And on future of EU relations in event of Brexit
Chapter 5 in Full here
138.Any agreement on the UK’s withdrawal from the EU will have to address a large range of issues, including: the UK’s participation in EU-wide programmes; its contributions to the EU budget; the position of British staff working for European institutions; the status and treatment of UK nationals exercising free movement rights in other Member States; and the status and treatment of EU nationals exercising such rights in the UK. The focus of this report is on the economic relationship that the UK might have with the EU after leaving, and in particular the trade arrangements that it might conclude.
139.How far the UK’s economic relationship with the EU would be altered by Brexit would depend on the agreement that was eventually negotiated. In its analysis of the consequences of Brexit, the Centre for European Reform sets out seven alternative relationships, six of which are based on the experiences of other countries, including Turkey, Norway and Switzerland. Campaigners to leave have cited various examples as models that the UK might seek to follow, including Canada, Albania and Switzerland.
140.Such comparisons can be instructive about the sort of post-Brexit arrangements that could be feasible. But they can also be misleading. The UK’s economic relationship with the EU is unlikely to be identical to that of any other country. As a large European country, the UK will seek, and probably be able to obtain, a unique arrangement. However, the terms of that arrangement would be constrained and conditioned by two forces: the views of other EU Member States and UK domestic opinion.
141.The views and interests of other EU Member States. A comprehensive economic and trade agreement with the EU would require the unanimous consent of all Member States’ governments and some Member States’ national parliaments. As Sir Jon Cunliffe put it, “there will be 27 Member States that will not necessarily all share the same view about what the European Union wants from the UK”. Recent events in the EU have shown that the interests of Member States are often not aligned with each other or with those of the UK. The disunity of the Eurozone and the challenges it has faced in making the changes necessary to put the single currency on a sustainable footing, are testament to this.
142.Domestic public opinion. A vote to leave the EU would be an expression of public dissatisfaction with the UK’s existing relationship, and it is likely that any new relationship would need to be different from the status quo. In opinion polls, the public has cited migration as something over which the Government should have greater control, as a major factor in determining their vote, and as something they would expect to fall following a vote to leave. The strength of feeling in this area indicates that there would be a political imperative to reach an agreement that gave the UK the ability to impose controls on migration from the rest of the EU. As Boris Johnson put it, “free movement would be wrong for us”. There may be other areas, such as social and employment regulation and EU budget contributions, where there could be pressure to achieve fundamental change, and repatriate powers currently exercised by the EU. At a minimum, the UK would exclude itself from the automatic jurisdiction of the ECJ.
143.These two forces would likely interact in a way that narrowed the range of possible economic arrangements eventually reached with the EU; for instance, the UK may find it difficult to satisfy public demands for restrictions on free movement, while securing unanimous agreement among EU Member States for unfettered access to the single market. As a Member State, the UK is bound by a set of rights and obligations, upheld and enforced respectively by the ECJ. It is unlikely that the UK could retain exactly the same rights, while significantly curtailing its obligations. Dr Niblett, said:
The British, in my opinion, will not have an easy time of saying, “Now we are out, we want to keep all the good stuff and we do not want the stuff that our citizens do not particularly like. We want to have access to the markets; we want to have all of the stuff that was the single market, but we do not want the people.” The deal for the EU is all four. [goods, services, capital and people]
Interviewed on BBC television on 6 March 2016, Wolfgang Schauble, Germany’s Finance Minister said:
If the decision is taken to leave, the UK will no longer be in the single market unless you find a new treaty, a new contract where you can be a member of the single market without actually being a member of the EU, and you will still have to accept the free movement of people as well, that goes with it, and you have to pay contributions as well. So it doesn’t really make sense.
Angela Merkel has spoken in similar terms:
It [ … ] goes without saying that there are things that are non-negotiable. That there are achievements of European integration that cannot be haggled over, for example the principle of free movement and the principle of non-discrimination.
144.Jean-Claude Juncker has said that “freedom of movement since the Fifties is the basic principle of the European way of co-operating. These rules will not be changed.” He has also said that “deserters won’t be welcomed with open arms.” The European Union General Affairs Council has concluded that “free movement of persons is a fundamental pillar of EU policy and that the internal market and its four freedoms are indivisible”. The European Commission states that “the cornerstones of the single market are the free movement of people, goods, services and capital”.
145.Campaigners to leave the EU have presented different visions of the sort of trade arrangements that the UK would have with the rest of the EU. The Vote Leave website states that “there is a European free trade zone from Iceland to the Russian border and we will be part of it”. In evidence to the Committee, Dominic Cummings made clear that this trade zone covered “free trade in goods”, and argued that being part of a single market in services was “deeply destructive” for the UK. However, tariffs are levied by the EU on certain goods and in certain countries within the “European free trade zone.” The Leave.EU website states that:
Given that the EU sells far more to us than we do to them, the remaining EU member states will seek a trade agreement with the UK that seeks to maintain the same level of free exchange of goods, services and capital as is the case today.
146.In the weeks leading up to the publication of this Report, spokespeople representing Vote Leave have converged on a view that the UK should have “access to” the single market, but not be “part of it”. Michael Gove said in an interview on 8 May that “we should be outside the single market. We should have access to the single market, but we should not be governed by the rules that the European Court of Justice imposes on us, which cost business and restrict freedom”. Boris Johnson said in a speech the following day that “what we want is for Britain to be like many other countries in having free-trade access to the territory covered by the Single Market–but not to be subject to the vast, growing and politically-driven empire of EU law”.
147.After Brexit, the UK’s future relationship with the EU would be unlikely to mimic that of any other country; in this narrow sense, there would indeed be, as Boris Johnson put it, “a British deal”. However, any comprehensive arrangement providing access to EU goods and services markets would require the unanimous consent of the 27 remaining EU Member States.
148.If it is not to call into question the whole purpose of the referendum, a post-Brexit agreement would have to achieve substantive change to the UK’s relationship with the EU. In achieving that change, there would be a trade-off between the extent to which the UK is able to obtain access to EU markets, and the extent to which it regained control over areas where the EU currently has competence. In particular, acquiring greater control over migration policy might well come at the cost of some curtailment of access to other parts of the single market, and hence a reduction in EU trade. In deciding on what sort of relationship to seek, the Government would have to weigh the benefits of additional control against the costs of reduced market access. To sell into the Single Market, its relevant regulatory standards must be met.
149.Achieving the unanimous consent of EU Member States to a comprehensive trade deal would be a significant challenge. Counting in the UK’s favour is the fact that, on leaving, it would become the EU’s largest single trading partner for goods, just ahead of the United States. Moreover, it would be starting from a position of close integration, with the intention of loosening it in certain areas; this is markedly different from conventional trade negotiations, which start from a position of loose integration with the intention of tightening it. Set against this is the fact that Brexit could represent a crisis for the EU. The goodwill of other EU members could not necessarily be relied upon.
150.The sort of deal the UK would reach with the EU, and the access it would have to its markets in the long term, is highly uncertain. It is disingenuous to claim with any confidence, as some representatives from the leave campaign groups have done, that the UK would be able to leave the EU, drop free movement and continue to have the same rights to trade with EU Member States as it does now. The UK would certainly have access, at some level, to the single market on leaving. The question is not whether the UK would have access to the single market, but how far that access would differ from what it enjoys at present. This is a difficult question; nonetheless, the leave campaigns’ leading spokespeople have not answered it.