What Is Brexit? And What Happens Next?

Jan 7, 2021, 11:36 AM

Britain broke from the European Union’s regulatory orbit on Jan. 1, casting off nearly half a century inside the bloc.

While it formally left in January 2020, for 11 months Britain was in a transition period, operating under E.U. rules as negotiators settled on terms of the two sides’ future commercial relations.

The split, known as Brexit, has now been finalized, setting in motion what analysts say will be the biggest overnight change in modern commercial relations. A trade agreement between the two sides, far from closing the book on Britain’s tumultuous relationship with the rest of Europe, opened a new chapter, starting with an avalanche of trading obstacles on Jan. 1.

Britain has debated the pros and cons of membership in a club of European nations almost from the moment the idea was broached, in the years after World War II. In the 1960s, it applied twice for membership in what was then the European Economic Community, only to be vetoed both times by France.

In 1973, Britain finally joined the club — and held its first referendum on whether to leave less than three years later. At the time, 67 percent of voters supported staying in the bloc.

But that was hardly the end of the argument.

In 2013, Prime Minister David Cameron promised a national referendum on European Union membership with the idea of settling the question once and for all. The options offered to voters were broad and vague — Remain or Leave — and Mr. Cameron was convinced that Remain would win easily.

After an acrimonious campaign, in which the Leave side was criticized as pushing misleading and contradictory messages and later accused of breaking election rules, withdrawal from the European Union emerged with the support of 52 percent of voters.

Europe is Britain’s most important export market and its biggest source of foreign investment, and E.U. membership has helped London cement its position as a global financial center.

With some regularity, major businesses announced that they were leaving Britain because of Brexit, or at least threatened to do so.

Had the split been finalized without a deal governing future commercial relations, businesses feared enormous logjams at the borders and deep uncertainty about rules of trade across the English Channel.

But even with a deal, the path forward is uncertain. The Office for Budget Responsibility, an independent official body that assesses the British government’s economic plans, estimated that economic output in the country could be 4 percent lower cumulatively over the next 15 years than it would have been inside the European Union.

British companies have long been able to move goods to and from the European Union without paying taxes or tariffs. Had the two sides failed to reach a deal before the Dec. 31 deadline, tariffs would have been imposed, raising the price of cars considerably and making it much more difficult for British farmers to sell meat, for example, elsewhere in Europe.

A no-deal separation also looked likely to create gridlock at British ports and strand trucks on either side of the border.

The new agreement meant that Britain avoided onerous tariffs or quotas on goods. But problems at the border could still emerge, with checks increasing and traders having to complete new customs declarations. And commercial relations face more restrictions.

The number of people employed in fishing in Britain has fallen in recent decades — a decline for which Brexit proponents blamed E.U. rules on sharing access to fisheries — and the British government cast its split from the European Union as a chance to revive the industry.

Britain originally sought an 80 percent reduction in the share of fish that E.U. boats would be allowed to catch in British waters. But Prime Minister Boris Johnson made significant concessions on that point: The European Union’s fishing quota in British waters is being cut 25 percent.

Brussels also compromised: That quota reduction will come into effect over five and a half years, roughly half as long as its negotiators wanted.

British fishers, unhappy not to have exclusive access to fish in British waters, complained about the deal. But analysts said British boats wouldn’t have the capacity to catch everything that once went to European boats, even if they had the right to.

A no-deal scenario would have brought tariffs on British fishing companies, which currently sell much of their catch in E.U. countries.

A Guest Editorial

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