Perspectives

PDF
th  
25  
EcoPerspectives // 4 quarter 2018  
economic-research.bnpparibas.com  
United Kingdom  
Update on Brexit  
On 29 March 2019, the European Union and the United Kingdom will officially separate. Yet the terms of the separation have yet to be  
worked out. The Withdrawal Agreement, which is indispensable for a smooth exit, calls for a transition period of a little less than two  
years, through the end of 2020. It will to be discussed at the 18 October European Council meeting. Agreement on the divorce terms  
has always run up against the Northern Ireland question. Assuming the European heads of state and governments can solve this  
issue and a deal is finally reached, it would then be up to the UK Parliament to give its consent. This surely poses the greatest threat  
to a smooth Brexit.  
1
On 18 October 2018, the European Council will examine the  
1- Growth and inflation  
Withdrawal Agreement setting the terms for the UK’s withdrawal  
from the European Union (EU). According to Europe’s chief  
negotiator, Michel Barnier, 80-85% of the issues have already been  
settled: the “divorce bill”, the amount the UK will pay to settle its  
outstanding liabilities at the time of withdrawal, will range between  
GBP 35 bn and 39 bn; and citizenship rights will be guaranteed for  
UK citizens residing in the EU and EU citizens residing in the UK  
prior to the withdrawal date. Yet the crucial question of Northern  
Ireland has not been resolved. As part of the UK, Northern Ireland  
will leave the EU while the Republic of Ireland will remain, creating  
the need for a border.  
 GDP Growth (%)  
 Inflation (%)  
Forecast  
Forecast  
2
.7  
2.3  
2.4  
2.1  
1.8 1.7  
1.6  
1.3  
0.7  
0.0  
1
5
16  
17  
18  
19  
15  
16  
17  
18  
19  
Yet 20 years after the conclusion of the Good Friday Agreement, it  
is unanimously agreed that nothing should be allowed to materially  
separate the two Irelands. This means that after Brexit, any  
merchandise or persons arriving on the Emerald Island would  
continue to have access to the Single Market. The big question is  
where to draw the line? The European’s backstop proposal calls for  
the EU and Northern Ireland to remain in a common regulatory area,  
with border controls set up between Northern Ireland and the rest of  
the UK. To make this border as unintrusive as possible, customs  
and VAT declarations as well as technical and regulatory  
certifications would be conducted before shipment, using simplified,  
online procedures. Controls could be carried out during shipment  
Sources: National accounts, BNP Paribas  
members of May’s government (including the chief Brexit negotiator  
David Davis) and has been rejected by its European partners. It  
would have created a kind of “à la carte single market in which  
London would continue to trade in certain goods without tariffs or  
quotas, while reserving others for special customs treatment at its  
choosing, and by diverging from the set of regulations governing  
2
production factors (services, labour and capital) .  
The more pragmatic EU proposal aims to establish a vast free trade  
agreement coupled with reinforced customs and regulatory  
cooperation, somewhat like the CETA free-trade agreement signed  
with Canada in October 2016. Yet CETA was reached after 12  
years of negotiations, whereas the UK has a transition period of only  
(
by scanning containers for example), and sanitary inspections  
3
would be the only border controls still imposed on entry (for trade in  
life animals, for example).  
4
2
1 months , after 29 March 2019, to redefine all or part of its future  
Frictions are bound to appear, so additional delays and resources  
would have to be provisioned, but at least the proposal avoids the  
pitfalls of Irish politics. The problem is that this solution surely the  
only viable solution  is rejected by the most hard-line Brexiters, as  
well as by the Democratic Unionist Party, which holds the key to  
Prime Minister Theresa May’s small majority in the House of  
Commons. Is the UK government prepared to sign a Withdrawal  
Agreement today that would place it in immediate political danger,  
such as the presentation of the budget bill on 29 October?  
relationship with the EU. Of course, the existence of an Acquis  
Communautaire, the accumulated body of EU law and obligations,  
should accelerate the process, but the turnaround time is short and  
the terms might well have to be renegotiated. Moreover, all of this  
assumes that a deal will be reached in the end, and that it will be  
ratified by the European and especially the UK parliaments.  
Along with the Withdrawal Agreement, the Council must also sign a  
Political Declaration specifying the framework for the future  
relationship between the UK and the EU. The UK’s proposal, the so-  
called Chequers plan, has already led to the resignation of two  
2
See Barnier M. (2018) Speech at the closing session of Eurochambre’s  
European Parliament of Enterprise, October.  
3
Comprehensive Economic and Trade Agreement.  
During the transition period that would run from 29 March 2019 to 31  
4
December 2020, the UK would be an integral part of the Single Market and  
would have to comply with its rules (free movement of goods, capital, services  
and people, and respect for the rulings of the Court of Justice of the European  
Union). It would no longer be part of EU decision-making bodies.  
1
The European Council is comprised of the European heads of state and  
governments of the EU member states as well as the president of the European  
Council and the president of the European Commission.  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
Ce site présente leurs analyses.
Le site contient 2062 articles et 568 vidéos