Seceding from the European Union & Negotiating a New Agreement

Getting to Grips with Reform, Referendum and Brexit: Part VI

Thus far our Brexit blog has dealt with the politics of renegotiating our relations with the EU, the substance of those negotiations and their chances of success. We have also examined the politics of an “In-or-Out” referendum and its likely outcome. We concluded that a renegotiated deal is possible (even desirable for domestic political considerations) and that a referendum on membership is winnable. But referendums are uncertain things and the UK is playing a dangerous game in toying with the uncertainties of a possible exit. For that reason, this week’s blogs turn to what happens if the referendum is lost and the UK secedes from the EU. Today we discuss the Lisbon rules on leaving the EU and the possible substance of a new kind of UK–EU agreement. Our next and final post in the series will consider the politics of a UK departure from the EU from the perspective of the other Member States and take a look at the implications for the UK (or its successor states) of seceding from the EU.

The Fateful Day Arrives

It is 16 June 2017. On a beautiful summer’s morning, Prime Minister Cameron is about to step out of 10 Downing Street to greet the cameras. Descending the staircase, he senses for a moment that something is not quite right. Turning his head, he sees the ghosts of Conservative leaders past looking down on him from a Tory Olympus that has magically appeared at the top of the landing. They are all shaking their heads. Ted Heath glowers and sulks. Uncle Harold – supposedly Cameron’s idol as Tory leader – sighs and then, with a studied Edwardian languor, agrees with Alec Douglas-Home that young David just wasn’t up to it, before lighting a cigar and announcing that, on as bleak a day as this, he’s going back to bed with a Trollope. Margaret Thatcher, as usual, doesn’t get the joke, and wonders if she’s just heard something improper, but nonetheless nods in agreement with her predecessors. Cameron pinches himself and the disagreeable vision evaporates.

As he steels himself for the assembled journalists, the Prime Minister sucks his lips, as he does when he’s anxious. The rolling news anchormen who are covering this momentous occasion think they can detect a look of fear on his face. The Prime Minister’s hands are clammy. As Cameron begins to speak, he wears the same nervous smile that we saw towards the end of his first and last serious campaign speech during the Scottish referendum campaign, back in 2014.

Today is the worst moment of his political life. As the Prime Minister opens his mouth to speak, the much-quoted aphorism of controversial 20th century Tory springs to his mind: “all political careers … end in failure”. He begins.

“The people of the United Kingdom have spoken. And it is a clear result: they have decided to leave the European Union” …

Oh dear. The Prime Minister has lost his referendum – and his job. It really wasn’t meant to be like this. But it doesn’t stop there. The UK’s most serious constitutional crisis in decades looks set to break out as not only Scotland, but also Northern Ireland and (maybe) Wales demand their own national referendums on secession from the UK in order to stay in the EU. The morning’s headlines make it clear: “Cameron loses referendum, job and country.”

Although the above scenario is plausible, as I wrote last week, this does not mean that it will come to pass. We will agonize endlessly over the meaning of 2014’s Scottish referendum in the run-up to any ‘In-or-Out’ EU referendum. But if we do, there is a serious risk of fighting the last war, as the cliché runs. There is one huge difference between the Scottish and EU referendums: turnout. Some 85% of Scots voted in September 2014, up from 64% in the UK General Election of 2010 in Scotland (more Scots vote for Westminster than Holyrood which only manages 50%). Most of those extra 20 percentage points were people who never vote, and who under no circumstances will vote for the status quo. Such voters are, in my view, very unlikely to turn out to vote one way or another on EU membership. It’s just not important enough. When we add to that figure the Office for National Statistics (ONS) figure of 2.34 million EU citizens living in the UK who will get the vote (we can’t very well not let them vote since they had the vote in Scotland) and who will vote for the UK to stay in the EU, things begin to look rosier. There’s no room for complacency, but let’s not let the Caledonian gloom spread too far. An UK-wide ‘in-or-out’ referendum can be won.

But just supposing we do vote to leave the EU after a referendum, what happens next?

Leaving the EU: the rules

When European integration began in the 1950s, it was supposed to be a commitment that would last forever, like a marriage. By working together, the Member States would not only be better able to find common solutions to the public policy dilemmas they could not tackle alone, but through the process would gradually be drawn closer and closer together in such a way as to make any more European wars unthinkable. That’s what I understood that famous phrase ‘ever closer union’, which seems to excite a lot of people, to mean. Europe has always been about cooperation. It’s a nice idea, isn’t it? For what it’s worth, on balance, I think the EU works pretty well. Not perfectly. But then neither does the British state, the French state, the American federal model or indeed any other system of government in the world. They have their pros and cons and their strengths and weaknesses, like anything else. And that’s OK.

