January 31, after 47 years of membership, the UK officially began the process of secession from the European Union. Brexit promises various consequences for the UK, which will also affect the development of Ukraine and Europe.
Victory loves preparation
The entry into force of the Brexit agreement does not mean that from February 1, Misty Albion sets sail for global political and economic processes. De facto, by the end of 2020, the UK will feel “at home” in the EU and will prepare to curtail its participation in European integration processes. The United Kingdom will be bound by the European Union with the same mutual obligations as during the transitional period. Until July 1, 2020, both parties have the right to extend it for a year or two. In the next 11 months, the UK will retain access to the common market, will participate in the EU customs union, follow European legislation, general rules in the field of nuclear energy, industry, agriculture and make contributions to the EU budget. In 2018, the UK allocated the EU 20 billion pounds. British business will continue to benefit from the freedom of movement of goods, capital, services, and labor in relations with European countries.
However, January 31, representatives of the United Kingdom will cease to participate in the work of the European Commission, European Parliament, European Council, other EU bodies and services. Nevertheless, during the transitional period, the jurisdiction of the EU bodies on all kinds of issues will extend to it: from the sphere of justice, ending with standards in the social sphere. London will continue to be within the scope of the Court of Justice of the EU. Three million citizens of European countries will be able to freely live, work, study in the United Kingdom. The same goes for the million Britons who are in EU member states.
During the transition period, the UK may enter into agreements with third countries, provided that they enter into force after its expiration. The UK will continue negotiations with the United States and the countries of the British Commonwealth on a free trade area agreement. In February, the UK and the EU should decide on the format for future cooperation. The possibility of concluding an agreement on a free trade zone is being studied. For this, the EU and the UK will form working groups. The European group will be led by Michel Barnier, who was the EU negotiator for Brexit. Changes in the lives of the British and Europeans will begin from the beginning of 2021. How pleasant they will depend on the effectiveness of the upcoming negotiations between London and Brussels.
Implications for the UK
The experience of Canada, Singapore, and Japan suggests that the coordination of the terms of the agreement on a free trade zone can last more than one year. Singapore held the longest trade negotiations with the EU - nine years. Great Britain and the EU do not have much time to agree, given the fact that the parties have a different vision of the future free trade zone. British Prime Minister Boris Johnson is interested in a free trade zone with zero duties and quotas. The EU stands for a gradual reduction in duties after the creation of a free trade zone for certain groups of goods, if they comply with European sanitary and phytosanitary standards, for the introduction of customs control. In Brussels, they are interested in concluding an additional fisheries agreement with the UK, which will allow fishing vessels of EU member states to obtain quotas in British waters. Protecting the interests of British fishermen was one of the arguments in favor of Brexit, as they experience competition from European colleagues.
If negotiations on an agreement on a free trade zone are delayed, and the transition period is not extended, then the British economy cannot avoid the negative consequences. Enterprises that supply their products to the EU will face duties for third countries, and their products will increase in price and cease to be competitive. The European Union is the largest trade and economic partner of the United Kingdom, where it exports 45% of its goods and services, mainly motor vehicles, oil products, medicines, electrical equipment, engineering products, services in the field of business, finance, insurance, tourism, transportation, IT.
According to the British National Institute for Social and Economic Research, by 2029, UK GDP will decline by 3.5%. In the case of a hard Brexit, the fall in GDP would be over 5%. Even during the period of turmoil and political instability in the UK against the backdrop of negotiations with the EU on the Brexit agreement in 2016-19. British economic growth slowed by 2.5% from initial expectations. Over the next 10 years, car production in the UK could drop by 12%, and foreign direct investment inflows by 22%.
Foreign investors could export manufactured products to continental Europe without duties, develop cooperation with local suppliers of raw materials and components, and now they are afraid of uncertainty. After the Brexit referendum in 2016, the amount of foreign investment in turnkey projects in the UK decreased by 30% (to 83.4 billion dollars), fewer new industries and jobs were created. In February 2019, the leadership of the Japanese automobile concern Nissan decided not to place the production of the new X-Trail SUV series at the British plant in Sunderland.
The Johnson government is trying to mitigate the negative consequences for British business to the maximum after losing access to the Common Market and in 2019 signed an agreement on a free trade zone with 50 countries and integration blocks. At the moment, negotiations are underway on an agreement on a free trade zone with the United States, similar issues are being worked out with the authorities of India, Australia, and New Zealand. The calculation is to partially reduce dependence on the European market and redirect supplies to former colonies.
Johnson's government should be on the alert for security. After Brexit, the separatists of Northern Ireland and Scotland intensified. Most residents of these regions did not support the idea of Britain leaving the EU in a 2016 referendum. Now, the Northern Irish party Sinn Fein and the Scottish National Party are demanding that London allow referendums on leaving the regions from the United Kingdom in order to remain in the EU.
In the coming years, a transformation of the geopolitical role of Great Britain in the modern world order will occur. With the exit from the EU, it will not be able to play the role of a bridge in relations between the US and Europe, and its role will be played by Poland, where the US military is stationed, and the party's strict migration policy, Law and Justice, and opposition to strengthening EU-Russia cooperation in the gas and security spheres echoes the views of members of the ruling Republican Party of the United States. Britain will position itself as a global trading power, as it was after decolonization until 1973. London sets a precedent for the country to leave the EU through the efforts of the Eurosceptics who are in power.
