Brace for Brexit
29 November 2018 17:27 Source: ICB
Prime Minister Theresa May is trying to push her Brexit plan through the UK parliament in the face of stiff opposition from within her own party and opposition groups.
May leads a minority government and relies on the support of Northern Ireland’s Democratic Unionist Party.
The UK parliament has a final vote to approve or reject May’s Brexit deal. Rejection could throw the entire Brexit process into disarray, leading to the country to leave with no deal, another general election, a second Brexit referendum or the so-called Norway model.
This last option is gaining momentum among some UK political groups.
BREXIT OPTIONS
Leave with Theresa May’s deal
■ UK will leave EU on 29 March 2019.
■ Transition period until December 2020.
■ UK to follow EU rules and remain part of single market until then, allowing frictionless trade in chemicals and other goods and services.
■ But it has no say in EU decision-making during the transition.
■ Transition period can be extended by mutual consent.
■ If no trade agreement in place by end of transition period, a temporary “backstop” arrangement will keep the UK in an EU-wide customs union until a deal is struck, allowing frictionless trade to continue.
■ To end the “backstop” the UK/EU must jointly agree.
■ During the custom union “backstop” period UK must follow EU rules to ensure level playing field.
■ EU27 will vote to approve the Brexit deal on 25 November.
■ Where trade agreements have been struck between the EU and other countries, the UK will ask for these to continue during the transition until they have struck new bilateral deals.
■ Free trade and regulatory alignment, including future access to European Chemicals Agency (ECHA) Reach data – not explicit in the draft agreement – are the core issues for chemicals.
Leave with no deal
■ UK leaves EU on 29 March.
■ With no deal in place, the UK reverts automatically to World Trade Organisation (WTO) tariffs).
According to Cefic the maximum chemicals tariffs for chemical imports and exports would be 6.5% with its main trading partners including the EU27, US, Canada, Mexico, Japan, Saudi Arabia, Russia and Korea.
The UK could choose to lower or eliminate tariffs. But under WTO rules as a “most favoured nation” they would have to apply the same tariff levels to all WTO members globally.
As part of the EU, the UK applies WTO tariffs to countries with which it does not already have a trade deal. It aims to replicate the existing WTO tariffs it applies as a member of the EU with a 6.5% maximum rate.
Trade with the EU would be subject to customs inspections and paperwork, potentially causing big delays at ports around the UK.
■ Crashing out without a deal is favoured by hardline “Brexiteers” but is unpopular with most chemical industry leaders because of the impact it could have on trade and economic growth, at least in the short term.
Stay in the EU
■ Under the “Article 50” process, the UK will leave the EU on 29 March 2019. If, before that date, there is another general election and a pro-remain government is elected, the Brexit process could be halted, in theory.
There is some legal debate about if and how this could be achieved, as no other country has used the Article 50 process.
Hold another referendum
■ With the UK parliament and populations still so divided over Brexit, there are calls for the country to hold a second referendum over EU membership.
Those in favour of this move claim voters did not have the full facts when the first referendum took place.
■ There is some doubt whether a referendum could be organised before 29 March 2019, the date the UK leaves the EU. It has to first be debated and signed off by the UK parliament.
■ The UK could ask the EU to delay the exit date but that would have to be agreed by all of the EU27.
The 'Norway model'
■ Another option is to adopt the so-called Norway model either permanently or during a transitional period while the UK strikes a trade deal with Europe. Norway is a member of the European Free Trade Association (EFTA) and European Economic Area (EEA).
■ EFTA consists of four European states: Iceland, Liechtenstein, Norway and Switzerland. It operates in parallel with the EU and all members take part in the European Single Market and Schengen Area (movement of goods and people across borders without passport controls or other checks). It was established in 1960 as a trade bloc for countries which did not wish to join the European Economic Community (forerunner of the EU).
■ EFTA members follow some EU rules and regulations but have no influence in their development.
EFTA does not aim for political integration, does not issue legislation and does not establish a customs union. This means members states can enter into bilateral trade deals with third countries.
■ The European Economic Area (EEA) was created in 1994 and unites the EU member states plus Iceland, Liechtenstein and Norway into an internal market. The basic features include free movement of goods, services, people and capital. Switzerland has its own bilateral agreements with the EU.
■ In theory Britain could exit the EU and then join EFTA and the EEA. It would then retain full access to the Single Market but would not have to abide by the EU Common Fisheries Policy, Common Agricultural Policy or European Court of Justice.
However, it would be required to allow free movement of goods, services, people and capital. Controlling immigration was a key reason for the pro-Brexit vote, so the Norway model may not be a popular choice for the UK.
The Canada Model
■ The EU-Canada Comprehensive Economic and Trade Agreement (CETA) came into effect provisionally in September 2017 though it has to wait for each member state to ratify before being fully approved. It will be implemented over the course of seven years. It eliminates tariffs between the EU and Canada on chemicals (previously up to 6.5% under WTO rules) and most other goods (some agricultural and food products are not covered).
But CETA does not address services which will still operate under WTO tariffs. If the UK agreed a similar deal with the EU it would still be free to negotiate separate trade deals with other countries. However customs checks would be necessary to ensure goods meet regulatory requirements and the fact it does not cover services, an important driver of the UK economy, may make this model less attractive.
Brexit Resources
■ Draft Brexit agreement on the terms of Britain’s exit from the EU
■ Text of the EU-UK political declaration on future post-Brexit relationship which was approved by the EU on 25 November
■ This Europa tool shows you all the tariffs EU exporters face globally. All EU import tariffs can be found here on the EU's market access database .
■ The WTO’s Tariff Analysis Online tool shows rates applied by all WTO members without bilateral trade deals.