Brexit has become a political and constitutional fiasco. It may also have dire consequences for business. Firms must deal with lingering uncertainty and the possibility of forfeiting the benefits of frictionless trade under European Union (EU) rules. This is the result of a flawed political process and lack of leadership. Brexit failed to deliver an agreement on the departure of the United Kingdom (UK) from the EU, which was due to happen on 29 March 2019. The European Council has now granted the UK a second extension (until 31 October 2019) to secure parliamentary majority. But the prospects do not look good. More extensions might be required.

Brexit has been prompted by a referendum in the UK, held on 23 June 2016. Before the British general election of 2015 David Cameron, the former Prime Minister, had promised a referendum on UK membership of the EU. The ballot paper contained no choices about the future relationship with the EU, the UK’s most important trading partner. It simply asked: Should the United Kingdom remain a member of the European Union or leave the European Union? Just under 52 per cent of the British people voting supported the leave option

This outcome has subsequently been described as a “revolt against the rich and powerful elites”.[1] The ‘Leavers’ campaigned primarily on issues relating to sovereignty and migration. They were particularly successful in the poor and neglected regions of Northern England, the Midlands and in struggling coastal towns. The remain campaign focused on the economic consequences of leaving the EU.

Cameron’s successor, Theresa May, then triggered Article 50 of the Lisbon Treaty on 29 March 2017, starting the two-year withdrawal process. This decision was taken with undue haste. Article 50 is untested territory. It provides for certain procedures, but all the tough issues must be negotiated between the EU and the withdrawing state. There must also be provisions on the transitional application of EU rules, in particular with regard to the rights of EU citizens.[2]

The future relationship with the EU requires a second agreement, to be thrashed out during the transitional period. A hard Brexit means the UK will exit from the EU, the customs union, as well as the single market. It will then trade with all third parties under the MFN rules of the WTO. If no withdrawal agreement is concluded within two years, EU membership and all the benefits of the withdrawing state end automatically, unless the European Council grants an extension. The withdrawing state must also enact its own legislation for trade governance, from customs administration, rules of origin, to the regulation of service providers, health and safety standards.[3]

At the time some experts warned that it could take up to ten years for the UK to exit from the deep integration and governance arrangement that the EU has become. It has grown into a single market in which labour, goods, services and capital move freely across the borders of the 28 member states. Goods imported from third countries also move freely once they have entered the EU market.

The UK government could not make the 29 March 2019 deadline. The technical challenges inherent in the Brexit process have been underestimated and were not properly studied. Mrs May’s early “red lines” added to the complications. She promised that the UK would leave the single market, she opposed membership of the EU customs union, would control the number of people coming to Britain, and promised to stop the “vast” contributions to the EU budget.[4] At one point she even proclaimed that no deal would be better than a “bad” deal. These red lines became serious obstacles. Mrs May’s withdrawal agreement was defeated three times. The first defeat was by a margin of 230 votes, the biggest loss in parliamentary history.

There were other disasters too. After the (unnecessary) snap election of 8 June 2017 the Conservative Party lost its majority and had to form a government with the support of the Democratic Unionist Party (DUP) of Northern Ireland, a Eurosceptic party.

Little was said about the Irish border during the 2016 referendum campaign. This matter grew into one of Brexit’s most intractable problems and a threat to the 20-year peace in Northern Ireland. It became known as the Irish backstop issue. After Brexit the border on the island of Ireland would be the only significant border between the UK and the EU. All parties want to avoid a hard border in Ireland, but the EU insisted that there must be a safety net (a backstop) to ensure an open border between Northern Ireland and the Republic of Ireland (an EU member) in the event that the UK leaves the EU without a deal. Northern Ireland (which is part of the UK) would then stay in the customs union and much of the single market. The backstop is strongly supported by the EU (and the Irish government) but is deeply unpopular with many in the Conservative Party, who are concerned that the UK could end up, post Brexit, in an “open-ended” customs union with the EU.[5]

And then came the very important development around the “meaningful vote” procedure for adopting a withdrawal agreement. The UK government cannot ratify any Brexit deal until Parliament has approved it.[6] But Parliament and the ruling party are deeply divided. There is no majority for Mrs May’s proposal nor for any of the options which have been put to the vote. Mrs May now has little control over Parliament, the Conservative Party or even her own cabinet. It is hard to predict how long she will remain Prime Minister.

