• Thursday, Jan 23, 2020
  • Last Update : 01:18 am

UK heads for Brexit showdown with EU: What's at stake

  • Published at 09:32 pm October 20th, 2016
UK heads for Brexit showdown with EU: What's at stake

Prime Minister Theresa May will come under pressure from other European Union leaders on Thursday to say what kind of deal she wants for Britain when it leaves the bloc.

May, attending her first EU summit since becoming prime minister in July, has so far given only glimpses of her vision for Britain's future relationship with the EU.

Below is a summary of the most important issues in the negotiations which are due to start by March next year.

Single market access

[caption id="attachment_23500" align="alignright" width="400"]British Prime Minister Theresa May (L) stands with her husband Philip John May, as they wave to delegates following her keynote address on the final day of the annual Conservative Party conference at the International Convention Centre in Birmingham, central England, on October 5, 2016.  Brexit prompted the resignation of the UK's prime minister and the reshaping of the country's government, but the ruling Conservative Party has already rebounded and is showing a united front. The jubilant mood at the annual Conservatives conference is being led by its hardline eurosceptics -- for years the awkward squad within the party.  / AFP PHOTO / PAUL ELLIS British Prime Minister Theresa May (L) stands with her husband Philip John May, as they wave to delegates following her keynote address on the final day of the annual Conservative Party conference at the International Convention Centre in Birmingham, central England, on October 5, 2016 AFP[/caption]

British firms are likely to face barriers to the EU's single, tariff-free market of 500m consumers because May has said she will heed the call from many voters for more controls over migration. Such controls would breach the EU's core principle of freedom of movement for workers in the bloc.

Supporters of a "hard" Brexit say Germany and other EU nations are bluffing about putting tariffs on British goods and services because their own exporters have too much to lose.

But employers are worried, especially in sectors which would could face the highest tariffs if there is no deal between London and Brussels. The EU's external tariffs on cars stands at 10% and Nissan - which exports to the bloc thousands of the vehicles it builds at Britain's biggest car plant - has demanded a guarantee of compensation for costs related to Brexit.

Migration

About half the immigrants coming to Britain are from the EU. May wants to cut total net migration to below 100,000 a year from more than 300,000 now, something that would require tough controls.

Most economists say migration has helped Britain's economy although wages for lower-paid workers have taken a small hit.

May has ruled out the introduction of a points-based system modelled on the one used by Australia to select migrants, preferring a system that allows in the workers most needed by British employers. Since then, government ministers have said they want to ensure highly skilled workers can continue to move to Britain.

But EU leaders are unlikely to turn a blind eye to any restrictions on free movement of workers from the bloc. They fear that any concession to Britain would lead other states to demand similar deals, ultimately unraveling the Union.

Financial services

Britain's financial services industry fears it could be one of the big losers from Brexit. Banks could lose their ability to offer services across the bloc from London, a system known as passporting. If they shift some of their operations to other EU states, it could hurt British tax revenues at a time when the country's public finances are still likely to be in the red.

One battle could be over the ability of London to continue serving as the main centre for the clearing of derivatives denominated in euros, something it has fought in the EU courts to protect but may be unable to defend once outside the bloc.

Budget

The pro-Brexit campaign before June's referendum argued that once outside the EU, Britain would no longer have to make contributions to the bloc's budget, which the UK Statistics Authority estimated at about £7bn a year.

But Britain might still have to pay into the EU budget in order to maintain access for its financial services industry or other key sectors. Norway and Switzerland both pay into the EU budget to have preferential access to the EU market.

[caption id="attachment_23501" align="alignleft" width="400"]A pro-Brexit supporter (L) from Invoke Article 50 Now!, dressed as a judge, stands in front of a Pro-European Union (EU) supporter outside the entrance to The Royal Courts of Justice, Britain's High Court, in London on October 13, 2016, during a protest against the UK's decision to leave the EU. The battle over Britain's exit from the European Union (Brexit) reached the High Court on Thursday in a legal challenge to Prime Minister Theresa May's right to start negotiations for Britain to leave the EU without a vote in parliament. The move could delay Brexit if successful and set up an unprecedented constitutional face-off between the courts and the government. / AFP PHOTO / ADRIAN DENNIS A pro-Brexit supporter (L) from Invoke Article 50 Now!, dressed as a judge, stands in front of a Pro-European Union (EU) supporter outside the entrance to The Royal Courts of Justice, Britain's High Court, in London on October 13, 2016 AFP[/caption]

Customs union v trade deals

Britain could seek to remain part of the EU's customs union once it is no longer a formal member of the bloc. The customs union includes non-EU Turkey, Andorra and San Marino who trade freely with the bloc and share its common external tariffs. But if Britain opted to stay in the customs union, it could complicate attempts to strike free trade deals with other countries around the world, a central argument of the Brexit campaign.

British finance minister Philip Hammond said on Wednesday he was sensitive to the potential problems for British exporters, especially those involved in cross-border supply chains, should the country end up outside the customs union.

Mechanics of negotiation

May has said she will launch the formal, two-year process of negotiating Britain's exit from the EU before the end of March 2017 and London wants to use the interim period to sound out European counterparts and decide its priorities for the talks.

So far, EU leaders have rebuffed attempts by Britain to talk informally about the outlines of a final deal, something that would help London settle on its Brexit strategy.

After May triggers the exit process, the other 27 EU leaders will meet within a month or two to draft instructions for the European Commission for the negotiations. Those talks will be led on the EU side by Michel Barnier of France, who had tense relationship with London when he was the Commission's financial regulation chief from 2010 to 2014.

Diplomats in Brussels say two years will probably be enough to deal with the basic divorce, including dividing up the EU budget, EU assets and tricky stuff like the substantial future liabilities for paying the pensions of British EU staff.

But a new relationship, including trade ties, will probably take many more years, requiring some kind of transition agreement so that Britain is not left in limbo.

Britain has an incentive to wrap up the deal within the two-year time-frame to appease voters and influential Eurosceptic lawmakers before a national election due in May 2020. The EU has a strong incentive to wrap up the final exit before the next European Parliament elections in 2019, normally in May.