Brexit, no sector left unscathed

Brexit threatens to wreak havoc in many of Europe’s biggest sectors, throwing doubt on everything from fish supplies to greenhouse gas-cutting measures to student exchange programs.

While British Prime Minister Theresa May’s triggering of Article 50 Wednesday will mark the beginning of the U.K.’s negotiations with the EU, it does little to answer the endless questions that the U.K.’s departure raises for Europe’s regulatory and trade landscape.

Much of that will depend on just how deep the split between the U.K. and the European single market will be. Whether you’re talking banks, farmers, energy suppliers or airlines, the preference is almost invariably the shallower the better.

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POLITICO looks at what Brexit will mean for several key policy areas.

Trade

The mandarins at the European Commission have so far insisted that talks on trade can’t begin until the size of the divorce settlement is finalized as part of the two-year Article 50 process. That means attention likely won’t turn to the kind of access Britain will get to EU markets for a few months. May has been clear that Britain will leave the single market. But given that around 45 percent of all U.K. exports are to the EU, some kind of arrangement will need to be worked out to avoid falling off a trade cliff in March 2019. The “Plan B” option of trading under World Trade Organization (WTO) rules may not be as easy as many have hoped. The U.K. is signed up as an independent member of the WTO, but many of the terms were thrashed out by the EU. Without clarity on that, Downing Street will find it difficult to discuss new trade deals with far-flung countries like New Zealand or the United States.

Financial services

Keeping the City of London’s financial hub alive after so-called passporting rights come to an end will require a new set of British laws corresponding to the EU’s. That means a guaranteed period of limbo after the divorce. The only way U.K.-based banks, clearing houses and other institutions will be able to access EU clients, and vice versa, will be if Britain is deemed an “equivalent” jurisdiction across multiple financial regulations. In theory, this could be easy, since the U.K. is likely to copy and paste EU regulation into its own laws. But the issue of equivalence tends to be more political than technical, and it will inevitably take time because the U.K. can’t start to apply for equivalence until it leaves the EU. In another blow to Britain, the European Central Bank and the EU may not want London to continue to dominate the euro-clearing business, worth hundreds of billions of euros. In the meantime, rather than enduring years of uncertainty, banks and other financial institutions could start relocating their business and staff as soon as this summer.

Migration and borders

Of top concern for many EU countries is the future of EU citizens living in the U.K. and Britons living in the bloc — amounting to some 4 million people. But the arrangement is under discussion and far from clear. What is clear, however, is that citizens on both sides of the English Channel want to be assured of protections and don’t want to be used as bargaining chips. May stressed in January that the U.K. will emerge with full control of immigration from the EU to Britain, without giving details. The impact of Brexit on Europe’s migration policy, instead, is limited, as the U.K. didn’t take part in core programs for some 160,000 refugees, including two to relocate people from one EU state to another.

Defense and security

London has opposed EU defense integration for years. So it’s not by chance that with Brexit on the horizon, this is the field where deepening cooperation seems to be moving ahead. In a major step toward the plan, the EU agreed in November to explore the potential for allowing countries willing to push on to do so without waiting for others. EU leaders will discuss its implementation in June. Germany, France, Italy and Spain are pushing for it. The bloc also launched a new military unit in March that would be responsible for some EU training missions. For some member countries, it’s the first step toward establishing a real military HQ — another idea that London has always opposed.

Foreign affairs

The most immediate implications of Brexit on EU foreign policy are already in focus, and are also difficult to distinguish from the bloc’s response to U.S. President Donald Trump: an enthusiastic embrace of internationalism, including a purposeful pivot to Asia in hopes of strengthening ties and forging new trade agreements. The U.K.’s departure is not expected to spur any major shift in EU foreign policy, as the bloc prides itself on being the steadiest and most consistent major actor on the world stage, and the global leader when it comes to wielding soft power such as development aid. Major EU initiatives focused on reconstruction and humanitarian assistance in Afghanistan and Syria will continue, as will aggressive outreach toward the Western Balkans, with a (long-term) eye toward adding new EU members. The same goes for partnership with the U.K. on some foreign affairs issues, especially through NATO, and on matters such as the economic sanctions imposed on Russia. Because while the U.K. will undoubtedly look to build a truly independent foreign policy, leaders in London and Brussels have repeatedly stated they expect Britain and the EU to remain close allies and partners in foreign affairs, security and defense. One area of divergence, however, could be in relations with the U.S., as the Trump administration has expressed affection for Brexit and skepticism toward the EU.

