate. Fox, who is staunchly pro-Brexit, argues that the two sides already have similar regulatory rules and no tariffs, and "the only reason that we wouldn't come to a free and open agreement is because politics gets in the way of economics."

Politics, however, is precisely what these negotiations are about. Access to the single market is the EU’s greatest leverage point in the negotiations. The EU has little incentive to give that card away cheaply—doing so might suggest to other nations that they, too, can leave the EU and close their borders to European migration while retaining membership’s most valuable benefit. Conversely, a “cliff’s edge” Brexit that triggers substantial disruption for British exporters will serve as a cautionary example for other EU member states that might be tempted to follow the British out. (Discreet EU negotiators are too savvy to say this publicly, of course.)

Finally, while negotiating tariff barriers are relatively straightforward, creating a bespoke trade agreement for Britain and the EU would require addressing other issues that are more complex. According to Adam Klein, the Robert M. Gates Senior Fellow at the Center for a New American Security, “the most complex task in forging the post-Brexit order may be regulatory issues.” Leaving the EU will leave Britain without regulatory regimes to govern such economic areas as energy, transportation, telecommunications, and nuclear energy.

“In the United States, we’ve spent decades developing bodies of law to regulate these complex industries. It will be a challenge—even for Britain, with its deep legal talent and venerable legal culture—to erect new regulatory regimes for these areas in such a short time,” Klein said.

For that reason, some British officials have proposed remaining under the jurisdiction of some EU regulatory agencies for some period after 2019—another concession that would be anathema to many Brexiteers.

With the recent elections having dramatically weakened Prime Minister May’s coalition, the politically viable path forward on Brexit appears narrow. One thing is for certain: a fractured UK means a weaker British negotiating position, and there remain significant divisions within the governing Conservative Party, not to speak of between Brexiteers and Remainers. All of this suggests that as negotiations move forward, the UK will be left to play a weak hand in a complicated game.


Rachel Rizzo is the research associate for the transatlantic security program at the Center for a New American Security. You can follow her on Twitter @rachelrizzo.