We can’t be sure what the world will look like if we quit the EU, but we can map out some of the difficulties we’re likely to face
How does one head for the exit?
Until 2007 no one really knew: but then the Lisbon Treaty clarified the matter. “Any Member State,” it stipulates in Article 50, “may decide to withdraw from the Union in accordance with its own constitutional requirements.” If UK voters opt to leave on 23 June, the Government, having notified Brussels of its intention to quit, would have, strictly speaking, no more than two years to negotiate a withdrawal agreement. At that point, the European Communities Act of 1972 would be repealed – and the UK, in one bound, would be free of some 40 years’ worth of EU laws and regulations.
Would it really be that simple?
No, not if we wanted to preserve our existing trade relationship with Europe. That’s because the EU’s Single Market is far more than a traditional free trade area – an area in which taxes on imports (tariffs) have been reduced or removed. Thanks to a long and ongoing process of legal and regulatory harmonisation, it has also removed a host of “non-tariff” barriers – rules on health and safety, provenance, labour conditions, and so on. Crucially, being part of the Single Market means signing up to the four principles of freedom of movement: of goods, services, capital and people.
Could we remain in the Single Market if not in the EU?
Yes. We could, like Norway, Iceland and Liechtenstein, join the European Economic Area (EEA) while staying out. This so-called “Norway option” would give us largely unfettered access to the Single Market, while allowing us freedom on judicial and home affairs, as well as farm and fishery policies. But it would be far from a clean break with Brussels. We’d still have to pay into EU coffers, albeit less than we do now. We’d have to accept Single Market rules, while having no control over them (“government by fax” some have called it). And – a key drawback for proponents of Brexit – we’d still have to allow EU migrants to work on the same terms as locals, a non-negotiable sticking point for the EU.
Is there any way round that?
There’s the “Swiss option”. Switzerland is not formally part of the Single Market, yet participates in it on the basis of more than 120 bilateral accords made with the EU. In practice, like Norway, it still has to adopt EU laws over which it has no say. It also has to accept the free movement of EU labour. And though the Swiss voted in a 2014 referendum to introduce quotas for all migrants, the EU has flatly refused to negotiate, insisting that free movement is a fundamental part of the deal. What’s more, the accords don’t cover services – a big disadvantage for Swiss firms in Europe, as it would be for the UK ones if we left the Single Market.
Why not quit the Single Market?
We could certainly try to go it alone, falling back on the global framework for trade established by the World Trade Organisation. This would give the UK total control of all its policies and its borders. But it would also raise the price of trade with the EU, since even though WTO rules have hugely reduced tariff barriers between countries and trading blocs, they have by no means eliminated them. The CBI estimates that 90% of UK exports to the EU could be hit: cars could be taxed at 10%, clothing at 11.5%, processed food at 15%, dairy products at 52%. We could of course try, like Canada, to negotiate a free trade deal with the EU, but even if it agreed to this, it would take a painfully long time.
So is the WTO option a non-starter?
Not at all. Many developed nations – the US is a key example – manage a thriving trade with the EU from outside it, even if they do have to pay tariffs and navigate non-tariff barriers. In any case, the EU, though our single biggest export market, accounts for less than half of UK exports. Moreover, the UK is the EU’s biggest single export market – bigger than the US. We had a trade deficit of £68bn with the EU in 2015 (including £10.85bn in German cars alone). So post-Brexit, EU exporters would want Brussels to maintain good terms of trade with us. But the same cannot be said of services, which is where the real problem of not being in the Single Market lies.
Why will services prove especially problematic?
Because with services, Britain’s competitors in Europe will be only too keen to re-erect barriers inhibiting cross-border competition. And Britain is highly reliant on service exports, especially financial services: in contrast to goods, its trade with the EU in services runs a massive surplus of £19.9bn. London is Europe’s financial capital and its role is closely linked to the EU: 74% of EU foreign exchange trading, and more than half of its investment banking, takes place there. Many foreign banks use the City as an entry point into the Single Market, using the “passport” system, which allows firms set up in one member state to provide services in another. Outside the Single Market, this would be difficult, which is why many London-based banks view Brexit as a serious threat.
