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A definitive guide to the brexit negotiations, By Sadaf Alidad

A look into “A Definitive Guide to the Brexit Negotiations” in Harvard Business Review, By Sadaf Alidad, MBA student of Alzahra University of Tehran (class assignment)

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A definitive guide to the brexit negotiations, By Sadaf Alidad

  1. 1. A look into “A Definitive Guideto theBrexit Negotiations” in Harvard Business Review By:SadafAlidad,MBA student AlzahraUniversity of Tehran,Oct 2016
  2. 2. What is Brexit? – Brexit is an abbreviationfor "British exit,” which refers to the June 23, 2016, referendum whereby British citizensvoted to exit the European Union
  3. 3. What does this article discuss? –How will the UK and EU negotiate their split?
  4. 4. How does this article analyze the split? – examining important elementsofthe process, – the key interestsand issues to be negotiated, – the leverage each side has, – some of the barriersto reaching a deal, – potential outcomes, – and strategic optionson both sidesof the table.
  5. 5. What Is the Brexit Process?
  6. 6. Brexit means Brexit
  7. 7. WhatAre the Major Issues? – Trade and Immigration – Money paid to the EU – Regulations – Free movement of people – Financial services
  8. 8. Trade and immigration Trade and Immigration – David Davis: – DonaldTusk: Simply put, the UK wants to keep the trade relationship with EU members as it is today (free trade) but significantly change the rules surrounding the free movement of people between the EU and the UK. Roughly half of the immigrants to the UK come from the EU, and polls conducted in the run-up to the referendum suggest that over 50% of those who supported Brexit considered immigration their biggest concern.
  9. 9. Money paid to the EU – Leave campaignersand supportersargued that the money saved through Brexit could be used elsewhere (e.g., to enhance theUK’s National Health Service) – There isclear precedent for this stance.Norway,which is not a member of the EU, paysinto the EU budget in order to have accessto the single market.The precise amount that the UK would pay will have to be negotiated.
  10. 10. Regulations – Leave supporterscomplained about onerousregulationsimposed by the EU, including environmentalstandards,product safety rules, and minimum working conditionsfor employees. First, many (perhaps most)regulationswill continue because they or similar onesare important for the UK, even if the EU is not imposing them Second,the EU could continue to impose certain regulationsafter Brexit in exchange for the UK’s access to the single market.
  11. 11. Free movement of people – MillionsofUK citizenslive and work in Europe,and even the loudest proponentsofBrexit want them to retain their rights – BorisJohnson:“British people will still be able to go and work in the EU; to live; to travel;to study; to buy homesand to settle down.”
  12. 12. Financial services – A particular concern for theUK in these negotiationsisthe fate of London’sfinancial servicessector.It playsan outsize role in the broader EU financial industry,where it hasa trade surplus of almost £20 billion with the rest of Europe.
  13. 13. Leverage: EU vs UK
  14. 14. EU Leverages: The economics oftrade. – Leave supporters have made the argument that the UK will be negotiating from a position of strength because the EU exports more to theUK (around £290 billion) than theUK exports to the EU (around £220 billion). – The argument is a flawed assessment of the actual stateof economic leverage. The key is to look beyond absolute numbers and consider the percentage of total exports they represent for each party. While theUK exports a lower nominal amount to the EU, these exports represent about 44% of totalUK exports. In contrast, exports to the UK are only about 10%of total EU exports. By this measure, a “no deal” (ora deal that hurts trade, to be more precise) is much worsefor theUK than it is for the EU. The need to deter future exits. – This deal will be closely watched by nationalist parties in other countries. If theUK is able to negotiate terms that give it a better deal than it had when it was a member state, that could encourage additional exits, which could jeopardize the union’s very existence.
  15. 15. – Martin Schulz,president ofthe European Parliament, has stated,“There is no intention to ensure that the UK receives a bad deal, but it is clear that there can be no better deal with the EU than EU membership.The EUmoreover must look out for its members’interestsand uphold its founding principles.The single market,for example,entailsfour freedoms (capital,goods, services, persons)and not three,or three and a half.”
