The Brexit vote is set to deprive the EU of its second biggest member state by GDP, its second biggest military power, one of two UN Security Council members and nuclear powers, its top aid donor and a strong voice for free trade.

Brexit Task Force

Introduction

Despite the rhetoric of the Leave campaign, exit from the Union will also hit the UK’s international standing and trade relationships hard.

This comes at a time when Europe is facing multiple external challenges, from the terrorist threat and the refugee and migration “crises” prompted by war in Syria and Libya, to declining relations with Turkey, an increasingly assertive Russia and the election of a new US president who is yet an unknown quantity. On the other side of the globe, Asia continues its rise, unfettered.

Brexit itself is a major stress-test for the internal cohesion and integrity of both the EU and the UK. Assuming – and this is by no means an assumption to be lightly made – that the two parties overcome these internal challenges, their relevance and clout on the world stage will to a large extent depend upon their ability to cooperate.

Trade

With or without the UK, the EU is the biggest single market in the world, and its common trade policy is at the heart of the bloc’s “raison d’être” and the Union’s strongest tool for global influence. The Brexit negotiations will determine whether the UK stays in the single market, therefore leaving current trade arrangements broadly in place, or whether a “hard Brexit” will engender a costly overhaul of the UK’s trade deals with the EU and the rest of the world. Such a scenario would also dent the EU’s trade capital.

Brexiteers argued that leaving the EU would unshackle the UK from a less liberal and nimble EU and allow it to make better deals with such trade giants as China and India. The reality is that leaving the single market will oblige the UK to secure new trade deals across the board. The first priority will of course be with the EU, which takes 44% of UK exports (and nurtures much of the rest through EU trade deals and European value chains) and supplies 54% of its imports. Thereafter, the UK will need to replace or compensate for the loss of the 53 FTAs that it currently benefits from as an EU member, plus the agreements being presently finalised by the EU, including with Canada, Singapore, Vietnam and Japan. Post-Brexit, the UK’s trade landscape is likely to narrow as it loses the breadth of relationships encompassed by the EU’s diversity of member states. Access to the growing Latin American market, where the EU is negotiating or upgrading its deals with Mercosur, Mexico and Chile among others, will for example probably be a challenge. Even Britain’s WTO membership will need to be clarified, which could lead to renegotiations with over 160 countries, any one of which might put a spanner in the works.

Until the UK formally leaves it is bound by EU law and cannot start new trade talks. In the meantime, the UK needs to recruit hundreds of trade negotiators, given that the EU has for the past four decades negotiated on its behalf. Moreover, any deal will depend on what the UK has to offer, which will not be clear until the post-Brexit UK-EU relationship is defined, as Britain’s attractiveness will also depend on its access to the EU market. What is already clear is that the UK alone will never be able to match the clout of the EU in this field.

Brexit also casts a shadow over the EU’s trade power. Counterparts in ongoing negotiations are asking what exactly they are being offered in return for access to their markets. An EU single market minus that of the 60 million-strong UK is a substantially lesser proposition than the original. Complicating the matter, Britain remains a key transit market for EU and world trade and investment. Many enterprises from several countries including giants such as the US, Japan, China and India have long made London their base and entry-point into the EU market, making the UK the most attractive investment destination and by far the largest recipient of US, Japanese and Chinese FDI in Europe. In addition, it is not at all clear at this time how Brexit will affect the ratification process of EU trade agreements currently in the works – causing much confusion over whether speed or caution would be the most advisable course. For these reasons among others, the EU has an interest in the UK’s close integration into the single market. If London opts however for a “hard Brexit”, the EU will not want to see a strong competitor across the Channel or a champion for other home-grown Eurosceptic voices.

Closing the deals currently on the table is a top priority for the EU, as Brexit threatens to weaken the Union’s hand and the tide turns against international trade. President-elect Trump’s hostility to free trade has put the transatlantic TTIP deal on ice, but also offers an opportunity in the Asian and Latin American markets that the EU is keen to leverage. Cooperation rather than competition would benefit both the EU and post-Brexit UK in this context.

Security

If the EU holds most of the cards when it comes to trade, the balance is quite different in the realm of security. Britain has strong leverage given its role in NATO and its strong military, diplomatic and intelligence assets. But security is a shared good, and, especially in the face of a potentially more isolationist US and more assertive Russia, both parties have a clear interest in maintaining or even strengthening ties.

An EU Common Security and Defence Policy (CSDP) will lose a major contributor with Brexit as the UK boasts sizeable armed forces, a developed defence industry and high-intensity warfare experience. CSDP leadership would likely pass to a duo composed by France and Germany, which is increasing its stakes in international security beyond humanitarian relief [White Paper].

