What would leaving the EU entail?

There is a brilliant post about the EU referendum doing the rounds on Facebook and Twitter. It reads (with a few minor amendments):

I know there are problems with the EU but can anyone properly explain what our plan is if we leave?

We have all been on a night out with that mate who, when you are in a club, says “it’s rubbish here, let’s go somewhere else.” Then when you leave you realise he has no idea where to go and the place you left won’t let you back in. Without a decent follow up plan, a leave vote could see the UK standing in a kebab shop arguing about whose fault it is.

A round of applause for this person – what a brilliant analogy!

The post itself exposes a really important issue. If you’re being asked to do something, you want to know what you’re getting yourself into, right? So if we are being asked by the Leave campaign to vote to leave the EU, then we need to be clear on what voting to leave actually means in practice.

The problem is that there seems to be no clear proposal as to what we would do if we were to leave the EU. Instead, I’ve read about at least seven different options. How can we be expected to make a decision on whether to stay or leave if the choice is being presented as remain in the EU or one-of-potentially-seven-different-options-of-leaving?

In this post, I will look at the main proposals for the UK’s relationship with the EU if we were to leave, and explain why I think they are worse than our current relationship with the EU.

A vote to leave does not mean that the UK wouldn’t have a relationship with the EU

It is important to emphasise that a vote to leave the EU does not mean we would end our relationship with the EU completely. This is something on which the Leave campaigners appear to be aligned. With 44% of our exports going to EU countries, we could not end our ties with the EU altogether. So a vote to leave the EU is not a vote to leave the EU completely, but actually a vote for a different relationship with the EU. (Not really as catchy as “vote leave” though, is it?)

So how might this work? Let’s look first at how we would “leave” the EU.

How would the UK leave the EU?

The EU’s treaties set out the process for a Member State to leave the EU.[i] The Member State must notify the EU that it intends to leave, and conclude a withdrawal agreement with the EU setting out the process for leaving.[ii] Until this has been completed, the Member State remains a member of the EU.

The Treaty provides that EU law will stop applying to that Member State either on the date the withdrawal agreement takes effect, or two years from the date that it notified the EU of its intention to leave, whichever comes first (although this period can be extended by agreement).[iii] As a result, a vote to leave the EU does not mean we will leave the EU overnight – negotiating our exit is likely to be a lengthy (and therefore costly) process.

What are the options for our future relationship with the EU?

Alongside arranging our exit from the EU, we would also need to start negotiating our future relationship with the EU (sounds a bit odd, doesn’t it? It’s a bit like breaking up with someone whilst trying to work out how you are going to remain friends…)

This is where the confusion about the Leave campaign’s policy starts – what model do they propose we follow in our future relationship with the EU?

As I’ve mentioned above, a number of different proposals have been made, but they essentially come down to two options:

  1. The UK could join the European Free Trade Association (EFTA).
  2. The UK could negotiate its own relationship with the EU via international agreements.

Option 1: European Free Trade Association

The European Free Trade Association (EFTA) consists of four countries: Norway, Liechtenstein, Iceland and Switzerland. EFTA is based on two agreements: the EFTA agreement, where, as part of this agreement, its members agree to have free trade between each other, and the EEA agreement, where members of EFTA agree to participate in the following parts of the EU: [iv]

  1. Free trade in goods;
  2. Free movement of persons;
  3. Free trade in services;
  4. Free movement of capital;
  5. EU competition law; and
  6. Cooperation in policy areas such as research & development, the environment, education and social policy.

It should also be noted that Switzerland is only a party to the EFTA agreement, but is not a party to the EEA agreement. Instead, it has its own relationship with the EU as I will explain below.

One of the main reasons the Leave campaign argue this is a good model for the UK to follow is because it would enable us to participate in the parts of the EU they perceive as good for the UK (e.g. free trade), whilst leaving us free to negotiate trade deals with countries outside of the EU.

However, this overlooks the problems of the UK joining EFTA:

  1. Joining EFTA is not a straightforward process. It would require us to:

a. Join the EFTA agreement, which would need the consent of Norway, Liechtenstein and Iceland. This would give the UK free trade with these countries.[v]

b. Join the EEA agreement – this would need the consent of all EU (27) and EFTA (3) States. This would give the UK free trade with the EU.

  1. Members of EFTA are required to implement EU law in the areas covered by the EEA agreement.[vi] For example, they are required to implement laws passed by the EU on the free movement of goods. These rules can be enforced against EFTA States by a body called the EFTA Surveillance Authority, which can bring a State before the EFTA Court for breaching a provision of EU law.[vii]
  1. If the UK were to join EFTA, it would lose the control that it currently has over EU law and whether it is passed. Specifically, we would lose:

a. Our seat on the European Council (which sets the direction of the EU);
b. Our seat on the Council of the European Union (which is involved in passing EU legislation);
c. The ability to elect Members of the European Parliament (which is also involved in passing EU legislation); and
d. Our member of the European Commission.[viii]

So what would we have instead? As it stands, EFTA States are able to provide their views on EU legislation before it is approved, but cannot vote on it and have no power to stop it being passed. Therefore, by joining EFTA we would leave ourselves in a situation where we are subject to EU law that we cannot vote on.