  16. 16. EU Leverages: – Too many veto players. It narrowsthe zone of possible agreement but also allowsthe EU to credibly say that the UK will have to make significant concessionsto bring enough EUvoteson board. – The psychology of precedents. Although it’s a smaller factor than those listed above,the psychology ofdeal making iscurrently working against theUK.All of the precedentsin place — Norway, Switzerland,and evenCanada — instantiate the European claim that there can be no “sweetheart deal,” and that it is not possible to get accessto the European market without seriousconditions and contributions.
  17. 17. UK Leverages: – Economic impact on the EU. Albeit less than what the UK stands to lose,the EU would lose financially in the event ofa deal that is bad for trade (e.g., high tariffs).While thismight not be sufficient leverage on its own,it does help to chip away at the problem for the UK. – Influence over key players. Notably,a number of the most influential countriesin the EU (such asGermany)are the onesthat are most dependent on trade with the UK. – How these relationshipsare managed and howthey can be used to influence the Brexit negotiationswith the EU will be crucial considerationsfor theUK.
  18. 18. UK Leverages: – Security concerns. Everyone loses when the UK and EU drift apart on mattersof security.And yet there are reasonsthat Europeans should take the threat to strategic cooperationseriously.The recent referendum shows a strong isolationist attitude in theUK, and the EU might want to consider the degree to which relationshipsmight deteriorate ifthe eventual deal is perceived as one-sided (or punitive)by the British people. – Timing of invokingArticle 50. Only theUK can invokeArticle 50. When everyone wantssomething that only youcan provide,you have leverage.Thisraisesthe possibility oftheUK agreeing to invokeArticle 50sooner in exchange for concessions
  19. 19. A Key Barrier: False Promises The amount of money going to the EU was overstated; The ability to limit contributionsto the EUfollowing Brexit was exaggerated; The impact ofimmigrantson the economy wasmisstated; The ability to control immigration after a deal was inflated; And how much the National Health Service would benefit from a Brexit windfall was so inaccurate that the promise waswalked back literally the day after the Brexit vote.
  20. 20. The problem ofScotland
  21. 21. WhatAre the Possible Outcomes? – No deal =WTO rules. If no agreement isreached within two years and the EU treatiesexpire, the default is that the UK and EU would trade according toWorldTradeOrganization rules. – The Norway model. There already isa model in place for European countriesthat do not wish to join the EU but want accessto the single market.Norway accessesthe market through the European EconomicArea.In exchange,Norway agreesto many conditions,includingthe free movement of people,most EU regulations,and financial contributionsto the EU.
  22. 22. WhatAre the Possible Outcomes? – Other national models. Other modelsto followinclude those used by Switzerland andCanada. – A unique UK deal. A one-of-a-kind deal iswhat theUK government will push for, but it would be foolhardy to think that anyUK deal will ignore precedentsor allowLondon to get all of what it wants without significant concessionsin other areas. – A partial deal. Any extension to the negotiationsbeyond the two- year time period will require unanimousconsent from the 27 EU nationsremaining. TheUK and EU negotiatorswould be wise to wrap up whatever portionsofa broader agreement they can before having thingsgo to a vote on extending talks.
  23. 23. NO BREXIT! – Not following through on Brexit after all. Currently thisoption is not on the table — but once youconsider each side’s leverage and how difficult it will be to achieve a “good” deal (especially for theUK), negotiatorsmight want to keep thisoption alive (albeit unspoken)as they assess their bargaining power and craft their strategy.
  24. 24. InConclusion – The worst mistake either side could make right nowisto take aggressive unilateral stepsto improve its bargaining position without taking into account howthismight cause the other side to escalate further. – While EU leadershave seemingly ruled out any talks,however informal,beforeArticle 50is invoked,I find it hard to believe that back-channelconversationsare not under way.(And if they are not,they should be.)
  25. 25. Negotiating the Impossible – So, even seemingly impossible situationscan be handled well if negotiators: 1. stay cool, 2. prepare systematically, 3. strategize with an eye on all relevant factors, 4. have empathy for the needs and constraintsofthe other side, 5. and understand that the goal isnot to “win” but to achieve their objectives.
  26. 26. THANKYOU!