Why Raisina Hill And India Inc. Need To Study The Brexit DealBloombergQuintOpinion
Why should the Christmas Eve 2020 Brexit Deal matter to Indian government officials, businesspersons, lawyers, students, and indeed the nation at large? The short answer is the Deal marks an historical inflection point whereby India should shift its conventional focus from seeing the United Kingdom as not only the entry point for Europe, but also as a major force in world affairs to regarding the 27-member European Union as the new gateway for Europe, and a top-tier global force.
The reality of the Brexit Deal that may shock India is that it overwhelmingly favours the EU, which never transgressed any of its red lines, and thus creates new opportunities for India in Europe in all dimensions of economic, political, strategic, legal, and cultural life.
In the 1,246 paged Brexit Deal lie five key takeaways for India, and the lessons to draw therefrom.
Core Economic Interests Neither Identified Nor Defended
The U.K. bizarrely benchmarked its sovereignty on control of fishing rights within its 200-mile exclusive economic zone, and particularly within 6-12 miles from its shores. But Britain’s comparative advantage is not in fishing, which accounts for 0.12% of its GDP – less than Harrod’s! Rather, it’s in services, which comprise 80% of U.K. GDP, and particularly financial services, which constitute 7% and are Britain’s largest export revenue earner.
Indians participate in these services through all modes of service supply. They have for nearly 200 years. Some of Britain’s oldest banks were rooted in South Asia before they consolidated in the City of London.
Also, under the Brexit Deal, no longer does the EU automatically recognise the U.K. accreditation credentials of non-financial service professionals, from doctors and dentists to accountants and architects, many of whom are Indians.
To practice in the EU, Britishers need to meet EU standards. Likewise, commercial and investment banks as well as insurers in Britain lost their single passport to the Continent.
The U.K. also failed to defend its data flow interests.
Without free cross-border data exchange, digital businesses in Britain are handicapped. The EU set world-class data privacy protection standards, but post-Brexit, can’t be assured of the security of data sent to and stored in Britain. An adequacy certification may be in the offing. But it, like equivalency determinations, is revocable, a possibility generating uncertainty. Imagine Tata Consultancy Services having to cater to different sets of data regimes where earlier there was one.
- Non-financial service professional bodies should target EU standards.
- Financial authorities, like the Reserve Bank of India and Securities and Exchange Board of India, should seek EU equivalency determinations.
- Data protection laws should be synchronised with those of the EU, and where data localisation is necessary, servers put in the EU.
Britain’s Brexit-driven internal barriers suggest a movement toward sub-national trade within the U.K., as well as segmented trade between the U.K. and EU. That’s because of three emerging partitions: Northern Ireland, Gibraltar, and Scotland.
A border now exists at the Irish Sea. Certain exports from England, Scotland, and Wales, on the one side, to Northern Ireland, on the other side, need documentary and physical examination, because Northern Ireland remains in the EU common market. Some merchandise flowing oppositely needs examination in respect of U.K. measures.
As to goods moving between Ireland and the U.K., customs declarations are required.
Northern Ireland’s continued presence in the EU customs union, and Gibraltar’s in the Schengen Zone, are precedents for Scotland’s claim to special trade treatment within the U.K. The winds of partition are blowing in the Scottish Highlands: “if they got a special deal, then we, who voted overwhelmingly ‘Remain,’ should, too.”
Sub-national identity, and its implications for international relations, also run contrary to India’s recent efforts, through its Goods and Services Tax, to allow goods to move more freely across state borders.
- Two supply chains should be contemplated to facilitate trade into the EU and U.K.
- New or further investment north of the River Tweed should be postponed until Scotland’s status is definitively resolved.
- India should not lose faith in its GST regime, but rather continue to break down internal boundaries.
Weakened Strategic Position
With Brexit, Britain rejected Sir Winston Churchill’s 1946 ‘United States of Europe’ speech, and embraced Margaret Thatcher’s 1988 Eurosceptic Bruges speech, and thus cast two foreign policy and defence doubts upon itself. First, after gaining entry in 1973 as the “sick man of Europe” into the Europe’s common market, but quitting 48 years later, can its loyalty to an alliance be trusted? Second, can the U.K. reinvigorate itself?
The Brexit Deal hardly assuages these doubts. It means the U.K. self-marginalised in a world the U.S., China, and EU dominate.
- The Anglo-American alliance is not even a third-order issue for President-Elect Biden.
- A Sino-British alignment would be a clash of civilisations.
- Post-Brexit, the EU is moving past the U.K. to strike new trade and investment agreements.
