Tax & Accounting Blog

Brexit- A Year after the Referendum

Blog, Global Trade, ONESOURCE June 30, 2017

June 23rd marked a year since the United Kingdom voted[1] its withdrawal from the European Union, now commonly known as Brexit. As a quick recap, the British believed they were being held back by the EU which according to them set too many rules on businesses and charged billions a year in membership fees with minimal return. For reference, each EU member state must contribute to the EU Budget, which typically consists of a percentage of the member states national income as well as a percentage of the VAT it collects. According to the most recent figures available, in 2014 Germany contributed the most to the EU Budget, followed by France and the UK. Among other things, the British also wanted full control of their borders in order to reduce the population coming over to work and or live.

What progress has been made in the year since the vote?

Let’s start with the new Prime Minister Theresa May, who replaced former Prime Minister David Cameron when he announced he was resigning on the day he lost the Brexit referendum.

Ms. May, like Mr. Cameron, was initially against Brexit but has since changed her views, most clearly captured on March 29th with Article 50 of the Lisbon Treaty, beginning the two year process of negotiating terms for the UK’s departure from the EU. What this means is that the UK will leave the EU on March 29, 2019; a date that can only be extended if all EU member states unanimously agree.

Since its creation in 2009, Article 50 has not been used by any of the participating members. Article 50 adds complexity to the 43 years of treaties and agreements between the UK and EU as there is not a process in place and it appears the Brexit move will have all parties making up the process as the separation progresses. If a deal cannot be reached within the two year timeframe, it is speculated that the UK would be governed under the World Trade Organization Rules which could potentially mean customs checks and tariffs. To date the UK is still under EU law and will remain under EU law until full termination of its membership. The end result appears to note that the UK will continue to honor EU treaties and laws but will no longer take part in any decision making.

According to Ms. May, she would like the UK to reach a new customs union deal with the EU with the agreement not to impose tariffs on each other’s goods.

After Brexit is complete, Britain will have both the challenge and opportunity to negotiate new trade deals with the remaining EU countries.

What happens next?

Brexit negotiations began in Brussels on Monday June 19, 2017. In preparation, Ms. May set up a government department that is headed by Mr. David Davis, a Conservative MP and Brexit Secretary. The government body also includes a Secretary of State for International Trade, Mr. Liam Fox, and a Secretary of State for Foreign & Commonwealth, Mr. Boris Johnson. The Prime Minister has the final say in these negotiations.

On the EU side, negotiations will be led by the European Chief Negotiator, Mr. Michael Barnier.

As of the July 19th negotiations, no major progress was accomplished other than the UK agreeing to discuss ‘divorce proceedings’ prior to starting any discussions around future trading relations. The next round of negotiations is expected to happen sometime in mid-July.

It will be interesting to see how much can be accomplished as the clock begins to tick for a new and independent UK.

Read more on the possible implications of Brexit on trade.

 

Sources:

Brexit: All you need to know about the UK leaving the EU

http://www.bbc.com/news/uk-politics-32810887

Brexit: Article 50 has been triggered- what now?

http://www.bbc.com/news/uk-politics-39143978

Reality Check: Your questions on cost of EU membership

http://www.bbc.com/news/uk-politics-eu-referendum-36470341

Article 50: The people who will negotiate Brexit

http://www.bbc.com/news/world-europe-39236683

David Davis caves into EU negotiation demands on first day of Brexit talks

http://www.businessinsider.com/david-davis-caves-into-eu-timetable-demand-on-first-day-of-brexit-talks-2017-6?r=UK&IR=T

[1] 30 million voters with a 51.9% to 48.1% voted for leaving the EU