Energy and climate

Quitting the EU won’t cut the U.K.’s ties to the rest of Europe through gas and power links and possibly an emissions trading market. But Britain will have no influence over the bloc’s policies in those areas — to the detriment of both sides. Gas and electricity flow between the U.K. and the EU, especially between Ireland and Northern Ireland. A hard break from the EU’s internal energy market would therefore result in steeper energy prices and bigger risks of supply shortages for the U.K. and Ireland, and possibly elsewhere. Further complicating the negotiations will be Britain’s withdrawal from the European atomic energy community, Euratom, raising questions about who will cover inspections of the country’s civil nuclear sites, manage nuclear fuel sales and fund research and development. Meanwhile, the EU stands to lose a particularly loud voice in favor of tougher climate policies such as a higher-priced Emissions Trading System.

Agriculture, food and fisheries

British farmers have one reason to celebrate Brexit: The end of an EU rule requiring large farms to grow at least three crops, to protect soil health. The country’s farmers hate the rule, arguing that it eats into their profits and is ineffective, and farming minister Andrea Leadsom has already committed to eliminating it. But British farmers also face a large downside: They risk losing access to the EU single market. Without a new free trade agreement, those looking to move produce between the U.K. and EU could see big tariffs imposed in both directions. London’s overtures to massive agricultural producers including Brazil, Australia and the U.S. is also worrying for British farmers, who fear they will be unable to survive if vast quantities of cheap food flood the market. British fisheries, instead, may be about to get the upper hand over their French, Spanish, Dutch and Irish counterparts, who rely heavily on rich U.K. waters to fill their fishing quotas. The U.K. government has said it will refuse EU vessels the right to fish in its waters. But the EU does have a strong card to play, as the largest fish and seafood market in the world.

Transport

Keeping traffic moving will be chief among transport concerns for British negotiators — both at port terminals and in the country’s airspace. The common aviation area now allows British registered airlines to fly their aircraft freely between airports around the bloc. But that access isn’t guaranteed without club membership. After the split, the U.K. will also find itself outside the open skies deals the EU has worked out with countries like the U.S. and Canada. And there will be big question marks regarding the country’s participation in the raft of EU agencies that regulate the sector. Will Downing Street duplicate the European Aviation Safety Agency’s looming rules on drone classification? Will it agree to pollution standards set by the European Maritime Safety Agency? Will it recognize certification of train carriages by the European Union Agency for Railways? The U.K. has put its show on the road, but its destination remains unknown.

Health Care

Brexit displaces a significant European presence in the British health system: the European Medicines Agency. Other EU countries are already drafting bids to host the EMA, but the loss of British medicines regulators, who carry out almost 30 percent of drug assessments for the agency, will be hard-felt in Europe. Meanwhile, the U.K. will have to find a way to keep more than 10,000 EU doctors working in the National Health Service and 100,000 long-term caregivers for the elderly and disabled — or face losing them. Health Secretary Jeremy Hunt has acknowledged that the U.K. system would “fall over without their help,” but May has opposed unilaterally guaranteeing the rights of EU citizens, preferring to seek “reciprocal rights” from EU countries.

Education, science and research

Universities and researchers in the U.K. receive well over €1 billion in EU research funding in a given year, and Brits also make up the lion’s share of researchers participating in Europe’s Horizon 2020 research and innovation projects. While London has given assurances that universities will not lose funding due to Brexit, it’s not clear how it will do that. The U.K. hasn’t ruled out continued participation in EU research programs or the popular Erasmus group of student exchange programs. Still, some 15 percent of U.K. university researchers come from the EU27 and could be affected by any change to the rights of EU citizens in the country. The EU also has limited powers to influence the effects on undergraduate, vocational and school education, since much of the European-level cooperation is voluntary and sits outside EU legislation.

Technology

Fears that Brexit could lead to a tech talent flight have been eased by recent announcements from Google, Facebook, Microsoft, Amazon and Apple that they will continue to invest in the U.K. However, a brain drain can’t be ruled out if immigration controls are tightened. Startups taking root in the U.K. will also be keen to know whether they can access the continental markets London is leaving behind. And there are key regulatory questions to be answered about data flows and whether British tourists and their EU counterparts will still be able to enjoy one popular Brussels policy: the abolition of mobile roaming rates.

Compiled by Sara Stefanini and Joshua Posaner.