Where does the Brexit process stand? Britain will remain in the EU but diminished in power and status. The EU would also hold a special June summit to review the UK’s behaviour as a member state, addressing the concerns of the French president that the European project must be protected. The UK must now hold European elections in May (which was never contemplated) or leave on 1 June without a deal. This would be a most unfortunate outcome, for the EU too.[7]

So what lies ahead? For the moment the can has been kicked down the road. Mrs May is conducting talks with the Labour Party to try and secure a parliamentary majority for a new proposal. But this process inspires little confidence. It is not in Labour’s interest to rescue the Conservative Party from a crisis of its own making. Such a deal could also cause a permanent split in the Conservative Party. At some point there may be no alternative but to have a second referendum or hold a general election to deliver a parliament capable of making a final Brexit decision.

Brexit’s consequences will be felt beyond the UK and the EU. Nancy Pelosi, speaker of the United States House of Representatives has, for example, warned that there will be no US-UK trade deal if Brexit harms the Irish peace accord.[8] South Africa and the Southern African Customs Union (SACU) member states count amongst those that will be directly affected by the terms of the Brexit deal, or even more so by a hard Brexit. They must find a legal formula for securing the preferential market access benefits of the recently concluded Economic Partnership Agreement, to which the UK is (still) a party.

The UK government wants to “roll-over” existing trade benefits such as those guaranteed by this Agreement. It must be done on a reciprocal basis to ensure uninterrupted trade flows when Brexit arrives. This may prove to be a more complicated matter. Until the content of a final Brexit deal is known, there will be no certainty as to what must be rolled over and when. Some technical aspects (such as the extent of post Brexit cumulation) must still be sorted out. Eventually Brussels will have to agree with whatever is negotiated with the UK in order to ensure compatibility with the Economic Partnership Agreement with SACU.[9]

Brexit was launched as a bold promise to forge new realities; the UK would trade with the rest of the world on its own terms. But for now, the UK’s ability to negotiate new trade agreements remain a distant, uncertain and costly prospect. With the benefit of hindsight many now prefer the certainties of EU membership. “Sovereignty” may come at too high a price.

This saga holds important lessons. One of them is about the costs and unforeseen consequences of breaking up well-functioning regional integration arrangements. When it comes to such issues, politicians would do well to ponder all the implications rather carefully. And they should avoid referenda suggesting simple choices.

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[1] Andrew Marr, A History of Modern Britain, Pan Books, 10th edition, 2017, at 606.

[2] European Parliament briefing:  pdf Article 50 TEU: Withdrawal of a Member State from the EU (843 KB)

[3] Consumer groups have already warned that dangerous products and appliances could enter the UK after Brexit unless the government reforms the local safety enforcement system or negotiates continued access to the European Safety Gate system. The Guardian, 15 April 2019.

[4] https://news.sky.com/story/brexit-picking-apart-theresa-mays-red-lines-on-leaving-the-european-union-10732511

[5] https://www.dw.com/en/brexit-why-is-the-irish-backstop-so-controversial/a-47273841

[6] Art 13 of the EU Withdrawal Act says the Government cannot ratify the Withdrawal Agreement unless the negotiated Withdrawal Agreement and the framework for the future relationship with the EU have been approved by the House of Commons, a subsequent debate has taken place in the House of Lords, and Parliament has passed legislation to implement the Withdrawal Agreement.

[7] See the discussion in The Economist of 13 April 2019, at 26.

[8] The Washington Post, 16 April 2019.

[9] https://www.tralac.org/news/article/13955-sacu-mozambique-make-progress-on-impending-brexit.html