A look into “A Definitive Guide to the Brexit Negotiations” in Harvard Business Review, By Sadaf Alidad, MBA student of Alzahra University of Tehran (class assignment)

1. A look into “A Definitive
Guideto theBrexit
Negotiations” in Harvard
Business Review
By:SadafAlidad,MBA student
AlzahraUniversity of Tehran,Oct 2016
https://hbr.org/2016/08/a-definitive-guide-to-the-brexit-negotiations

2. What is Brexit?
– Brexit is an abbreviationfor "British exit,” which
refers to the June 23, 2016, referendum whereby
British citizensvoted to exit the European Union

3. What does this
article discuss?
–How will the UK and EU negotiate
their split?

4. How does this
article analyze
the split?
– examining important elementsofthe process,
– the key interestsand issues to be negotiated,
– the leverage each side has,
– some of the barriersto reaching a deal,
– potential outcomes,
– and strategic optionson both sidesof the table.

5. What Is the
Brexit Process?

6. Brexit means Brexit

7. WhatAre the
Major Issues?
– Trade and Immigration
– Money paid to the EU
– Regulations
– Free movement of people
– Financial services

8. Trade and
immigration
Trade and Immigration
– David Davis:
– DonaldTusk:
Simply put, the UK wants to keep
the trade relationship with EU
members as it is today (free trade)
but significantly change the rules
surrounding the free movement of
people between the EU and the UK.
Roughly half of the immigrants to the UK
come from the EU, and polls conducted in
the run-up to the referendum suggest
that over 50% of those who supported
Brexit considered immigration their
biggest concern.

9. Money paid to
the EU
– Leave campaignersand supportersargued that the money saved
through Brexit could be used elsewhere (e.g., to enhance theUK’s
National Health Service)
– There isclear precedent for this stance.Norway,which is not a
member of the EU, paysinto the EU budget in order to have
accessto the single market.The precise amount that the UK
would pay will have to be negotiated.

10. Regulations
– Leave supporterscomplained about onerousregulationsimposed
by the EU, including environmentalstandards,product safety
rules, and minimum working conditionsfor employees.
First, many (perhaps
most)regulationswill
continue because they or
similar onesare important
for the UK, even if the EU
is not imposing them
Second,the EU could
continue to impose certain
regulationsafter Brexit in
exchange for the UK’s access
to the single market.

11. Free
movement of
people
– MillionsofUK citizenslive and work in Europe,and even the
loudest proponentsofBrexit want them to retain their rights
– BorisJohnson:“British people will still be able to go and work in
the EU; to live; to travel;to study; to buy homesand to settle
down.”

12. Financial
services
– A particular concern for theUK in these negotiationsisthe fate of
London’sfinancial servicessector.It playsan outsize role in the
broader EU financial industry,where it hasa trade surplus of
almost £20 billion with the rest of Europe.

13. Leverage:
EU vs UK

14. EU Leverages:
The economics oftrade.
– Leave supporters have made the argument that the UK will be
negotiating from a position of strength because the EU exports more
to theUK (around £290 billion) than theUK exports to the EU (around
£220 billion).
– The argument is a flawed assessment of the actual stateof economic
leverage. The key is to look beyond absolute numbers and consider
the percentage of total exports they represent for each party. While
theUK exports a lower nominal amount to the EU, these exports
represent about 44% of totalUK exports. In contrast, exports to the
UK are only about 10%of total EU exports. By this measure, a “no
deal” (ora deal that hurts trade, to be more precise) is much worsefor
theUK than it is for the EU.
The need to deter future exits.
– This deal will be closely watched by nationalist parties in other
countries. If theUK is able to negotiate terms that give it a better deal
than it had when it was a member state, that could encourage
additional exits, which could jeopardize the union’s very existence.

15. – Martin Schulz,president ofthe European Parliament,
has stated,“There is no intention to ensure that the UK receives a
bad deal, but it is clear that there can be no better deal with the
EU than EU membership.The EUmoreover must look out for its
members’interestsand uphold its founding principles.The single
market,for example,entailsfour freedoms (capital,goods,
services, persons)and not three,or three and a half.”