So can we be confident that Brexit will cost us?
Yes, especially in the short term. Business hates uncertainty, and Brexit would bring plenty of that. The City would lose out. Big foreign firms hoping to sell to the EU would be less likely to invest in the UK. In the long term, the CBI thinks it would cost us £100bn, or 5% of GDP, by 2020: the Treasury thinks the Norway option would cut GDP by 3.8% by 2030; the WTO option by 7.5%. These figures are absurdly precise, but they testify to the level of unease among experts. Then again, being free from EU regulations would certainly liberate some parts of the economy: we’d be free to strike trade agreements with other nations including China and India, which, unlike the EU, are growing fast. True, the EU may use its bargaining power to negotiate such deals on better terms, but it moves painfully slowly: Switzerland has a free trade deal with the China, the EU still doesn’t. Brexit presents very real challenges, but it also presents very real opportunities.
Going it alone: the great unravelling
In the event of Brexit, it wouldn’t just be trade policy that would need resetting. The EU’s policies cover everything from immigration and trade to farming, fisheries and regional development; its rules and regulations everything from consumer safety to working hours. In many cases, the UK would probably retain existing EU rules, at least in the short term. But it would also have big decisions to make: would it keep the current level of agricultural subsidies, for instance? Or would it decide to lower them, thereby making food cheaper for consumers, but damaging many farmers?
Then there are the million-plus British expatriates living in other EU countries (who currently have the right to work, own property, claim benefits and get free health care in those countries), and the three million or so EU citizens living in the UK. If Brexit did occur, the status of all these people would have to be negotiated between the UK and the EU, and that, in turn, would very much depend on which post-Brexit option was adopted – and what deals or treaties follow. Nobody is likely to be kicked out, but both groups could face new obstacles, such as new taxes and medical costs.
(I hope you found the above as useful as I did. I can thoroughly recommend subscribing to The Week. It's always a must read for me).
I would add a further point relating to the free movement of people. Who would you rather have contributing to the British economy... People who want to work as hard as they can, for as little as we need to pay them, or people who want to work as little as they can for as much as they can get from their employers?
And a point regarding us being 'controlled by unelected Eurocrats'. Sometimes they're described as 'corrupt', although I don't believe anyone has ever personally made large amounts of money out of their EU responsibilities. I agree accountability is a concern, but we don't elect our own judiciary or any of our own civil servants. The UK itself is controlled by legions of unelected bureaucrats appointed by the system and not by our elected representatives. If the EU is corrupt, so is the UK - and it seems to work here, so why not there? Aren't every one of the 28 members equally concerned about the potential for corruption? Do the Germans trust the Italian Eurocrats, or the Poles the Spanish? We've only got one elected body making sure, as best they can, that everything runs as it should do. Eurocrats are being watched by 28 governments to a greater or lesser extent. The potential for individuals to bend the rules to suit personal agendas rather than according to EU law and procedure is presumably less than it might be here in the UK or in any single member state. Collaborating in an environment where there's no innate trust is surely a better policed system than our own old boys clubs of judges and mandarins.
We are also regaled by Leavers with the figure of £350m per week that we'd save (to spend on the NHS etc). David Smith of the Sunday Times calculated last week that the real figure was nearer £110m after taking into account Maggie's rebate and any subsidies from the EU (to farmers etc). This revised figure means Norwegians are actually paying about three times as much as us to get some of the benefits EU members automatically get - and they also had to accept free movement of people as part of the deal. So if we wanted to be like them, assuming the EU were prepared to make it so easy for us (they won't), our bill would become three times more than we pay today.
But my biggest worry is not the legal and political mess we'll all be in (UK, EU and everyone else who wants to trade with us... what a lot of money the lawyers and negotiators are going to make), it's the sentiment of those left trying to make the EU work that will screw the UK. It's Fritz, Pierre, Juan, Angelo and the 23 others who will not take kindly to Tommy telling them to fuck off. So even if we do get a better deal than WTO, will 500 million people want to buy British? Not a chance.
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