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The State of Brexit Ahead of the Trump-May Meeting
2017-03-09 15:02

                 

The State of Brexit Ahead of the Trump-May Meeting

                                                                                                      January23, 2017

Weare with Europe, but not of it. We are linked but not combined. We areinterested and associated but not absorbed. If Britain must choose betweenEurope and the open sea, she must always choose the open sea .

                                                                                      —WinstonChurchill, 1953

On January 17, Prime Minister Theresa May of Britain gave a much-awaited anddemanded speech laying out her government’s strategy to exit the EuropeanUnion. The “plan to leave the EU” was promised to members of Parliament inDecember to allow Her Majesty’s Government to proceed with the trigger ofArticle 50 by the end of March. The speech confirmed previous statements thatthe United Kingdom would not allow unfettered freedom of movement or continueto be under the jurisdiction of the European Court of Justice, which led to herunequivocal statement that the United Kingdom will leave the single market andthat Parliament will get a final vote on the exit deal.

Prime Minister May was less equivocal on the United Kingdom remaining in the customsunion, however, suggesting that the government may seek partial or “associate”membership. But this outcome would contradict the World Trade Organization’sGeneral Agreement on Tariffs and Trade. Other notable sound bites from herspeech included that “no deal for Britain is better than a bad deal,” whichaffirmed that the government is not only willing to embrace a total economicbreak from Europe, despite the potential economic hardships, but, if this wereto be the case, would equally embrace an economically competitive model to the EuropeanUnion such as dramatically reducing UK corporate tax rates. Although toughnesswas messaged throughout, negotiating flexibility was also on offer with adesire for a “flexible” transitional deal in which different aspects of theagreement would last for specific, different periods of time. May also madeclear that a strong European Union is in the United Kingdom’s interest and thatshe would work to avoid further unraveling after her country leaves the Union.The desire for an early deal to guarantee the rights of EU citizens in theUnited Kingdom and Britons in the European Union was suggested as well, but itis clear that it will remain an element of the overall negotiation and hence abargaining chip.

Thepound reacted very positively to the clarity of the speech, making its biggestone-day gain against the dollar since 1998. Britain’s evolving economicposition—as well as the European Union’s—will be a participant in the UK-EUdivorce proceedings as well. At this moment, the economy is stronger than wasfeared pre-referendum, with growth reaching 0.6 percent in the third quarter of2016 and forecast at 2.1 percent for all of 2016. Unemployment is at 4.8percent, with real wages slowly recovering from the financial crisis, andinflation is hovering around 1.6 percent. Should the United Kingdom be ableeconomically to weather the early stages of the divorce, London will be moreemboldened to pursue a tougher negotiating line with the Brussels. Shouldunemployment and inflation increase, however, London will need to become moreflexible in its approach, which in turn will harden the EU negotiatingpositions. Beyond economic conditions, should Europe continue to be impacted bymigration and migration-related terrorist attacks, British officials will receivea political boost for their hard-line approach on freedom of movement.

Anxiouslyawaited in the United Kingdom, the address was also avidly followed on thecontinent. Theresa May’s speech was received with cautious optimism by someEuropean leaders who welcomed some clarity after months of “Brexit meansBrexit.” Donald Tusk, president of the European Council, deemed this a “morerealistic announcement” and reaffirmed that the other 27 EU members are readyto negotiate once Article 50 is triggered. Germany’s foreign minister,Frank-Walter Steinmeier, also welcomed May’s positive approach to thenegotiations and her willingness to create a new partnership, but insisted Berlin’spriority remains European cohesion over economic interests . Others wereless optimistic: Guy Verhofstadt, the European Parliament’s Brexit negotiator,saw May’s threat of turning the United Kingdom into a tax haven as acounterproductive negotiating tactic and lamented her lack of clarity on UK andEU citizens’ rights, a lack that “is disrupting many lives.” The Czech Europeminister, Thomas Prouza, summarized May’s ambitious demands by asking: “whereis the give for all the take?” Closer to home, Nicola Sturgeon, Scotland’sfirst minister, suggested that May’s speech and decision to leave the singlemarket at any cost made Scotland’s choice to seek a second independencereferendum more likely although politically difficult.

Despitedifficulties with her European counterparts, it appears that Prime Minister Mayhas a strong ally and proponent of successful Brexit in the incoming U.S.administration and President Donald Trump, with whom she will meet this week inWashington, D.C. In his interview with the Times of London,then-President-elect Trump reiterated that Brexit was a “great thing” sincecountries need strong borders and that his administration would work hard toforge a U.S.-UK trade deal as quickly as possible:

Interviewer:Sodo you think we will be able to get a trade deal between the US and the UKquite quickly?

DonaldTrump: Absolutely, very quickly. I’m a big fanof the UK, uh, we’re gonna work very hard to get it done quickly and doneproperly—good for both sides. I will be meeting with [Theresa May]…. She’srequesting a meeting and we’ll have a meeting right after I get into the WhiteHouse and it’ll be, I think we’re gonna get something done very quickly.

Thedesire for a quick trade deal was also confirmed by one of President Trump’sadvisers at Davos, Anthony Scaramucci, who expressed confidence in the UnitedKingdom’s ability to remain a major financial player given that “London was thefinancial capital of Europe 500 years before the European Union,” and it willbe “500 years from now.” Scaramucci also noted that a trade agreement betweenthe United States and the United Kingdom could be signed quickly—within 6 to 12months—although this would not be possible until the United Kingdom formallydeparts the European Union (no earlier than April 1, 2019). Regardless, itappears likely that there will be early bilateral “scoping” discussions on theoutlines of a trade deal that will be ready shortly after the United Kingdomformally exits the Union. Prime Minister May will then have to manage theU.S.-UK trade negotiations carefully on the one hand, while managing discussionswith the Europeans on the other—both requiring skillful navigation. The opensea is looking better and better.

HeatherA. Conley is senior vice president for Europe, Eurasia, and the Arctic anddirector of the Europe Program at the Center for Strategic and InternationalStudies in Washington, D.C.

Commentaryisproduced by the Center for Strategic and International Studies (CSIS), aprivate, tax-exempt institution focusing on international public policy issues.Its research is nonpartisan and nonproprietary. CSIS does not take specificpolicy positions. Accordingly, all views, positions, and conclusions expressedin this publication should be understood to be solely those of the author(s).

©2017 by the Center for Strategic and International Studies. All rightsreserved.

Arthor:

Heather A. Conley

SeniorVice President for Europe, Eurasia, and the Arctic; and Director, EuropeProgram

     

Website:

https://www.csis.org/analysis/state-brexit-ahead-trump-may-meeting      

     




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