To whom, then, will the U.K. turn to stay as powerful, authoritative, and prestigious as it was?
In Brexit negotiations, the U.K. always was outmatched. Britain earned roughly 13% of its GDP from its exports to the EU, whereas the EU relied for only 3% of its GDP on its exports to the U.K. Small wonder why the U.K.’s Office for Budget Responsibility projected the U.K. will suffer a diminution in GDP of 4% relative to EU membership.
Britain’s troubled relationship with Europe prompts a third question, on India’s fraught relationship with its neighbours.
The South Asia Free Trade Agreement is unimpressive. India’s withdrawal from the Regional Comprehensive Economic Partnership is unambitious. And, Delhi’s disinterest in the Comprehensive and Progressive Agreement for Trans Pacific Partnership is unenlightened. Where next?
- Military ties with the U.S. and EU should be enhanced.
- Free trade agreements with the EU should be pursued.
- Pan-Asian trade and investment linkages should be strengthened.
A Diminishing Legal Model
The Indian Republic rests on English law, the Indian legal imagination is essentially Anglophilic, and the contracts, property rights, and dispute settlement mechanisms that affect Indian businesses are essentially British. All that needs to change, because the Brexit Deal heralds the ascendency of EU law.
Brexiteers ballyhoo the termination of the role of the European Court of Justice in adjudicating U.K.-EU disputes. But, the Deal’s ECJ-free dispute settlement mechanisms aren’t pro-British. For cases in which the EU complains Britain tilts the competitive playing field in favor of British firms, the EU can impose rebalancing tariffs on U.K. imports, if British regulatory divergence materially impacts trade or investment.
- Especially for merchandise of keen export interest, SPS and TBT regulatory harmonisation with EU rules should be sought.
- Supply chains should be secured against forced labour, and illegal fishing and timber, so the EU doesn’t bar merchandise for flunking its labour and environmental rules.
- Cooperation with EU law enforcement and intelligence services should be strengthened, as should be mutual legal assistance treaties with the EU.
- Law schools and firms, and government entities, should build capacity in EU law, and specifically, that law should be a required course in law schools the Bar Council of India supervises.
No Longer A Multicultural Human Capital Beacon
The Brexit Deal means the U.K. can implement its own points-based immigration system, thereby charging exorbitant visa application fees and denying entry to any and all from the Continent. But, the departure from the free movement of peoples is not just with respect to Continentals – it’s an insularity against all outsiders. Not unlike Trumpers, Brexiteers imagine they’ve ‘won’ on immigration against everybody.
Their victory, however, was Pyrrhic.
Britain lost on human capital – the ultimate resource for, and source of, a nation’s strength. Immigration won’t be a dynamic driver for innovative U.K. growth.
The loss raises inbound and outbound questions. First, why go to the U.K.? The Brexit Deal ratified ugliness: implicit bias, if not racism, underlay the U.K.’s rejection of free movement of European peoples.
Second, thanks to Brexit, Britishers can’t easily train in the EU. They can’t stay for too long without a visa, nor participate in the renowned Erasmus student exchange program.
- It should be understood that if the U.K. doesn’t want unimpeded movement of Europeans, then a fortiori it doesn’t want more Subcontinental migrants.
- Study and internship programs should be organised with the EU, so that students can reside temporarily in the EU, upgrade their human capital, and return home as professionals.
With negligent lethargy, the U.K. kicked the can down the road on crucial points, with approximately 25 committees as venues for endless talks about the Deal’s implementation. Britain did Brexit the way it did Hong Kong, failing to nail down what really mattered. That’s true even on the most obvious of points: the U.K. knew the EU had targeted 2030 for 30 million electric vehicles. Yet, Britain didn’t secure auto rules of origin to assure British-based foreign EV auto producers’ long-term access to the bloc. So, Indian auto and auto parts supplier-exporters to the U.K. can't be sure whether or how they might fit into a supply chain configured to meet those ROOs.
Britain’s Brexit Deal stratagems and results blended the ignominious traits of two prominent characters in Shakespeare’s King Henry IV, Part One, Hotspur and Falstaff – intemperance and foolishness. Lacking was the ability of King Henry and the Prince of Wales to consolidate the realm.
India, exit the U.K., stage right. Write a new play with EU leaders.
Raj Bhala is the inaugural Brenneisen Distinguished Professor, The University of Kansas, School of Law, Senior Advisor to Dentons U.S. LLP, and Member of the U.S. Department of State Speaker Program. The views expressed here are his and do not necessarily represent the views of the State of Kansas or University, Dentons or any of its clients, or the U.S. government, and do not constitute legal advice.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its Editorial team.