Interview: Brexit turmoil may take 20 years to resolve: top economics commentator

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by Xinhua writers Peter Barker, Gui Tao

LONDON,  (Xinhua) — The full effects of Brexit on Britain’s trading relations may not be resolved for a further 20 years, a leading economics commentator has claimed.

“Brexit negotiation — narrowly defined — will be over in two years; but the creation of a post-Brexit environment… is going to take, certainly, far longer,” British economist and writer Martin Wolf told Xinhua in a recent exclusive interview.

However, in an assessment of the complex road ahead for Britain as it creates new economic and trade ties, Wolf warned that exit from the European Union (EU) was merely the first step on the journey.

“We will be making up a new trade policy which will probably take us 20 years,” said Wolf, who is the associate editor of the London-based daily newspaper the Financial Times and also its chief economics commentator.

After the referendum vote on June 23 to leave the EU, making Britain the first nation in the 28-member bloc to do so, Britain’s path to exit and beyond has been unclear.

Only two milestones are certain; the first is that exit is triggered by Britain activating Article 50 of the Lisbon Treaty. This was adopted by the EU in 2009 and provides a mechanism for a country to quit.

The second is that the triggering of Article 50 starts a countdown of two years, during which time negotiations on exit take place. At the end of that time, the Britain leaves the EU.

But even that exit of the EU may not be final. Negotiators on both sides may choose to create a transitional period between a formal exit and a formal cessation of EU rules and regulations by Britain. Some business leaders, politicians, and economists are in favor of this approach as it would allow trade and services to plan for a new environment rather than quickly jumping from the old EU business regime to a new Britain-only one.

For Wolf, the Brexit negotiations are a forest of problems, and it is difficult to see light beyond their gloom.

“This negotiation will largely be about exit and there are a lot of issues to discuss. It is quite possible this is all it will be about and it is quite possible there won’t be agreement, in which case Britain will find itself exited without agreement and we will be in limbo,” he said.

Wolf believed that the four pillar principles of the EU single market — the free movement of goods, capital, services and people — were incompatible with the mandate that British Prime Minister Theresa May’s new government has taken from the referendum result.

He saw membership of the EU customs union, which provides tariff-free trade within the EU and imposes tariffs on selected external trade entering the union area, as incompatible with the government’s Brexit stance.

Wolf said: “I presume that our government will try to reach an agreement on at least a transitional trade arrangement with the EU. We don’t know what it will try to seek, but I think given that it wishes to impose controls on immigration — the PM sees that as the paramount objective — that means we cannot stay in the single market. I don’t believe the EU will agree to let us in the single market.

“I don’t think it will be politically tenable for the UK to stay in the customs union, because that means we cannot have our own trade policy, and I think the Brexiteers will break the government if we don’t get out of the customs union.”

Wolf believed that there was a possibility of trying to reach, at least as a transitional arrangement, a free trade agreement with the existing members of the EU; an arrangement that would allow the Britain to make Free Trade Agreements (FTAs) with other countries. The EU negotiates on trade as a bloc, and as long as the Britain remains in the EU it cannot begin FTA negotiations with other nations.

But Wolf pointed out that a UK-EU FTA would not replicate current conditions, and there would be change and turbulence.

“The change will be somewhere between bad and disastrous. It is absolutely unambiguous that the UK’s access to the EU market will be worse and we won’t have better access to anywhere because no one is going to negotiate with us until we have left the EU,” said Wolf.

There could be an FTA with the EU, but rules of origin restrictions — where parts, for instance, of cars or aircraft were manufactured — would be complex.

Wolf said: “We can have an FTA on goods, with absolutely nothing in the service sector; I believe it could be decided by the EU under qualified majority voting and that would make it relatively easy to agree.

“Since there are a number of EU countries for whom the UK is an important market, Germany for instance, it is conceivable to me that a FTA in goods could be agreed.

“It might also be possible to get agreement on some areas of services on the basis of equivalence regimes, but here as far as I can see we would probably need unanimity and I’m not sure unanimity could be agreed,” he noted.

Wolf said his estimate was that at the end of two years the “best that we could hope for is an FTA in goods, probably nothing in services, just conceivable coverage of some financial services.”

But what of trade with the rest of the world?

After an EU deal, Britain would deal with its English-speaking potential partners — the U.S., Canada, Australia, New Zealand “because they are relatively simple and straightforward and would indicate (the government) is doing something; if TPP existed we might try to dock on it, but it doesn’t look likely,” said Wolf.

Or Britain might go for trade deals across the globe with other partners.

“China for sure, India, possibly some Latin American countries. These are all going to be big, complicated things to do because the comparative advantage in relationships are quite complicated between these countries,” he said.

The journey is a long one, and Wolf sees more downsides than upsides, at least in the short to medium term.

“The immediate effect will clearly be worse than what we have got now. The only question we are discussing is how much worse,” he said.

Editor: Mengjie
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