Pros and Cons for the European Union
The main disadvantage for the EU is the loss of the third-largest donor after Germany and France. The UK invested more in the European budget than it received in the form of grants, subsidies as part of a single agricultural policy, various humanitarian projects, and financial assistance to facilitate the peace process in Northern Ireland. In 2018, £ 11 billion remained in the European budget. Not only the British, but also the Europeans are interested in the agreement on a free trade zone, for which Foggy Albion is a very attractive market for engineering products, food products, and pharmaceuticals. In 2018, the United Kingdom imported £ 357 billion worth of goods and services from the EU (53% of total imports). Without the UK participating in the general market, European-made products can supplant goods from the USA and other third countries.
European migrants who have settled in the UK will have to tackle paperwork in order to legalize their status. Since 2021, the UK government plans to pursue a new migration policy that will limit the freedom of movement of former EU neighbors. To stay in the United Kingdom for more than three months, Europeans (with the exception of the Irish) must obtain a special permit valid for three years. They will need to confirm the absence of a criminal record, pass security checks. Those who want to live in the UK for more than three years will need to prove their professional competence. The essence of the conservative migration policy is that, at the request of British employers, personnel from all over the world with certain skills for working in specific areas will be attracted to the UK. Migration to the UK will be targeted.
Not delighted with the consequences of Brexit students from European countries. After 2021, London is expected to cease participating in the Erasmus student exchange program with universities in EU countries. In the academic year 2017/18, about 140 thousand undergraduate and graduate students from EU member states (about one-third of all foreign students) entered UK universities. British students do not care much. Only 200 thousand British have received higher education in European countries under the Erasmus program since 1987.
However, Brussels can draw some advantages from Brexit. London is one of the world's financial centers, but after leaving the EU, the offices of companies and banks focused on working exclusively on the European market will leave the city.
Part of the jobs in the service sector will move to the European cities of Dublin, Frankfurt, Paris, and Amsterdam. In 2018, Japanese firms Panasonic and Sony decided to move their European offices from the UK to Holland amid Brexit. The importance of European cities as EU financial centers will increase. The influx of investment in office infrastructure will increase. There will be prerequisites for the implementation of projects in the field of real estate construction and other activities in the business sector.
Britain’s exit from the EU will become a catalyst for strengthening integration within the EU, increasing the powers of supranational bodies and enhancing security cooperation among member countries. London was positioned as a self-sufficient center of power, with its vision of European integration, which was different from the initiatives of Berlin or Paris. The British authorities were not willing to give up sovereignty in various fields and emphasize the development of transatlantic relations with the United States, consider NATO a guarantor of European security.
Now Eurosceptics remained in power only in the countries of Central and Eastern Europe, and their political weight, economic and military power is not comparable with the potential of Germany and France. All cards are in the hands of supporters of the idea of turning the EU into a global center of power independent of the USA.
What about Ukraine?
Commenting on Brexit at the International Economic Forum in Davos, President Zelensky noted with some irony that Ukraine could take Britain’s place in the EU. This joke sarcastically reflects the perception of a part of Ukrainian citizens, the stereotype that Ukraine will sooner or later be admitted to the EU, despite rampant corruption, the crisis in the economy, problems with territorial integrity, ongoing armed conflict on our territory and banal inefficiency management. The maximum that we managed to achieve was to conclude an association agreement and a free trade zone with the EU. In any case, the UK exit from the EU will not pass without leaving a trace for Ukraine.
The UK will not participate in the association agreement and Ukraine-EU free trade area and will introduce import duties on our goods. The question is the design of a new regulatory framework for Ukrainian-British relations. For three years now, the possibility of signing an agreement on a free trade zone between Ukraine and the UK has been explored, which should help increase bilateral trade from $ 2.5 to $ 3.5 billion. The British are buying wheat, corn, and sunflower oil in Ukraine. They may be interested in the Ukrainian market of medicines, vehicles, financial and legal services. Another question is how soon it will be possible to sign this agreement, given that all the attention of British diplomacy this year will be paid to trade negotiations with the EU and the United States.
Brexit opens up new opportunities for technically savvy Ukrainians with innovative thinking and fresh innovative ideas, for IT specialists and scientists. In late January, Johnson shared plans to launch a new Global Talent visa scheme starting February 20, with the goal of attracting researchers and mathematicians from all over the world to the UK. Most likely, the British will give priority to “their people” from former colonies, including India, where there are a lot of programmers, but do not exclude the possibility of successful participation in the visa scheme of immigrants from post-Soviet countries.
In addition to new opportunities, Britain’s exit from the EU will bring Ukraine new political challenges. London was Kyiv’s most powerful ally in Europe in countering Russian aggression. The British authorities are the conduit of anti-Russian sanctions, support the idea of tightening pressure on the Putin regime. The Franco-German tandem, which now has a monopoly influence on the development of the EU, will take a softer position with respect to Russia. At least, the French president, Emmanuel Macron, talked about a single space in the field of trade and economic cooperation and security from Lisbon to Vladivostok. German Chancellor Angela Merkel and functionaries of her Christian Democratic Union party oppose sanctions against companies participating in the Nord Stream - 2 gas pipeline project. Under such conditions, it will be difficult for Ukraine to uphold the restoration of territorial integrity and seek the withdrawal of the Russian military and mercenaries from occupied territories.