How Brexit's Article 50 Will Affect G7 and G20 Summitry in 2017
Sarah Richardson, G7 and G20 Research Groups
April 3, 2017
On 29 March 2017, a letter from British prime minister Theresa May was delivered to European Commission president Donald Tusk expressing the UK government's wish to invoke Article 50 of the Treaty on European Union and begin the process for the UK to leave the bloc after 44 years of membership. The full impacts of this move are as yet unknown and will largely depend on the negotiations over the next two years.
The tone on Wednesday from London was rather more conciliatory than it had been. May called specifically for a comprehensive free trade deal with Europe that would essentially preserve access to the single market. Her stated priority for restricting immigration and the implicit rejection of the free movement of people has blocked any negotiation for a "soft Brexit" and suggests the road ahead may be difficult. May reminded Europe of the UK's vital role in guaranteeing the security of European citizens and highlighted the importance of normalizing the status of the six million European Union residents in the UK and the million UK residents on the continent.
If Brexit plays out based on May's scenario, the EU/UK relationship might continue in a "business as usual" mode only "better." The UK would benefit from full liberalization of trade and investment with Europe with control over immigration to serve the national interests and exclusive jurisdiction to impose and enforce laws at home. However, based on initial responses from Brussels, this outcome appears increasingly unlikely. The process of extricating the UK from the EU will be fraught with complications and uncertainty as the EU seeks to send a strong message to rally the remaining membership in support of a strong Europe. Either way, the dynamics of the UK's relationship with Europe and the rest of the world will play out in forums such as the G7 and the G20.
Brexit is seen as a burden on global economic recovery and a risk to growth. Central to both the G7 and G20 agendas is the future of trade. Global trade performance has been somewhat disappointing in recent years and Brexit represents a challenge for the UK and for countries seeking to trade with the UK — including Europe — because future trading regimes will have to be negotiated outside the context of the single market.
Both the G7 and the G20 need coordinated responses to boost shared growth and deliver a more inclusive trading regime and more inclusive globalisation. Within the G20, there may be well-founded uncertainty given the mood in some developed countries that working-class and middle-class families are not benefitting from globalization. This was manifested in Brexit and in the 2016 U.S. election of Donald Trump, who immediately made good on his promise to withdraw the United States from the Trans Pacific Partnership (TPP). There is opposition in some European countries to the Transatlantic Trade and Investment Partnership (TTIP), and discontent with globalization is an emerging issue in upcoming elections in Europe. A "hard Brexit" could result in the UK rolling back liberalization in its trading arrangements, its hugely important services sector (particularly financial services in the City of London) and foreign direct investment. It could also affect the behaviour of large companies that rely on the efficient functioning of global value chains, which have been increasingly important since the 1990s.
The current environment, with its populist, protectionist and even isolationist undertones, may prove challenging to binding bilateral and multilateral initiatives and to reducing trade barriers and restrictions further. This is despite the fact that many G20 members remain enthusiastic to pursuing open trade and investment to help secure economic and sustainable development and to combat poverty. India and China may take more prominent leadership roles in the G20 in trade and investment. There may also be some increased attention on the role of the World Trade Organization if its rules govern the EU-UK trade relationship in the absence of a comprehensive bilateral agreement.
Development itself is closely related to any economic fallout and instability in trading arrangements between the UK and G20 members. The UK is a major destination for exports from developing countries, including several African, Caribbean and Pacific (ACP) countries under economic partnership agreements with the EU. New agreements will be needed to maintain these trading relationships and avoid negative fallout for the ACP countries. Long-term repercussions will be determined by the nature of bilateral cooperation and trade deals that the UK can secure with the EU and with ACP countries along with other developing countries.
Also at stake is the UK's leadership based on its traditionally very strong role supporting aid for trade and trade-led international economic development. The UK is one of the few G7 countries to meet the United Nations target of providing 0.7 per cent of gross national income in overseas development assistance. Outlooks for continuing to promote trade-led economic growth and sustainable development — both linked closely with the UN's Sustainable Development Goals — may become more challenging. This is despite the fact that the role of trade in the SDGs is likely to remain important within the G20, building on the G20 trade ministers' Strategy for Global Trade Growth.
The UK has its work cut out for it to secure a concrete path towards economic growth and trade liberalization and to maintain its traditionally strong leadership and advocacy role, particularly in development, climate change and governance. This involves, inter alia, defining and pursuing comprehensive trade arrangements with developed and developing countries, aiming for high levels of regulatory convergence with international partners in both economic and social domains, setting its own strategy for greenhouse gas emissions to meet the 2020 deadline in the Paris Agreement, developing a policy on migration and refugees consistent with its international commitments, and ensuring effective cooperation in areas such as crime and security.
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Sarah Richardson is a research associate with the G20 Research Group and the G7 Research Group, with expertise in policy related to trade, environment and sustainable development. As an independent consultant, she has worked closely with the Government of Canada on environmental assessment of trade liberalization. International clients have included organizations such as the United Nations Environment Programme and the European Commission as well as non-governmental organizations including the World Wide Fund for Nature, WWF-United States, Oxfam and Save the Children. Previously, Sarah was the manager of the Environment, Economy and Trade Programme at North America's Commission for Environmental Cooperation and the foreign policy advisor at the National Round Table on the Environment and the Economy. Most recently, Sarah has been active in the private sector, owning and operating a business importing, distributing and selling sustainably produced design objects from developed and developing countries alike. Sarah holds a B.A. in international relations from the University of Toronto, an LL.B. from Dalhousie University and an LL.M. from Columbia University.
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