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WHAT WOULD BREXIT LOOK LIKE? (Part 1)

By Tim McNamara, Chief Political Correspondent

Whilst eurosceptics ‘bang on’ about leaving the EU little regard is given to the realities of the UK being outside of the EU. One hears of vague assurances that the UK would have full access to the EU’s single market without the supposed ‘troublesome’ regulations associated with full membership.

Yet many of the eurosceptic fundamentalists have little real idea about the consequences of the UK not being a member of the EU. Vague ideas about having a similar relationship that Norway have with the EU demonstrate real ignorance of reality. Norway has to pay substantial sums for access and plays little part in formulating EU regulations that directly affect the country.

Isolationism may also be tempting but in a globally interlinked world, the UK would find it extremely difficult to project (and protect) its interests. E.g. international trade would become a bear-pit, a UK without the ‘armour’ of EU membership would be a bit-part player in the World Trade Organisation.

Without a shadow of a doubt Brexit would lead to a lengthy period of profound economic uncertainty. Whilst some observers factor in the disruptive effects in the lead-up to a referendum campaign in 2017, little attention has been paid to the aftermath of a referendum decision to leave the EU.

Exit negotiations would be complex and long. It should be noted that the EU institutions and the other 27 Member States would be extremely reluctant to make any concessions to the UK. In fact, the UK’s negotiators would find it extremely heavy weather to obtain any outcomes that would be at the most be neutral, never mind beneficial.

If one examines the length of time accession negotiations take for candidate countries to achieve EU membership, then repudiation negotiations would also be lengthy. It is likely that the time-frame for a ‘divorce’ would exceed 2 years. Leading to a further period of economic uncertainty.

What is certain is that the full effects of a Brexit would also not be immediately apparent overnight, the disruptive effects in the early days would but be a foretaste of what would be to come. It would take several years before the complete consequences would have worked their way through. The automotive sector would be a good example to theorise around.

Currently, nearly 8 in 10 cars produced in the UK are exported. The rest of the EU is the biggest market for those cars. Multinational companies such as BMW (Mini), Nissan, Toyota, Honda, Ford, General Motors and Tata (Land Rover/Jaguar) have made investment decisions partly contingent on the UK’s membership of the EU.

Whilst companies such as Tata, see a certain cachet in having a strong British element to their brands, others do not. Origin of production is largely irrelevant to Nissan, Toyota, Honda, Ford, General Motors (Vauxhall/Opel) etc. They will make future investment decisions based not only on the pure economics of production costs but also on ease of market access.

This is also a threat to a complex and wide ranging supply chain that is at least twice the size of the car manufacturers’ value to the UK economy. The ripple effects of a closure of a major car manufacturer are extremely wide ranging. One only has to look at the closure of Rover to see how devastating that was to the West Midlands’ economy.

It should be noted that one of the main political imperatives that would underpin attitudes in the rest of the EU would be to make the cost of exit as high as possible so as to deter others following the UK’s example. Whilst some member states could be sympathetic to the UK (e.g. Hungary?), bodies such as the European Commission would inevitably take a harder line.

That hard line would be fully supported by the founding architects of the EU, France and Germany. It would also open up space for the French and German languages to become the de facto languages of commerce on the continent.

Each of the chapters that make up the EU’s acquis*, would have to be examined line-by-line to establish the future relationship the UK would have with the EU. For example, the negotiations over agricultural policy would be fiendishly complex. UK agricultural policy would have to be radically transformed.

Subsidies for UK farmers would have to continue not only under legacy obligations but also because the UK government will continue to subsidise the rural economy. However, whatever new subsidies/policies the UK might introduce/adopt, they would probably have to be compatible with the EU’s common agricultural policy regime to avoid unfortunate consequences.

For example divergences in subsidies or pricing policies may leave the UK open to anti-subsidy or anti-dumping investigations by the European Commission under the World Trade Organisation’s rules. As there is an element of discretion as to how these rules are applied, any outcome would not necessarily be to the UK’s benefit.

In many other policy areas, the EU’s institutions would be laying down the standards that the UK would have to adopt. Regulations on the environment, chemicals, health and safety, consumer protection etc. etc. would have to be followed unquestionably.

For example, the USA, China, Japan to name but a few, now respect the EU’s rules on the safety of chemical. They do so out of pure self-interest, in that if they did not they would find some of their products banned from importation into the EU. As the EU is one of the world’s biggest markets, it is in their economic interest to adhere to the relevant regulations,. Therefore it makes economic sense for the self-same companies from the USA, China and Japan to makes such standards, global standards as they apply economies of scale in their production.

If the Conservatives win the next election David Cameron has very little room for manoeuvre, a referendum has been promised for 2017. It is likely that the referendum would take place in the autumn of 2017. With the French presidential election scheduled for April/May 2017, there would only be a short window for the ‘powers that be’ in Paris to be in a position to make significant concessions in reform negotiations.

The German federal elections in October 2017 also leaves little opportunity for Angela Merkel and her party to offer David Cameron any real help in a UK referendum campaign.

One other consequences of Brexit may be a break-up of the UK, as support for EU membership is particularly strong in Scotland. The call for a new referendum on Scottish independence would be overwhelming. The result of such a referendum would unlikely to be in doubt.

Finally, the UK Parliament would overwhelmed by the need for new UK legislation to replace the plethora of EU Council Regulations that apply to the UK. Domestic legislation would have to be deferred in order for the UK to have its own body of law that would be consistent with domestic and global needs.

Articles, from all sides, speculating about the effects of Brexit are very welcome, this is a debate that needs to take place before anybody can have an informed decision if a referendum on EU membership is called.

*acquis As the European Commission’s website states “The Community acquis is the body of common rights and obligations which bind all the Member States together within the European Union. It is constantly evolving and comprises:

  • the content, principles and political objectives of the Treaties;
  • the legislation adopted in application of the treaties and the case law of the Court of Justice;
  • the declarations and resolutions adopted by the Union;
  • measures relating to the common foreign and security policy;
  • measures relating to justice and home affairs;
  • international agreements concluded by the Community and those concluded by the Member States between themselves in the field of the Union’s activities.”
Comments
  1. I certainly agree that Brexit negotiations would be long, complex and would create uncertainty. However, I cannot see why it would be particularly difficult to secure a deep free trade arrangement which protected the supply chains of multinational car companies. I can see other issues might intrude – say Gibraltar – but why else? We already have commonality of standards and we are a very big market for EU27 cars.

    Comment by Richard on December 11, 2014 at 3:27 pm
  2. But why would a UK-less EU give the UK a deep free trade agreement without all of the strings Norway has?

    Comment by Tim McNamara on December 11, 2014 at 6:50 pm
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