Download `Brexit` Prize: A Blueprint for Britain outside the EU

Institute of Economic Affairs
‘Brexit’ Prize: A Blueprint for Britain outside the EU
Michael Fabricant MP
MP for Lichfield
Vice Chairman of the Conservative Party
Anthony Pickles
Chief of Staff, Welsh Conservatives
1
Table of Contents
Executive Summary
page 3
Introduction
page 4
Domestic Policy
page 4
Future Trade after EU exit
page 5
Rest of the World
page 5
UK joins the North American Free Trade Area
page 6 - 7
Conclusion
page 8
References
page 9
Contact: House of Commons, London, SW1A 0AA
[email protected] / [email protected] / +44 (0)7807 222656
2
Executive Summary
The case for Britain exiting the European Union has been made since before the UK even entered
the EEC in 1973. However since 2009 and the widening Eurozone Crisis, both public and political
opinion have been sharpened towards the UK’s involvement in the European Union. From what
historically was a relationship based on trade and economic competitiveness, the crisis which has
engulfed the European Union has put a spotlight on how Britain sees itself in the 21st Century as
we continue to examine our future in a changing world.
The case to leave the EU is both procedural (how it will actually happen) and strategic (what the
UK will do once it has left). Both are crucial in determing how Article 50 will be invoked. Firstly, the
UK must remain on good relations with the remaining EU and ensure that trade (estimated at
between 40 – 50% of the UK’s own export market) is maintained whilst being able to carve out
trading opportunities with markets like India, China and the United States.
An overview of any plan would have to include the following as priorities:




Agree future access to the Single Market and friendly relations post withdrawal.
A plan for transitional Britain from EU member state to independent nation: legal
frameworks and constitutional transition.
The UK’s place in the world will require continued EU trade alongside building world
trading opportunities and bilateral deals particularly with trade blocs like NAFTA.
A change in the UK’s geo-political standing.
There are also secondary issues of great importance that would effectively no longer exist
following a withdrawal such as the Common Agricultural Policy, the Common Fisheries Policy and
European Structural Funds for poorer areas. However, as the second largest net contributor of
funds to the EU, the money that the UK spends on European policy could potentially be redirected
to some of these programmes by the UK Government if it so wishes.
The most important factor facing the Government is stability of the process – maintaining the
confidence of the world markets and business whilst reaching a settlement that allows the UK to
grow its economy on bilateral free trade with partners like the USA and the Anglosphere †.1
1
†Defined here as USA, Canada, New Zealand, Australia, India, Singapore, Hong Kong
3
Introduction
Prior to the Treaty of Lisbon in 2007, there was no formal mechanism for withdrawal from the
European Union. Previously, the only examples to be drawn upon were Algeria in 1962 following
its war of independence with France and when home rule was granted to Greenland and a
subsequent referendum led to withdrawal from the European Economic Community in 1985.
Under these new arrangements, the UK Government would have a period of negotiation with the
European Union over its precise terms of relations following full withdrawal. Article 50 of the
Lisbon Treaty sets out that:
“A Member State which decides to withdraw shall notify the European Council of its
intention. In the light of the guidelines provided by the European Council, the Union shall
negotiate and conclude an agreement with that State, setting out the arrangements for its
withdrawal, taking account of the framework for its future relationship with the Union.”
The terms of a withdrawal are clearly labelled as a “negotiation” and given that a UK withdrawal
would be unprecedented in both the scale of the UK economy in relation to the European Union
and the geo-political consequences, a negotiation would be taken very seriously by both sides.
Given that there are over 40 years’ of accrued EU law on the statute books and shared institutions
(at EU level), a negotiation between the EU and the UK would be prolonged. There would need to
be negotiation over whether any of the treaties could still stand. Article 50 of the Treaty for the
European Union (TEU) again sets out that there could be agreement between the EU Council and
the Member State:
“The Treaties shall cease to apply to the State in question from the date of entry into force
of the withdrawal agreement or, failing that, two years after the notification referred to in
paragraph 2, unless the European Council, in agreement with the Member State
concerned, unanimously decides to extend this period.”(Treaty of Lisbon, Article 50, 2007)
The UK Government would need to assemble a team of senior diplomats and civil servants who
would engage in the intricacies of the negotiation, whilst Ministers push the top lines of a UK exit.
This should not be foreign territory however given that there have been 4 major EU Treaty
negotiations in the past 20 years.*
Domestic Policy
The most pressing domestic issues to face the UK Government would include how EU law such
as employment rights are taken forward following a withdrawal. How would they apply following
withdrawal from the Treaties? The obvious answer to this problem would be that EU law would
remain on the statute until repealed (or left in place) by the UK Parliament (or devolved
legislatures if applicable by competence).
Secondly, all British Citizens have been in ownership of EU passports since the Maastricht Treaty
in 1993. Neither Norway nor Switzerland are satisfactory examples of an alternative model
because of Schengen (in Norway) and Swiss identity cards. The UK could choose to maintain EU
4
passport regulation for a set period whilst introducing a transition towards UK passports. Given
that the UK did not join Schengen, passport checks at EU borders would not change.
