Brexit will reshape Europe, but it'll have little impact on India
On 17 January, British Prime Minister Theresa May, in a speech at Lancaster Hall, gave a comprehensive account of her government's approach to Brexit, and relations with Europe. The timing may not be unrelated to the controversy surrounding the abrupt resignation of the British ambassador to the European Union. However, it is more directly linked to the need to make a clear statement on how the UK proposes to go about the exit process, on which a range of political views have been expressed, and the nature of its future relations with the EU. This will end speculation about possible half-way solutions.
May's statement made it clear that the UK will leave the EU. It will not be part of the single market or party to the latter's Common External Tariff. Britain will have control on its own laws and will not accept directives from supra-national institutions in Brussels or the European Court of Justice.
Immigration controls will be put in place and there will be no free movement of people from Europe to the UK. Furthermore, Britain shall seek to negotiate a new free trade agreement with the EU on "beneficial" terms. Meanwhile, it would also open negotiations for bilateral trade agreements with countries such as the US, India, China, Australia and New Zealand.
With the agenda now known, the stage is set for the negotiation process. It is expected that Article 50 will be invoked and formal negotiations launched in March 2017. These are planned to conclude over two years. There are doubts about this time frame as the range of subjects to be discussed is vast and the issues complex. It may be recalled that Greenland is the only country to have left the EU and in that case the negotiation process stretched over three years, from 1982 to 1985. Greenland only had one major contentious issue with the EU - fisheries - and yet the negotiations were protracted.
Moreover, the EU is quite a different place in 2017 than it was in the 1980s and a two-year time frame appears unrealistic.
The importance of arriving at a new trade agreement will be central to British interests in this process. Export of goods and services from the UK to the EU contribute over 10% to the country's GDP, while the corresponding figure for the EU is only 3%. Admittedly, EU-27 is significantly larger, but there is an asymmetry and the UK would seek to conclude such an agreement quickly.
However, this is likely to be a contentious issue, with respect to the nature of the agreement, its coverage and pace of implementation. The EU rests on the foundation of free movement of goods and services, capital and labour. Britain has already moved away from the principle of free movement of labour, but they need to recognise that the EU may not offer full and free movement in the other areas. Statements have already emanated from different European countries that the negotiations cannot be a forum for "cherry picking". In addition, trade negotiations with the EU have typically been lengthy and difficult, partly because of the need for internal consultations with member states.
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Although the European Commission has the exclusive mandate for trade negotiations, it is inevitable that member states, particularly the large ones, will bring their weight to bear on subjects of economic interest to them. It should be recalled that the EU-Canada Free Trade Agreement negotiations took over eight years. In Britain's case, additional political considerations will be accounted for in yielding substantial concessions to a country which has chosen to walk out of the club.
Internal politics in Europe, too, will have a bearing on the nature of the relationship that emerges between the UK and EU-27.
Elections are due this year in France, the Netherlands and Germany. Their results will have considerable influence on the future complexion of Europe itself. This may manifest itself in changes in the way Europe functions internally, especially the over-centralisation of power in Brussels, an issue about which many EU countries have voiced concern. In turn, there may arise a situation where Europe's mode of dealing with the world also undergoes significant change. And now that the UK will not be in it, the EU will have to learn to deal with the latter as an external power, no longer a participant in the decision-making process. These developments will undoubtedly affect the status of the UK as a global player with wide-ranging influence. The political and economic outcomes of Brexit are fraught with multiple uncertainties, the impact of which is likely to be more serious for Britain than the EU.
Finally, a word on the possible implications of Brexit for India. Several Indian companies have investments in the UK, which is a base of their operations in Europe. They are likely to be affected, at least in the short-term, by these developments. It is fairly apparent that restrictions on the movement of labour from Europe are unlikely to benefit the movement of Indians to the UK, especially those working in the field of Information Technology.
The talk of a bilateral trade deal with India, though, seems a long shot. We should not forget that the major difficulties in concluding the Broad-based Trade and Investment Agreement (BTIA) with the EU arose out of pressures from the UK for openings in financial, legal and accountancy services and concessions for Scotch Whisky.
Meanwhile, they have blocked progress on facilitating access and movement for our IT sector. The upshot of Brexit will have ramifications primarily in Europe, with minor consequences for India and the rest of Asia.
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