Media Global Economy 2019.11.20
A general election is now set to be held in Britain on Dec. 12, making it likely that the agreement over its exit from the European Union, reached between Prime Minister Boris Johnson and the EU, will be approved by Parliament, finally paving the way for Brexit to take place by the end of January.
So much has been reported about Brexit in Japan. We know that British politics have been in a chaotic state over the issue, but few of us may understand what they are so divided over. The situation might not be that different in the U.K., though. A survey reportedly showed that a significant number of Britons themselves do not understand the difference between a "no-deal Brexit" and "no Brexit" -- which are opposite ideas. The BBC has a website that explains what Brexit is all about.
Brexit is simply the exit of Britain from the EU -- at least that's what most British must have thought when it was put to a referendum in 2016. What has complicated the issue so much is what to do about Northern Ireland, a problem specific to the U.K.
The violent conflict that took place in Northern Ireland in the late 20th century died down after both the U.K. and Ireland became EU members and border controls between Ireland and Northern Ireland were removed, enabling the free passage of people and goods under the EU common market.
The essence of the Brexit dispute is that while the full implementation of the U.K.'s exit from the EU will require customs proceedings at the border, reinstating border controls between Ireland, which will remain in the EU, and Northern Ireland, part of the U.K., will restrict the movement of people and goods across the border, thereby potentially rekindling the Northern Ireland conflict.
They need to solve mutually contradictory challenges: to reinstate the border control to implement Brexit, and to avoid the border control so as to keep the peace.
An agreement reached earlier between Johnson's predecessor, Theresa May, and the EU put priority on dealing with the border issue over exiting the EU. Under that deal, a period through the end of 2020 was set aside as a transition phase, and if Britain and the EU failed to come to an agreement over their future relations by the end of that period, the U.K. would remain within the EU customs union. Rules in harmony with the EU's common market regulations would be introduced in Britain except Northern Ireland, while the EU's common market rules themselves would be applied to Northern Ireland. A customs union would be the same as a free trade agreement, in that tariffs would be removed within the union but the same tariffs would also be applied to imports from outside the bloc.
This deal came under fire from pro-Brexiters, who contended that it was not Brexit, and it was rejected three times by the U.K. Parliament. Such an agreement meant that Britain, even after leaving the EU, would have to follow the rules made by the EU, over which it had no say.
Also, the EU and Britain staying in the customs union that applies the same tariffs to countries outside the bloc meant that since the EU holds the right to determine the common tariffs on imports from outside the bloc, Britain would not be able to lower its own tariffs to conclude an FTA with other countries. This again runs counter to the Brexit's purpose of regaining the autonomy to set its own tariffs. U.S. President Donald Trump, who is seeking an FTA with Britain, also opposed the deal.
After taking over from May, Johnson accepted the choice of drawing a virtual border between Northern Ireland and the rest of the U.K. It was something that the EU once demanded and was rejected by May, who said that it would be opposed by whoever became British prime minister. Under the new deal, the tariffs would not be collected at the border between Northern Ireland and Ireland, an EU member. When goods enter Northern Ireland territory, EU tariffs would be temporarily collected if those products were considered "at risk" of being shipped into Ireland. Since Northern Ireland is British territory, however, tariffs should not be imposed on goods shipped from the rest of the U.K. or those imported from another country with which Britain has concluded a free trade agreement. Therefore, the tariffs collected on goods when they enter Northern Ireland would be refunded if they were to be consumed within Northern Ireland.
The U.K. Parliament approved the outline of the deal with a majority vote. However, it rejected fast-tracking details of the deal and the domestic legislation to implement it by the Oct. 31 Brexit deadline, citing lack of enough time to deliberate it. As a result, Johnson, while requesting the EU to extend the Brexit deadline through the end of next January, sought to hold a general election in the meantime to increase the seats of the ruling Conservative Party and win parliamentary approval.
In the previous election, May resorted to the polls on the basis of her strong approval ratings on media surveys but ended up losing seats. There's no guarantee that the same thing won't happen this time.
Given that a majority of Parliament has approved the framework of the deal and that the EU has agreed to extend the Brexit deadline, there is ample time to deliberate the proposed legislation. Johnson's act amounts to a gamble, and it appears that he was motivated by a desire to increase the Conservative Party's seats and solidify the rule of his government.
In the first place, pro-Brexit voters outnumbered opponents by a narrow margin of 52 percent to 48 percent in the referendum. When the vote was held, few predicted that the issue of Northern Ireland would complicate the departure from the EU. When it did become clear that it posed a big problem, Britain should have held another referendum asking whether or not to leave the EU by clearly explaining to the public what was at stake. Even today there are many people who do not fully understand what Brexit is all about. Today's severe chaos would have been averted if that second referendum had been held.
In the 2016 referendum, remain votes outnumbered leave votes in Scotland and Northern Ireland. Scotland is seeking to hold a referendum on independence from the U.K. That the latest deal by Johnson treated Northern Ireland differently from the rest of the U.K. may pave the way for Northern Ireland's integration with Ireland. Even in England, urban voters chose to remain in the EU while rural voters chose to leave the bloc. These are signs that Britain is becoming as divided as the United States. Brexit, which was meant to regain sovereignty from the EU, might result in an eventual disintegration of the U.K.
Even if the post-Brexit U.K. concludes a free trade agreement with the EU to eliminate tariffs, customs procedures will be needed to certify that the imported goods are either of British or EU origin to make them tariff-free. That may prompt businesses that have set up operations in Britain, including Japanese companies, to move their production operations to the EU bloc.
The benefits of post-Brexit Britain concluding FTAs with countries around the world are not clear. The U.K. wishes to sign an FTA with Japan, but the volume of bilateral trade is not so large. The benefits of Brexit may be outweighed by the disadvantages from Britain's loss of smooth access to the EU market, which accounts for half the country's external trade.
The size of Britain's economy in the world is not so large either. The Japanese economy is not likely to sustain major damage if the British economy takes a hit from Brexit. The biggest impact of Brexit will be sustained by Britain. Even after Brexit has been completed, Britain might eventually try to rejoin the EU. In that case, even if the U.K. disintegrates, its people could become EU citizens.