UNO December 2016

Brexit: Ten conclusions and the impact of this leap into the unknown



Since June 23, when the United Kingdom referendum on remaining a member of the European Union (EU) took place, enough time has passed to be able to draw some conclusions from its result.

The first is that the decision for one of the “great” member states to abandon the European Union is unprecedented. Therefore, negotiations for the detachment, to some degree like a divorce, must be carried out with all the guarantees necessary so as not to add more uncertainty to the already uncertain current position of European integration. The European Union must contribute to generating stability and confidence inside and out its borders, but neither the result of the referendum or what has been happening so far lead to this.

Second, as has already been said by the presidents of the European Council and the Commission, as well as by leaders of the most important countries in the EU, is that without formal notification from the United Kingdom, there will be no negotiations, nor even exploratory talks. This is fundamental, since something so transcendental must be addressed by scrupulously respecting that established in Article 50 of the Treaty on European Union, which establishes that the first thing a member state deciding to leave must do is “notify its intention to the European Council.”

The implications in the legislative area lead us to a third conclusion—that after 43 years of the incorporation of European legislation into the United Kingdom’s legal system, it will produce a separation of such size that it will not be easy, in principle, to successfully and fully complete it within the 2-year timeframe originally envisaged in the aforementioned Article 50.

The fourth conclusion is of an economic nature, as it must be kept in mind that the European Union is the United Kingdom’s most important trade partner. Forty-four percent of British exports are destined for the Union, and the European Single Market represents a prime economic and trading space for British companies. As a result, leaving the Union will very significantly affect the companies located on British soil, impacting all areas of business but, most particularly, those in the financial sector due to the importance of London. There is no conceivable agreement that could be reached between the United Kingdom and the EU that would allow it to benefit from access to the internal European market but exclude it from the obligation to respect the free movement of people.

The fifth conclusion refers to the fact that the agreements signed by the European Union regulating trade and investment relations between its member States and other countries or groups of countries will cease to apply to the United Kingdom, clearly affecting its productive and trade potential.

In this leap into the unknown, the European Union must have enough foresight to reaffirm the principles and values that have allowed Europeans to enjoy a model of coexistence unseen anywhere else on the planet

As the sixth conclusion, the exit from the EU will have a clear impact for the United Kingdom with regard to its security strategy and, particularly, its measures against terrorism and organized crime, as it will lose all measures adopted in relation to Justice and Home Affairs and must also leave Europol.

The withdrawal from the EU generates a seventh conclusion, relating to the delicate issue of the United Kingdom’s internal regional cohesion. First and foremost, there is the issue of Scotland, which held a referendum on its independence less than two years ago, the result of which was decisively influenced by the United Kingdom’s status as an EU member state. In addition, Northern Ireland will find itself in a complicated situation with regard to Ireland, which will continue to be a member of the EU and therefore will have to impose controls at the border with the northern part of the island. Gibraltar will also suffer a clear change as a result of the United Kingdom ceasing to be a member of the EU, as it will again be in a situation like the one it was in before Spain became an EU member state: Its residents will lose the privileges of traveling to and establishing themselves in Spain. Intergenerational cohesion will also be affected following the very different voting habits in the referendum by younger and older people.

With the United Kingdom’s exit, British citizens will no longer be nationals of a member state. Therefore, the ninth conclusion is that they will cease to be citizens of the Union, and those from the other 27 EU members will cease to be citizens of the United Kingdom, as it will be a non-EU country. They will therefore lose the benefits associated with European citizenship, such as the rights to live, work and own property in EU member states; retire to live in a member state other than their own; receive health benefits using the European Health Insurance Card under the European Regulation for the Coordination of Social Security Systems; vote in local elections of other member states; and more.

Upon activating Article 50 of the Treaty of Union and starting to negotiate the withdrawal agreement, at the beginning of spring 2017 the United Kingdom will start the countdown to its detachment. The tenth conclusion is the loss of its ability to influence the European Union. As an outgoing member, its credibility will be greatly diminished.

What began as something isolated or with an almost “exotic” flavor for Latin America has been transformed into a trend that is here to stay

In this leap into the unknown, the European Union must have enough foresight to reaffirm the principles and values that have allowed Europeans to enjoy a model of coexistence unseen anywhere else on the planet. It must better explain the cost of “non-Europe,” i.e., that of breakup, in an increasingly globalized world.

It is precisely this prospect of breakup that is facing the European Union, which makes the challenges even greater and more demanding. Nobody can be surprised that Brexit has generated strong social, political, economic and financial effects that may have a first, second and even third wave, depending on events. However, there is something we must not lose sight of in this situation of profound changes, leaps into the unknown included, and that is how to understand and accept the origin of an event such as this: the public has realized it can influence its future and is uniting to do so. This is something that sounded very distant for the business community a few years ago, but that is starting to become more frequently seen and palpable in the results of people power and collaboration for action.