By the time the Lisbon Treaty came into effect in 2009, the European Union had taken a few serious knocks. So Article 50 of that treaty recognized the changes that had taken place in attitudes towards the finality of the European integration process by setting out formal procedures for withdrawal for the first time. I think it’s fair to say that no one anticipated that the article would be put into effect in the near future (if ever) at the time that Lisbon or the failed Constitutional treaty were negotiated. The text of the article can be summarized as follows:

1. The European Council must first be notified of a Member State’s intention to quit the European Union (presumably quite soon after a UK referendum result is formally announced).

2. A withdrawal agreement must be negotiated ‘taking into account … the framework for [the departing Member State’s] future relationship with the European Union’. This implies that two agreements will be simultaneously negotiated: (a) withdrawal; and (b) a new EU external agreement, negotiated in the usual way under the terms of article 218 TFEU.

3. The withdrawal agreement is to be concluded by the European Council on the basis of qualified majority voting, after consulting the European Parliament.

4. The new external agreement would need to be ratified also by all the Member States’ national parliaments (all 28 of them – we’ll include the UK too since it goes without saying that Westminster would have to ratify the agreement too) in addition to the Council of the European Union and the European Parliament.

5. A two-year time limit from the notification of a Member State’s intention to leave the EU is set for negotiating the withdrawal agreement. This can be extended if the Council decides unanimously to do so.

Although it does not say so in the Treaty, in practice we would want the two agreements to come into effect on exactly the same day, to avoid getting stuck in a legal no-man’s land between membership and a new contractual agreement with the EU. Negotiating two agreements and getting the new external agreement ratified by 28 national parliaments will take a while, so it is likely that the European Council will extend the 24-month deadline. At the same time, no one is likely to want to draw out the process for longer than absolutely necessary. There will be other things to do.

A nightmare scenario for HMG (I’m going to drop the terms UK and British in talking about a post-EU political configuration for obvious reasons) would be to find itself locked out of the EU’s Single Market. But it gets worse. We would not have any other free trade agreements in place either. Trade is an exclusive EU competence. That means that all of our current FTAs have been concluded by the EU, for the EU, with the UK as a Member State. If we leave the EU, we also walk away from the FTAs that have been struck with countries like South Africa, Mexico, Chile and South Korea, not to mention the deals that are under negotiation with Canada, the US, India, Brazil, Argentina, the Gulf states and so on. Such a nightmare is at least theoretically possible. All the same, leaving the EU but not concluding another agreement with it seems a bit far-fetched: it would, after all, be highly damaging to both sides. So what we are really talking about is not so much ‘leaving the EU to join the world’ but ‘leaving the EU to conclude a new agreement’ that is not full membership.

The Substance of a New Agreement

Various templates exist for relations between the EU and third countries (i.e. non-EU Member States). Much has already been written about the pros and cons of this kind of relationship, in comparison with full EU membership. We will not dwell too long on these in this blog, but in brief the alternative options are: (1) membership of the European economic area, like, say, Norway, which provides access to the single market in exchange for membership fees plus full and automatic compliance with EU law (the Norwegians really do have to accept the whole lot with no say in how laws are made, beyond feeding into initial consultations); (2) Swiss-style bi-lateral agreements providing sector-by-sector access (in theory, the Swiss need not accept all EU rules; in practice, they have to since they would lose access to the Single Market if they did not keep up with EU law. And, by the way, the Swiss do not have access to the Single Market in financial services, amongst other things); (3) a Turkish-style Customs Union with the EU which is only valid for trade in goods; and (4) trade with the EU within the framework of WTO rules, which would entail fairly high tariffs for our food and car exports (15% and 10% respectively).

Realistically, HMG is going to be looking for a new kind of deal, reflecting the uniqueness of its position as a soon-to-be “ex-Member State”. None of the four obvious options will suit the post-exit authorities. And a pragmatic package deal for HMG would, I suppose, have to look like a mix of the Swiss and EEA deals. This kind of agreement won’t return sovereignty to the Westminster Parliament unfortunately, since many laws will continue to be made in Brussels. Such laws would also be made without any input from HMG or our MEPs, which I think would lead to a democratic deficit of an order of magnitude far beyond that of the present low turnout in European Parliament elections.

