Three Things To Take From Theresa May's Brexit Speech
By Katie Davies, VP International Solution Development, Radius
Last week, Prime Minister Theresa May delivered a speech outlining Britain’s plan to exit the European Union. According to The New York Times, the speech “was the most closely watched statement on European policy since January 2013, when the prime minister at the time, David Cameron, promised to hold a referendum on European Union membership.”
A UK government transcription of May’s comments runs to nearly 6,500 words. Not surprisingly, May covered a lot of ground, outlining 12 objectives that, she said, “amount to one big goal: a new, positive and constructive partnership between Britain and the European Union.”
Here are three points from May’s historic speech that US multinationals should know.
The UK Will Exit the EU Single Market
Many experts are saying that May’s speech is confirmation that the UK is heading towards a “hard Brexit.” The prime minister clarified that Brexit itself is incompatible with the EU single market. She said that Britain does “not seek membership of the single market” but rather “the greatest possible access to it through a new, comprehensive, bold and ambitious free trade agreement” that “may take in elements of current single market arrangements in certain areas.”
That much sounds optimistic, even perhaps easy, but May punctuates this objective by noting that pulling out of the single market and negotiating a new UK-EU trade agreement will mean “the days of Britain making vast contributions to the European Union every year will end.”
Such tough talk will ingratiate May with hard Brexiteers but not with EU negotiators. A BBC.com piece quotes European Commissioner for Economic and Financial Affairs Pierre Moscovici as saying of the UK’s departure from the single market: “You cannot have all the advantages of being a member of the club when you are out of the club. I think that our British friends who invented clubs can understand that.”
May’s and Moscovici’s comments hint at the difficulties of developing a post-Brexit UK-EU trade agreement. As the Times article puts it, “Few analysts expect the negotiations to go as smoothly or as quickly as Mrs. May seemed to say in her speech.” Needless to say, UK businesses are looking for more certainty in this area and (the Times adds) some are calling for May “to swiftly secure a transition deal.”
The UK and the US May Negotiate a New Trade Deal
Immediately after her remarks on leaving the single market and negotiating a new trade deal with the 27 remaining EU countries, May addressed the subject of negotiating new trade agreements with countries outside Europe. She called on the UK to “rediscover its role as a great, global trading nation.” She also indicated that the UK has “started discussions on future trade ties with countries like Australia, New Zealand and India” and that “countries including China, Brazil, and the Gulf States” have expressed similar interest in striking deals.
May saved the US for last, noting that “President-Elect Trump has said Britain is not ‘at the back of the queue’ for a trade deal with the United States, the world’s biggest economy, but front of the line.” Given Trump’s public support for Brexit — and his correct prediction that he would emerge the surprise victor in a US election that would be “Brexit plus, plus, plus” — it’s fair to say that political leaders from both countries will want trade-deal negotiations to start as soon as possible. That said, a recent article in Politico cautions that “it could be months, if not years, before formal negotiations begin … because of legal constraints and practical considerations on both sides of the Atlantic.”
Leaving the EU Customs Union Will Likely Increase the Price of Exporting Goods to the EU
In May’s discussion of striking trade agreements with non-EU countries, she addresses the UK’s membership in the EU’s customs union. This membership is a critical factor in the UK economy as the union ensures tariff-free trading on goods between EU countries. An article in The Independent notes that “a huge 44 percent of Britain’s exports go to the EU.” It adds that customs union membership reduces administrative burdens and ensures that member countries “all charge the same import duties to countries outside the union.”
Crucially, the customs union does not allow member countries to negotiate their own trade deals, which is of course what the UK is preparing to do. May notes this in her speech — and is clear that she wants a UK customs agreement with the EU — but, she concedes, “Whether that means we must reach a completely new customs agreement, become an associate member of the customs union in some way, or remain a signatory to some elements of it, I hold no preconceived position.” She adds that she wants “Britain to be free to establish our own tariff schedules at the World Trade Organization [WTO].”
Standard WTO-rule tariffs would, according to The Independent, likely cost UK exporters “at least £4.5 billion per year.” Of course, UK exporters could make up much of those costs through advantageous trade deals with non-EU nations such as the US.
As with nearly all scenarios involving Brexit — including those related to free trade, immigration, bank passporting and more — a resolution is likely years off. May’s speech, however, provides a clear indication that Britain is intent on making up for any trade losses it will incur from Brexit by increasing its trade with non-EU nations.