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Understanding Theresa May's Draft Brexit Deal Between UK and the EU: Trade, Ireland, Passporting and More

Professor of Financial Economics and Part-time Value Investor, Transfin.
Nov 27, 2018 12:29 PM 3 min read

In yet another important development on the Brexit front, the 27 Member States of the European Union (EU) on Sunday approved the UK’s Draft Withdrawal Agreement pushed by British PM Theresa May setting the terms under which the UK would leave the EU by March 2019.


The British Parliament is set to vote on the Brexit deal on 12th of December. There are a number of scenarios which could play out including, worst-case, a No Deal Brexit.


Trade: A No Deal Brexit could mean the UK would have to adopt WTO trade terms with the EU. This would mean a rise in costs of imports due to additional external tariffs which would come into force.


EU exports to Britain would face a trade-weighted average tariff of around 5.7%. Conversely, goods being exported from Britain into EU would face tariffs of 4.3%.


[Listen in from 17:00 onwards to learn more on the potential consequences of a No Brexit Deal]


Many sectors are expected to be adversely affected, especially auto, pharma, fisheries etc.


A No Deal Brexit would have diverse consequences, for instance, with restricted mobility across borders, manufacturers could move their operations to the EU in order to avoid delays in components coming from across the border.


Units of Toyota, Nissan and Honda in Britain depend on supply chains which go across the country and the EU.


More than 50% of the fish caught by British boats end up elsewhere in the EU. Any anomaly in the export mechanism could prove to be fateful for British fishermen.


Trade deals outside EU would also be affected. Countries with free-trade agreements currently account for only 16% of British exports by value. Most deals currently benefit from being negotiated through the Union. A No Deal agreement would result in the lapse of these deals.


EU Passporting: In case of a No Deal Brexit, banks and other financial services firms will lose their “passports” that allow them to serve clients in any EU country. 


This would mean that these firms currently operating out of London will have to shift their base to other EU countries.


The end of British passporting could call into question the £26trn derivatives market.


Obligations and Subsidies: While the British government would no longer have to pay the annual obligations worth £13bn to EU and a £39bn “divorce-settlement”, it would lose out on some EU subsidies. 


For instance, the Common Agricultural Policy alone gives £3bn to farmers.


International Borders: No agreement on the Irish Border issue shall put to test the Good Friday Agreement. 


No Rules: A No Deal could mean lapse of multiple legal obligations and definitions with the EU. 


This could potentially leave Britain with no rules to govern the trade in immigration control, aviation, financial-contract clearing, radioactive materials, international electricity markets, medicines regulation and more.


With over 1.3 million Britons residing in EU countries and around 3.7 million Europeans living in Britain, a No Deal would push their rights to live and work into uncertainty.


The Brexit, a highly-criticized and censured deal across political spectrums has divided the British politics and the citizenry. While some want to remain inside the bloc, some others want to retain close ties even post-Brexit. Yet another group wants a more decisive break, even if it comes at economic costs. To quote Luxembourg’s Foreign Minister Jean Asselborn, “Any deal is better than no deal.”


Click here for a deeper dive on the proposed Brexit Deal.


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