16. EU Leverages:
– Too many veto players. It narrowsthe zone of possible
agreement but also allowsthe EU to credibly say that the UK will
have to make significant concessionsto bring enough EUvoteson
board.
– The psychology of precedents. Although it’s a smaller factor than
those listed above,the psychology ofdeal making iscurrently
working against theUK.All of the precedentsin place — Norway,
Switzerland,and evenCanada — instantiate the European claim
that there can be no “sweetheart deal,” and that it is not possible
to get accessto the European market without seriousconditions
and contributions.

17. UK Leverages:
– Economic impact on the EU. Albeit less than what the UK stands
to lose,the EU would lose financially in the event ofa deal that is
bad for trade (e.g., high tariffs).While thismight not be sufficient
leverage on its own,it does help to chip away at the problem for
the UK.
– Influence over key players. Notably,a number of the most
influential countriesin the EU (such asGermany)are the onesthat
are most dependent on trade with the UK.
– How these relationshipsare managed and howthey can be used
to influence the Brexit negotiationswith the EU will be crucial
considerationsfor theUK.

19. UK Leverages:
– Security concerns. Everyone loses when the UK and EU drift apart
on mattersof security.And yet there are reasonsthat Europeans
should take the threat to strategic cooperationseriously.The
recent referendum shows a strong isolationist attitude in theUK,
and the EU might want to consider the degree to which
relationshipsmight deteriorate ifthe eventual deal is perceived as
one-sided (or punitive)by the British people.
– Timing of invokingArticle 50. Only theUK can invokeArticle 50.
When everyone wantssomething that only youcan provide,you
have leverage.Thisraisesthe possibility oftheUK agreeing to
invokeArticle 50sooner in exchange for concessions

20. A Key Barrier:
False
Promises
The amount of money going to the EU was overstated;
The ability to limit contributionsto the EUfollowing Brexit
was exaggerated;
The impact ofimmigrantson the economy wasmisstated;
The ability to control immigration after a deal was inflated;
And how much the National Health Service would benefit from a
Brexit windfall was so inaccurate that the promise waswalked
back literally the day after the Brexit vote.

21. The problem
ofScotland

22. WhatAre the
Possible
Outcomes?
– No deal =WTO rules. If no agreement isreached within two years
and the EU treatiesexpire, the default is that the UK and EU would
trade according toWorldTradeOrganization rules.
– The Norway model. There already isa model in place for
European countriesthat do not wish to join the EU but want
accessto the single market.Norway accessesthe market through
the European EconomicArea.In exchange,Norway agreesto
many conditions,includingthe free movement of people,most EU
regulations,and financial contributionsto the EU.

23. WhatAre the
Possible
Outcomes?
– Other national models. Other modelsto followinclude those
used by Switzerland andCanada.
– A unique UK deal. A one-of-a-kind deal iswhat theUK
government will push for, but it would be foolhardy to think that
anyUK deal will ignore precedentsor allowLondon to get all of
what it wants without significant concessionsin other areas.
– A partial deal. Any extension to the negotiationsbeyond the two-
year time period will require unanimousconsent from the 27 EU
nationsremaining. TheUK and EU negotiatorswould be wise to
wrap up whatever portionsofa broader agreement they can
before having thingsgo to a vote on extending talks.

24. NO BREXIT!
– Not following through on Brexit after all. Currently thisoption is
not on the table — but once youconsider each side’s leverage and
how difficult it will be to achieve a “good” deal (especially for theUK),
negotiatorsmight want to keep thisoption alive (albeit unspoken)as
they assess their bargaining power and craft their strategy.

25. InConclusion
– The worst mistake either side could make right nowisto take
aggressive unilateral stepsto improve its bargaining
position without taking into account howthismight cause the
other side to escalate further.
– While EU leadershave seemingly ruled out any talks,however
informal,beforeArticle 50is invoked,I find it hard to believe that
back-channelconversationsare not under way.(And if they are
not,they should be.)

26. Negotiating
the Impossible
– So, even seemingly impossible situationscan be handled well if
negotiators:
1. stay cool,
2. prepare systematically,
3. strategize with an eye on all relevant factors,
4. have empathy for the needs and constraintsofthe other side,
5. and understand that the goal isnot to “win” but to achieve
their objectives.

27. THANKYOU!