09_1This empowerment has undoubtedly had an international impact, and Latin America is living proof of this, with cases such as the peace referendum in Colombia, which led to a resounding defeat for those who supported the process of dialogue between the Colombian government and the FARC. Its approval was taken for granted. There is also the case of Chile, with a more political but no less significant event in the recent municipal elections, which saw a historic level of abstention, seen in many circles as the public’s punishment of the political class for a series of malpractices that involved the business community as well, such as a series of scandals of greater or lesser impact related to the irregular funding of politics.

However, we can see people have decided to speak out and assert their voice. Correct or not, it is their voice. Like a trail of gunpowder, there are various movements that have been shaped by a “Brexit Spirit” in the region, some of which were first born before the very phenomenon that caused them.

It must be clear that what began as something isolated or with an almost “exotic” flavor for Latin America has been transformed into a trend that is here to stay. Examples? The mass protests seen in Brazil from 2013 up to the start of this year, which mutated from a rejection of price rises in public transport systems to marches attended by 3 million people, thought to be the biggest since the return of democracy to the country, and which had a certain feeling of being against the Workers’ Party (Partido de los Trabajadores – PT) as a result of President Dilma Rousseff’s removal from office. We must not forget the mass protests about the education system that started to be seen in Chile in 2006 as well, which saw significant peaks in subsequent years before giving way to the coordination and action of a movement known as “No + AFP,” in which jaded citizens gather to protest and demand changes to a pension system run by the Pension Fund Administrators (AFPs), who are ultimately the villain of the movement.

Taking a quick look at the rest, we have Argentina, with mass protests and the end of the 12-year period of Kirchnerist governments. Mexico, with mass protests after the disappearance of 43 students from Ayontzinapa and concerns about significant failures in human rights in certain areas and sectors of that country because of the systematic state and national authorities’ silence. And Venezuela, with a significant level of tension due to demands to hold a recall referendum to remove its current Head of State. Not to mention other previous factors that led to an unsustainable situation and a true dead end. All of the above are examples of the new reality taking hold in our region, which just a few years ago, was something completely unseen in Latin America.

As has happened many times before, regional events of the aforementioned magnitude generate situations accompanied by reactions that are untimely and not very connected to reality, and that in one way or another have been plunging companies and governments into a state of shock and paralysis from which it is very difficult to snap out.

The current climate is dominated by profound sensitivity, a growing discontent in broad layers of Latin American society

Obviously, the fact that situations of this type are excessively virile and unusually severe is explained by the current climate, which is dominated by profound sensitivity, a growing discontent in broad layers of Latin American society and increasing public activity, exemplified by the protests seen in recent years, some of which were described above.

Finding the key to building a new agreement and narrative in a world of constant change and transformation is the new challenge for the business community, which needs to read the environment correctly and build, then efficiently and effectively manage their reputations. The above is a result of globalization, the explosion of the media and the socialization of communication combined with the progress of major emerging economies, which rightly entails the empowerment of a large part of the population that barely counted in many countries until only a few years ago.

A no less significant point in all of this is the global financial crisis from 2007-2010, attributed to business sloppiness, individual greed and negligence on the part of regulators. This affected much of the population’s perception on poor corporate conduct, an idea which went viral and global via the mass media through, for example, popular movies about the Wall Street debacle and the disappearance of the Lehman Brothers, among others. All of this ended up hardening negative feelings toward a lazy and unconcerned business class and laid the foundations for a Brexit Spirit that did not ask anyone when it could arrive. And it does not intend to leave the stage until the decisions and realities causing it are clearly being addressed. But this must be done with real consideration—not in an aesthetic way, but rather an ethical one.

Claudio Ramírez
Partner and managing director for LLORENTE & CUENCA Chile / Chile
Partner and managing director for LLORENTE & CUENCA Chile, Ramirez graduated as a journalist from Andrés Bello National University and has an Executive MBA from Diego Portales University. He also has a diploma in Multimedia from the Pontifical Catholic University of Chile and in Branding from the University of the Pacific. He has worked for various local and regional media organizations; his previous positions were editor of Consorcio Radial de Chile and business editor at the agency Business News Americas until 2005. Ramirez has also worked as a full professor in local universities, teaching Business Management and Communication Strategy courses. [Chile]
José Isaías Rodríguez
Senior advisor of LLORENTE & CUENCA / Spain
A senior advisor of LLORENTE & CUENCA, Rodriguez began his career in the Spanish Confederation of Business Organizations (CEOE) as deputy director of the Department of European Communities. He has been a director of the CEOE Delegation in Brussels for 25 years, a position from which he has represented the interests of Spanish companies before the European Institutions and BUSINESSEUROPE. He was also deputy general secretary of the CEOE for two years. He has been director of the European Economic and Social Committee and vice president of the Employers Group for 24 years, as well as a trustee of the ADECCO Foundation. [Spain]

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