  1. Joining EFTA would require the UK to accept EU law on the free movement of people.[ix] One of the main Leave campaign arguments is that leaving the EU would allow us to have more control over immigration (and I am working on a post outlining my thoughts on whether this claim is true). However, if we were to join EFTA we would be subject to mostly the same rules on the free movement of people that apply to EU Member States.
  1. The UK would still have to contribute financially to the EU. EFTA states must contribute both to EFTA and the EU’s budget. It is difficult to provide an estimate as to what the UK would have to contribute if it joined EFTA because a State’s contributions are calculated individually based on their GDP.[x] However, Full fact have identified that in 2014, Norway (the biggest contributor of the EFTA states) contributed £115 per person to the EU (£586 million in total), and the UK’s contribution was around £220 per head in the same year (both of these figures are before either country receives any money back from the EU – a post explaining more about the details of UK’s financial contribution to the EU is in the pipeline).[xi] Given that our GDP is higher than Norway’s, it seems safe to suggest that our contribution as a member of EFTA would also be higher.
  1. Joining EFTA would mean that we would lose the benefit of other parts of EU law that are beneficial to the UK, because we would only participate in the free trade aspects of the EU. As I will explain in future posts, there are other parts of the EU, such as its efforts in the field of security policy, which are important for the UK and would be lost if we left the EU.

Therefore, whilst joining EFTA might reduce the UK’s financial contributions to the EU, it would mean that we would lose all our current means of influencing the EU, and most importantly, our control on whether EU law is passed.  

Option 2: Agreement(s) with the EU

Some Leave campaigners have instead argued that we could negotiate our own agreement (or agreements) with the EU in the areas that we want to join, and not be subjected to the others. A whole series of different models have been proposed, but the two most frequently suggested are the Swiss and Canadian models:

Option 2a: the Swiss model

Switzerland has negotiated to join specific parts of the EU. It has concluded over 120 (!) agreements with the EU governing the areas that it has chosen to join. However, there are a number of problems with the UK following this model:

  1. Switzerland is still required to make financial contributions to both EFTA and the EU. It is difficult to find out exactly how much its current contribution is to the EU as this data doesn’t seem to be available. However, in 2009 it was £53 per person (or £420 million per year).[xii] Similarly, it is not possible to work out what our contribution might be under this type of arrangement, as it would depend on how much of the EU we decide to join.
  2. The Swiss model does not suit the UK’s economy. The arrangements that the Swiss have agreed with the EU provide for very limited free trade in services (and most significantly, these agreements do not cover financial services, which is why some Swiss banks access the EU through subsidiaries in the UK).[xiii] The UK’s service industry accounts for around 80% of the UK economy, therefore we would need to ensure that UK companies could benefit from free trade in services with the EU.[xiv]
  3. Similar to EFTA, the Swiss have no control over the rules that are passed by the EU in the areas that it has joined, although it is required to implement them.
  4. Our negotiations with the EU would not be one-sided. It will not be a case of us simply cherry-picking the parts of the EU we like and refusing to join the parts we don’t want. Any agreement with the EU will need to be approved by all 27 Member States to take effect, and they are likely to want something in return for giving the UK access to free trade. It is entirely possible that something could be the free movement of people (something, incidentally, that Switzerland has as part of its agreements with the EU).
  5. Negotiating these agreements with the EU will be a difficult process. Switzerland’s current arrangements with the EU have taken over 10 years to conclude, and involved over 120 individual agreements. [xv] How long will it take the UK to achieve this, and how much is it going to cost, especially if we need a more comprehensive agreement. Also, Each time we want to join another part of the EU, we will have to conclude another international agreement with the EU.

Therefore, the Swiss model isn’t suitable for the UK. We need a more comprehensive agreement on free trade in services, which could require us to accept other parts of the EU (such as the free movement of people) in order to achieve this. Also, similar to the EFTA option, it would result in the UK being forced to accept EU rules on the areas we choose to join.

