British Prime Minister Theresa May suffered a humiliating defeat earlier this month when Parliament voted by an overwhelming margin to reject the Brexit deal she had negotiated with the European Union. Yet there doesn’t appear to be a Plan B.
Many are now betting that May will request a delay for Britain to leave the EU beyond the deadline of March 29, which May triggered in March 2017 by invoking Article 50 of the Lisbon Treaty and beginning the exit process. But the odds of a no-deal breakup also went up this month, despite fears that that outcome could lead to immediate delays in shipments and shortages of some foods and medicines. In the longer run, the current impasse reflects the fact that there are no easy answers. Assuming Brexit goes forward one way or the other, its costs could be felt for years.
British trade negotiators will play a major role in determining the size and distribution of those costs. A major reason that Brexit’s most adamant backers favor a “hard Brexit” is so the United Kingdom can negotiate its own trade deals, including with countries, such as the United States, with which the EU does not currently have free trade agreements. But those hard-liners may not have spent enough time with the trade statistics, to put it mildly, and may not yet realize just how daunting the trade policy agenda will be post-Brexit.
According to data compiled by the United Nations, almost half of British merchandise exports went to other EU partners in 2017, led by Germany, France, the Netherlands and Ireland, in that order. The share is similar when services are included. The United States was the second-largest market for British exports. But it is well behind EU member states as a group, accounting for just 13 percent of total British exports.
So negotiating a successor arrangement with its former EU partners is obviously London’s central priority. British negotiators continue to insist they do not want to remain in a customs union with the EU, in part because it would constrain their ability to negotiate trade agreements with the U.S. or others outside the bloc. But negotiating a new trade arrangement with the EU will pose challenges, not the least of which is how to avoid the revival of a hard border between Northern Ireland and the Republic of Ireland. Even if the parties agree to keep all trade in goods duty-free, and maintain current levels of access for services, they will have to figure out how to ensure that the regulations governing these goods and services remain “equivalent,” or that products meet one another’s standards in areas where they may diverge in the future.
Hard-liners in the U.K. may not yet realize just how daunting the trade policy agenda will be post-Brexit.But as difficult as that will be, it is only the beginning if policymakers want to maintain current levels of market access around the world for British exporters. As part of the EU, the U.K. is party to 41 free trade agreements, including—in order of importance—with Switzerland, Turkey, South Korea, Japan, Canada and Norway. In total, another 16 percent of British exports of goods went to countries under these arrangements, a bit more than the share going to the American market in 2017. EU negotiators are currently pursuing a dozen additional trade agreements, including with countries—Singapore, India, Malaysia, Thailand and Indonesia—that are likely to be major sources of trade and economic growth in the future. The EU and U.S. are also supposed to formally launch new trade negotiations early this year, though the prospects for those talks are murky at best.
Even if British negotiators focus on just a handful of the most important partners, they have a formidable task on their hands. Its difficulty will be exacerbated since the country has not had to maintain significant trade negotiating capacity over the past five decades when EU officials were primarily responsible for the bloc’s trade policy. And even the best negotiators will be at a disadvantage, trying to negotiate deals for a market that is just one-tenth the size of the EU economy as a whole.
On top of all this, British policymakers will have to determine the tariffs they will apply to World Trade Organization members with which the U.K. does not have bilateral or regional trade agreements. Even if the U.K. replicates the external tariffs applied by the EU, there will be difficult issues around the allocation of import quota commitments, agricultural subsidies and other non-tariff issues. If some WTO members feel they are worse off after Brexit, they can demand negotiations to fix the problem or offset the impact.
Finally, there is the problem of the Irish border. Some believe that technology, along with goodwill, could address any problems that arise if the U.K. chooses not to stay in a customs union-type arrangement with the EU after Brexit. The goodwill seems to be in short supply, however. The May government has put a high priority on avoiding the reinstitution of border checks for traded goods. But EU negotiators have been equally adamant that at least some elements of a hard border would be necessary to ensure goods meet EU regulations if the U.K. does not remain in the customs union. This is still perhaps the trickiest issue for those demanding an independent British trade policy.
Steadfastly committed to “delivering Brexit,” May has arguably not handled the negotiations, either with the EU or with Parliament, particularly well. But the failure is not hers alone. The most zealous Brexiteers sold a vision to British voters that simply wasn’t rooted in economic reality. And as the complexities and the costs of separation have become clearer, those opposing May’s plan, including in the Labour opposition, have done little to find a path that will keep British citizens from being significantly worse off after Brexit.