The State of Brexit Ahead of the Trump-May Meeting

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Washington, DC – On January 17, Prime Minister Theresa May of Britain gave a much-awaited and demanded speech laying out her government’s strategy to exit the European Union. The “plan to leave the EU” was promised to members of Parliament in December to allow Her Majesty’s Government to proceed with the trigger of Article 50 by the end of March. The speech confirmed previous statements that the United Kingdom would not allow unfettered freedom of movement or continue to be under the jurisdiction of the European Court of Justice, which led to her unequivocal statement that the United Kingdom will leave the single market and that Parliament will get a final vote on the exit deal.

Prime Minister May was less equivocal on the United Kingdom remaining in the customs union, however, suggesting that the government may seek partial or “associate” membership. But this outcome would contradict the World Trade Organization’s General Agreement on Tariffs and Trade. Other notable sound bites from her speech included that “no deal for Britain is better than a bad deal,” which affirmed that the government is not only willing to embrace a total economic break from Europe, despite the potential economic hardships, but, if this were to be the case, would equally embrace an economically competitive model to the European Union such as dramatically reducing UK corporate tax rates.

Although toughness was messaged throughout, negotiating flexibility was also on offer with a desire for a “flexible” transitional deal in which different aspects of the agreement would last for specific, different periods of time. May also made clear that a strong European Union is in the United Kingdom’s interest and that she would work to avoid further unraveling after her country leaves the Union. The desire for an early deal to guarantee the rights of EU citizens in the United Kingdom and Britons in the European Union was suggested as well, but it is clear that it will remain an element of the overall negotiation and hence a bargaining chip.

The pound reacted very positively to the clarity of the speech, making its biggest one-day gain against the dollar since 1998. Britain’s evolving economic position—as well as the European Union’s—will be a participant in the UK-EU divorce proceedings as well. At this moment, the economy is stronger than was feared pre-referendum, with growth reaching 0.6% in the third quarter of 2016 and forecast at 2.1% for all of 2016. Unemployment is at 4.8%, with real wages slowly recovering from the financial crisis, and inflation is hovering around 1.6%.

Should the United Kingdom be able economically to weather the early stages of the divorce, London will be more emboldened to pursue a tougher negotiating line with the Brussels. Should unemployment and inflation increase, however, London will need to become more flexible in its approach, which in turn will harden the EU negotiating positions. Beyond economic conditions, should Europe continue to be impacted by migration and migration-related terrorist attacks, British officials will receive a political boost for their hard-line approach on freedom of movement.

Anxiously awaited in the United Kingdom, the address was also avidly followed on the continent. Theresa May’s speech was received with cautious optimism by some European leaders who welcomed some clarity after months of “Brexit means Brexit.”

Donald Tusk, president of the European Council, deemed this a “more realistic announcement” and reaffirmed that the other 27 EU members are ready to negotiate once Article 50 is triggered. Germany’s foreign minister, Frank-Walter Steinmeier, also welcomed May’s positive approach to the negotiations and her willingness to create a new partnership, but insisted Berlin’s priority remains European cohesion over economic interests.

Others were less optimistic: Guy Verhofstadt, the European Parliament’s Brexit negotiator, saw May’s threat of turning the United Kingdom into a tax haven as a counterproductive negotiating tactic and lamented her lack of clarity on UK and EU citizens’ rights, a lack that “is disrupting many lives.” The Czech Europe minister, Thomas Prouza, summarized May’s ambitious demands by asking: “where is the give for all the take?” Closer to home, Nicola Sturgeon, Scotland’s first minister, suggested that May’s speech and decision to leave the single market at any cost made Scotland’s choice to seek a second independence referendum more likely although politically difficult.

Despite difficulties with her European counterparts, it appears that Prime Minister May has a strong ally and proponent of successful Brexit in the incoming US administration and President Donald Trump, with whom she will meet this week in Washington, DC.

In his interview with the Times of London, then-President-elect Trump reiterated that Brexit was a “great thing” since countries need strong borders and that his administration would work hard to forge a US-UK trade deal as quickly as possible:

Interviewer: So do you think we will be able to get a trade deal between the US and the UK quite quickly?

Donald Trump: Absolutely, very quickly. I’m a big fan of the UK, uh, we’re gonna work very hard to get it done quickly and done properly—good for both sides. I will be meeting with [Theresa May]…. She’s requesting a meeting and we’ll have a meeting right after I get into the White House and it’ll be, I think we’re gonna get something done very quickly.

The desire for a quick trade deal was also confirmed by one of President Trump’s advisers at Davos, Anthony Scaramucci, who expressed confidence in the United Kingdom’s ability to remain a major financial player given that “London was the financial capital of Europe 500 years before the European Union,” and it will be “500 years from now.” Scaramucci also noted that a trade agreement between the United States and the United Kingdom could be signed quickly—within 6 to 12 months—although this would not be possible until the United Kingdom formally departs the European Union (no earlier than April 1, 2019).

Regardless, it appears likely that there will be early bilateral “scoping” discussions on the outlines of a trade deal that will be ready shortly after the United Kingdom formally exits the Union. Prime Minister May will then have to manage the US-UK trade negotiations carefully on the one hand, while managing discussions with the Europeans on the other—both requiring skillful navigation. The open sea is looking better and better.

© 2017 by the Center for Strategic and International Studies. All rights reserved.

Heather A. Conley
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Heather A. Conley is senior vice president for Europe, Eurasia, and the Arctic and director of the Europe Program at CSIS. Prior to joining CSIS in 2009, she served as executive director of the Office of the Chairman of the Board at the American National Red Cross. From 2001 to 2005, she served as deputy assistant secretary of state in the Bureau for European and Eurasian Affairs with responsibilities for U.S. bilateral relations with the countries of northern and central Europe.

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