The only way to overcome this democratic deficit would be for HMG to go for what you could call an “ideological exit”, i.e. no deal with the EU at all and a trading relationship through the WTO. Only this can restore undivided sovereignty to Westminster (when it becomes the Parliament of England again). But the fact that it would inflict serious damage on great swathes of the economy (at least in the short-term) rules it out. Some of the controversial elements in the negotiations on a new deal with the EU could be:

(1) Free movement of persons (HMG will probably want to impose some limits on this, which neither the Swiss nor the Norwegians have managed to do, but there really would have to be some tangible political benefit to leaving the EU so HMG would push hard on this point – as far as I can see, without success);

(2) The size of HMG’s contribution to the EU coffers (yes you have to pay membership fees even if you are not a member!). Judging from what the Swiss or Norwegians pay I think a future contribution from our side would be around 35–70% of the current net contribution of £130 per capita. We would keep access under such a deal to things like EU research funding and education schemes (we do well out of research funding; yet we do very badly out of the education schemes as any Vice Chancellor can tell you), but we wouldn’t get money from the Common Agricultural Policy or the Structural Funds – mind you, we lose money on these two now, so the net benefit here would be positive, even if HMG would have to pick up the tab for agricultural subsidies. And, yes, there would be agricultural subsidies outside the EU since every developed country in the world practices agricultural subsidy (Australian drought assistance looks a lot like agricultural subsidy to me, in case you are wondering).

(3) EU social and employment legislation. We would need to keep some, and maybe all, of the existing regulations and directives in this area (i.e. the Working Time Directive and the Temporary Agency Work Directive, for at least two good reasons. First, whatever the hardline free-marketeers may think, employment rights are popular with voters. The UK already has just about the most flexible labour market of any developed country. I can’t see the public accepting much less in the way of employment rights here; indeed, if you think about trends in paternity leave, the direction of travel in the UK seems to be going the other way. Second, if we are not subject to the same rules as EU firms, then it will be argued persuasively that we have put our firms at an unfair advantage vis-à-vis their EU competitors. EU companies will not hesitate to gain commercial advantage through the courts by arguing that the spirit of the single market level playing field is not being observed (putting the boot on the other foot, our companies would do just the same). I don’t think that we can wriggle out of EU laws in this area.

(4) Access to the Single Market for agricultural produce and food. It is very hard to see how tariff-free access to the EU can be won for the food and drink industry, which is the largest sector of the manufacturing industry with £18.9 billion of exports in 2013.

This list of controversial points in the negotiations will no doubt be far longer than these four items. And having to make concessions on such sensitive issues will be politically toxic for HMG. I’m reminded here a lot here of the precedent of the 2004 accession countries’ talks with the EU – they were so heated at times that there were worries that referendums on EU entry in Poland or the Czech Republic might not be won. When it comes to exit talks, the question could become: why leave the EU if we are going to have to carry on following rules we don’t like?

The outcome of the exit negotiations may in fact be a draft settlement that is far, far worse than the deal that the UK currently has as a Member State. In that instance, I would not rule out the collapse of the government that had been carrying out the negotiations through a vote of no confidence. Fresh elections with the deal struck by HMG at the heart of the campaign could follow. Even a second EU membership referendum might need to be held, which would in many ways be the most democratic thing to do. In a simple “In-or-Out” referendum voters are being offered a choice between a reality (EU membership) and a purely hypothetical scenario (whatever leaving the EU would mean). With a second referendum, to be held after exit negotiations were completed, voters would be choosing between two real and detailed alternatives. That seems fairer. Incidentally, there is nothing to stop a Member State from pulling the emergency cord and bringing a halt to the exit proceedings provided that: (i) the withdrawal agreement has not yet entered into force; and (ii) the two-year term (or longer if extended by the European Council) for negotiating withdrawal has not yet expired.

Today’s blog and indeed our whole “Getting to Grips with Reform, Referendum and Brexit” series has been written (just like most of our national conversation about “Europe”) as if the other 27 Member States and the Brussels institutions did not exist. Yet clearly it’s not just British politics that matters for a withdrawal from the EU by HMG, but also the politics of the whole EU (and the EFTA countries too, if HMG tries to go down that route). Our next and final post will turn to how the rest of the EU is likely to behave during exit negotiations. It will also take a look at the practical consequences of secession.

Professor Nathaniel Copsey
Dr Helena Farrand-Carrapico
Dr Anne-Claire Marangoni

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