This could actually be an opportunity for the EU to establish more permanent cooperation structures, in line with the recently presented EU Global Strategy. The UK has traditionally been opposed to any formalisation of military and security cooperation (it had blocked the operations of the European Defence Agency and further EU military integration), but now the 27 remaining member states are ready to move forward without the UK.

At the same time, given the current internal security climate, the EU cannot afford to sever or weaken security relations with the UK, and vice-versa. Cooperation on counter-terrorism, police and information sharing is more crucial than ever, and UK police have expressed concern that exclusion from EU security cooperation could make the UK an attractive hub for criminal organisations. London signalled its desire to continue and deepen security cooperation with its decision in November to “opt-in” to a new legal framework for Europol, the EU police agency. In Brussels, the appointment of Julian King as Commissioner for the EU Security Union is a signal that the EU also recognises the value the UK offers in this field.

Finding a way to maintain or even increase cooperation post-Brexit makes all the more sense in view of the potential weakening of the US commitment to European security under President Trump. The UK’s vote to leave the EU already dealt an important blow to the transatlantic partnership, threatening division and competition in future relations. In addition, Trump’s unpopularity in Europe risks spurring the kind of anti-American sentiment last seen during the Bush years. Trump’s wavering commitment to NATO, isolationist instincts and open admiration of Russian President Putin have rung serious alarm bells. Combined with Brexit and increasingly provocative statements from the Kremlin, there is a growing feeling of insecurity among Russia’s EU neighbours, especially in the Baltics [Parliament Magazine]. Whatever the outcome, the uncertainty already plays to the advantage of an increasingly assertive Russia.

The UK has always been a “hawk” within the EU and its departure increases the risk of the EU’s united position vis-à-vis Russia crumbling, which might spill over to UN level. Should the French Presidential elections deliver a pro-Moscow leader as of April 2017 – as seems probable – maintaining EU sanctions against Russia further to its annexation of Crimea might become impossible.

The declining external security environment, from the East to the South (Erdogan has moved to improve relations with Russia while distancing Turkey from the EU, and there is no end in sight to the war in Syria or the flow of refugees therefrom) has led to a boost of military expenditure in Europe [FT] and efforts to increase defence cooperation, with important decisions to be made at the 15 December European Council.

The main effort though is to shore up NATO, with the Alliance becoming all the more critical with the EU-UK divorce. The EU could never replace NATO as a security actor, and such prospects look all the more absurd with the UK’s decision to leave the Union. The UK is a heavyweight within NATO – the second contributor after the US. Since the Brexit vote, London has pledged to increase military spending to 2% of GDP, and in 2017 the UK will take over the leadership of the Alliance’s very high readiness joint taskforce. The UK’s departure has removed a long-standing obstacle to further cooperation to strengthen the defence capabilities of the EU member states. It is in the interest of the EU, NATO – and also the UK post-Brexit – to reinforce this dynamic, in order to increase cooperation.

Sustainable development

A “dwarf” in the realm of hard security, the EU’s global power has rested on its status as a trade superpower, but also on its leadership in global governance, particularly as concerns environment and development policies. In both these areas, the UK has been a major player.

EU development policy will suffer from Brexit as the UK was the largest EU member state donor and one of the biggest contributors to the common EU development budget, which focuses on Least Developed Countries and “aid orphans”. Re-appropriating its development funds (and assuming the money is not diverted elsewhere), the UK will likely focus on its existing national priorities. Any vacuum is likely to be filled by competing regional powers, notably China.

Coordination is therefore desirable, especially as EU development policies aim to tackle the root causes of problems affecting the EU member states – including the UK – such as migration and the marginalisation that underpins radicalisation.

The Paris Agreement to tackle climate change – another EU priority which the UK has championed – offers a potential model for cooperation. In this case, non EU countries such as Norway have signed up to targets together with the EU. This form of coordination and cooperation between the EU and EEA countries or EU candidate countries is well-established within many multilateral fora.

Conclusion

Brexit will leave the EU weaker and the UK isolated on the world stage. Competition would exacerbate the damage. Independently, both face major internal challenges that they need to address in order to be credible and effective externally. For the EU, strengthening internal cohesion – always a critical challenge for external action – has become an existential issue. This at least has raised the stakes and the coming months and years will be defining for the future of European trade and security policies. The stronger the ties between the UK and the EU in these areas, but also when it comes to energy and climate policies for example, the safer and more prosperous their citizens will likely be.

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