Option 2b: Canada

Canada is in the process of concluding a Comprehensive Economic and Trade Agreement with the EU covering trade (mainly) in goods (which, incidentally, the UK will not benefit from if we leave the EU). The problems with the UK following this model are:

  1. Time and cost – Negotiations started in 2009 and were concluded in 2014, but the agreement still has to be approved by all Member States and the European Parliament before it can take effect.[xvi]
  2. The agreement provides for limited free trade in services, particularly in the field of financial services, and therefore poses similar problems to the Swiss approach for the UK economy.[xvii]
  3. The agreement provides for less free trade in goods than any of the other options above. The agreement with Canada focuses mainly on abolishing tariffs (taxes) on imports and exports. There is very little provision for other types of barriers to trade such as regulations and standards that goods must meet.[xviii] As I mentioned in a previous post, if a producer of a product has to satisfy one set of standards in State A, and another set in State B, they cannot trade freely between those States because they would need to adapt their product in order to sell it. The EU’s agreement with Canada has very few provisions to deal with these types of barriers to trade.
  4. Similar to the Swiss model, Canada has no influence over EU law, and therefore traders will need to satisfy EU rules in order to trade within the EU.

So where does this leave us?

The above shows that the Swiss and Canadian models would not work for the UK. Therefore, the choice is: i) to join EFTA; or ii) to negotiate a different agreement with the EU. To assess whether we could pursue option ii), we need to know:

  1. What exactly would the UK’s agreement with the EU need to cover?
  2. How likely are we to get this sort of agreement?
  3. What might the EU Member States want in return for such an agreement? Would we, for example, be required to accept the free movement of people as a condition for getting the agreement we want?
  4. How long might it take to conclude such an agreement?
  5. How much will it cost?

Surprisingly, these are all questions that remain unanswered.

Three final thoughts

I will leave you with three final thoughts on this topic:

  1. Whilst it is not clear what relationship is being proposed for the UK if it were to leave the EU, what is clear is that all of the options proposed result in us having less control over the EU. All of the models result in the UK losing its seat on the European Council (which sets the direction of the EU), and the Council of the European Union (which is involved in adopting EU legislation). We would also lose the right to have an EU Commissioner, and we would no longer be able to elect members of the European Parliament. Instead, we would be subject to EU law without all of these important controls. This exposes something of a contradiction in the Leave campaign’s arguments. One of their mantras is that we should leave to take back control, but all of the models proposed as alternatives to EU membership actually result in the UK having less control over the EU.
  1. The EU is not perfect, far from it. It is in need of reform on a number of areas. As it stands, the UK has the ability to influence reform in the EU and encourage it to take place. If we leave the EU, we would lose our influence and instead be subject to its rules. Would we rather be on the inside encouraging reform, as opposed to being on the outside with no real control?
  1. We have to be realistic about the decision whether we remain in or leave the EU. We need to trade with the EU. 44% of our exports go to the EU and we need the benefits it brings in terms of trade, investment and jobs. Therefore, any proposal to leave the EU has to be based on a plan for a future relationship with the EU to ensure that these benefits are not put at risk. It is not enough simply to say “well of course X will happen if we leave the EU.” We need to know how this will work in practice. Without such a plan, we really will be following that mate that wants to leave the club with no idea as to where to go next. Except in this case, the consequences are much higher than merely having to end your night out a few hours early…

 


Footnotes (AKA things for the super keen)

[i] See Article 50 TFEU (Treaty on the Functioning of the European Union).

[ii] Article 50(2) TFEU. This period can be extended with the unanimous agreement of all Member States.

[iii] Article 50(3) TFEU.

[iv] Article 1(2) EEA Agreement.

[v] Article 128 EEA Agreement.

[vi] Article 102(1) EEA Agreement.

[vii] Article 108 EEA Agreement and Agreement Between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice.

[viii] I have discussed what this means, and how it works in blog posts here and here.

[ix] Article 28, Annex V and Annex VIII EEA Agreement.

[x] http://www.efta.int/eea/eu-programmes/application-finances/eea-efta-budget

[xi] https://fullfact.org/europe/eu-facts-behind-claims-norway/

[xii] http://researchbriefings.files.parliament.uk/documents/CBP-7214/CBP-7214.pdf

[xiii] http://www.europarl.europa.eu/document/activities/cont/201003/20100315ATT70636/20100315ATT70636EN.pdf – see p.41: “The free movement of services is covered only to a limited degree (only up to 90 calendar days, and to the exclusion of notably financial services).”

[xiv] https://fullfact.org/europe/governments-eu-leaflet-alternatives-membership/

[xv] http://eeas.europa.eu/switzerland/index_en.htm

[xvi] https://fullfact.org/europe/governments-eu-leaflet-alternatives-membership/

[xvii] https://fullfact.org/europe/governments-eu-leaflet-alternatives-membership/ – a summary of CETA can be found here: http://trade.ec.europa.eu/doclib/docs/2014/december/tradoc_152982.pdf.

[xviii] http://trade.ec.europa.eu/doclib/docs/2014/december/tradoc_152982.pdf

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s