What Next for Brexit Negotiations?

Morningstar's Catherine McEwing speaks to Professor Simon Hix at the London School of Economics about the likelihood of Britain leaving the EU on October 31

Morningstar 9 May, 2019 | 10:05AM
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Catherine McEwing: Hello, and welcome to Morningstar. I'm Catherine McEwing, and today we'll be speaking with Simon Hix, Professor and Director of Research at the London School of Economics, as well as the Head of the Brexit Planning Committee for the LSE.

Good afternoon, Simon. Thanks so much for joining us.

Simon Hix: Hi.

McEwing: So, clearly, there are all kinds of topics we could discuss relative to Brexit. I thought today perhaps we could focus on a couple of questions about negotiations, specifically. You've spoken before about the economics and the politics of Brexit and how that influences negotiations and positioning on both sides. I was wondering if maybe you could give us a quick tutorial on how you've seen those factors influencing the negotiations thus far?

Hix: Yeah. So, in a sense, you can see Brexit has two stages. The first stage is negotiating the withdrawal agreement and then the second stage will be negotiating the future relationship. And from most what I've been doing is focusing on where we're heading in that future relationship and how the economics and politics will playout.

So, if this was just about economics, that future relationship would largely be a very soft Brexit relationship, where there is very open mode, there is frictionless trade, complete free movement of good services, capital and labor, that's mainly what the business interest want on both sides. But politically that's very difficult, because politically that would mean the UK would have to accept all EU rules in a single market, they have to accept the free movement of people, and would have to accept ECJ, the European Court Jurisdiction.

So, if it was about economics, it would be a much softer Brexit, but because it's much more about politics on both sides, from the U.K. point of view those red lines, from the EU's point of view, they don't want to set some dangerous precedents that could lead to contagion of other people saying, hey, the U.K. has got a great deal, we want to copy that kind of deal. So, I actually think it's going to be politics that's going to be driving this and that's why we're probably heading towards a relatively basic free trade agreement.

McEwing: Okay. Great. Thank you. So, if we think about the fact that so far, we – a number of deadlines have come and gone and we are now at the point where we have a deadline of October 31st. So, using your background as social scientist, someone who has studied the EU politics for 25 years as well as viewing negotiations so far, what are maybe some of the milestones that we might expect over these next several months? And then, what do you think is going to happen at the end? Do you think there'll be another extension? Do you think that we will…?

Hix: I actually think it's – the most likely thing, I think, is we're going to see a slightly different version of the deal that's on the table. Not some big changes, but a few small changes. From the EU's point of view, I think they don't want no deal. I think we've seen the fact that the EU would rather just keep delaying and now that they've done one delay, it's easy to do another delay. If they haven't got a bargain done by the 31st of October, I can imagine another delay perhaps for another six months.

From the UK's point of view, particularly the Brexit tears in the UK, that changes their calculations, because for them if the fallback is not no deal, if the fallback is permanent delay then they'd rather accept a deal on the table that they're not 100% happy with. So, knowing that, I think, actually it's most likely a new version of May's deal will be passed by 31st of October or probably going to leave on 31st October if not a few months before.

McEwing: Okay, great. So, we've talked about negotiations so far, how you see them going between now and the end of October. You've spoken in the past about the concept of bolt-ons after the withdrawal agreement is agreed and after we've agreed some of the ongoing relationship parameters. So, could you give us an idea of what some of those results going to be?

Hix: Yeah. So, what you're going to realise is that a lot of people think the Brexit is this withdrawal agreement and then the future relationship and then we're done. Well, no. Brexit is a permanent relationship between the UK and the EU. And what we know from all other countries that have permanent relationships with the EU is that they're constantly being renegotiated and things get added to them. For example, how does it relate to what sort of EU programmes would actually British industry or society or different sectors of the economy like to be part of. So, for example, the universities would like to be part of the European research programmes. And a lot of sectors and society would like to have free movement of high skilled labour. So, you can imagine the negotiations around, for example, UK/EU Blue Card scheme for high skilled labour. The kind of thing that Canada and the US has for the free movement of high skilled labour.

Or you can imagine in the security sector, you can say, I think there should be an EU/UK Security Summit or a way we can share data on terrorism or criminals of a certain category or even an EU/UK arrest warrant, an eversion of the arrest warrant currently we have. So, you can imagine – so the way to think of that is, once we've got that future relationship, that's the start of a new relationship. That new relationship will carry on evolving with things being added to it as we move forward.

McEwing: Fantastic. Well, thank you very much for that quick run through of Brexit so far and going forward.

Hix: Thank you very much.

McEwing: Thank you all for joining us at the Morningstar 2019 Investment Conference.

This article is part of Morningstar's special report on What the Experts Say

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