There would also be pressing issues around the payments of Common Agricultural subsidies and
EU structural funding and how the UK Government would adapt these funding streams.
Internationally, the UK Government would seek immediate clarification of the legal status of the
European Economic Area which was formed of the European Community and the European Free
Trade Area (EFTA) to which the UK was a signatory prior to accession to the EEC in 1973. Given
the status of Norway and Switzerland – there would not be difficulty in maintaining free trade with
the remaining 27 EU member states and the other EEA and EFTA countries. There would also be
discussion about how the UK Government relates the European Union on issues around the
Single Market and environmental obligations.
Whilst negotiations were proceeding in order to find a fixed settlement with the EU Commission,
the UK Government would explore potential free trade agreements with other trading partners of
significance. Prime Minister Cameron has already made clear his desire to conclude an EU-USA
trade agreement; these negotiations could be completed very quickly with a UK-USA free trade
deal. The Swiss have already set a precedent for a free trade agreement with the Chinese
Government in July 2013. (Reuters News Agency. China, Switzerland sign free trade deal, July
2013)
Future Trade after EU Exit
The European Union has had control of the UK’s external trade relations in terms of trade barriers
and external customs since 1973. Upon leaving the EU, the UK would be able to sign free trade
agreements bilaterally whilst maintaining its access to the single market via the EEA/EFTA.
It has been argued that the UK’s withdrawal from the EU would leave other EU Member States
angry at the UK’s decision and therefore could result in a very acrimonious renegotiation of access
to the single market. The likelihood of this happening however is limited given the fact that the EU
has a trade deficit with the UK and countries like Germany and France would not want to damage
access to the UK market. There is however a difference between the deficit the EU has with the
UK in services and goods. Given the size of the UK’s service economy (around 75%) there is a
disparity between the exports and goods surplus which could sway some of the negotiation.
Rest of the world
One of the main reasons that the UK would seek to leave the European Union in the first place
would be to advance trade with other partners around the world. Looking immediately at the key
markets and obvious trading partners the UK would target, the overall growth of countries outside
the EU has been on average around 3% higher than the EU itself.
The tables below demonstrate the potential trade links available to the UK. We have selected 7
Anglophone countries based on the use of common law and historical links through Empire.
5
Anglosphere economies on 2012 and 2013 figures show bigger growth than other countries (with
the exception of China) and the UK continues to hold the advantage of shared heritage, language
and the common law which cannot be understated in trade.
Table 1.1
Anglosphere
European
Union
GDP
$16,641,109 trillion
GDP
$22,311 trillion
Growth
-0.2% (2012)
Growth
3.08% (average)
Unemployment
11.4%
Unemployment
5.08% (average)
(Figures based on IMF world GDP tables, 2012)
Table 1.2
Country
Australia
Canada
United States
India
New Zealand
Singapore
Hong Kong
GDP
$1.372 trillion
$1.839 trillion
$16,633 trillion
$1.824 trillion
$166.9 bn
$318.9 bn
$325 bn
Growth
3.3%
1.9%
2.8%
3.9%
2.2%
0.3%
7.2%
Unemployment
5.6%
7%
7.3%
3.8%
6.6%
1.9%
3.4%
(Figures based on IMF world GDP tables, 2012)
UK joins the North American Free Trade Agreement?
The most obvious trade partner with whom to sign a bilateral deal would be the United States of
America, if not joining the North American Free Trade Agreement (NAFTA) altogether. Firstly, the
USA accounts for around 25% of world trade. The US economy dominated the world economy in
the 20th Century and for the next 20 – 30 years at least shows little sign of waning. There is much
talk of the rise of China and India economically, and whilst it is imperative that the UK increases
both its imports and exports to India substantially from current levels, the United States remains
the United Kingdom’s most important non-EU target market.
It is not just the United Kingdom that has considered joining NAFTA. The United Stated
International Trade Commission, an arm of the US Treasury, conducted a major examination in
2000 into the benefits to the United States economy, as well as to that of the United Kingdom, of
the United Kingdom joining NAFTA. The conclusions of their weighty paper were encouraging for
both countries. (US International Trade Commission: The impact on US Economy of industry in a
free trade arrangement with the United States, Canada and Mexico. Aug 2000)
British-American trade was worth $214 billion in 2012. That is the biggest bilateral trade
relationship of any two countries anywhere. At a state level, New York trades more to the United
6
Kingdom than it does to any other US state. UK investment in the US is 116 times that invested in
the US by China and 90 times that invested by India and 88 times that invested by Brazil. Around
a million jobs on both sides of the Atlantic depend on US-UK trade. (UK Trade & Investment
figures, 2012)
If the UK were to join NAFTA, it could also trade bilaterally with Canada, another key Anglophone
country. The UK is currently Canada’s most important European trading market (Canadian
Government, foreign investment figures, 2012)
7
Conclusion
For over 40 years, the UK’s main policy in economic areas has been steered by the European
Union. A withdrawal from the EU would change the UK’s economic policy and Britain’s standing in
the world. It is therefore imperative that the UK Government in charge of negotiating Britain’s
course following an exit does so in a way that promotes a freer and more prosperous economy.
The first aim is to secure the UK’s relations with the EU, both economically and as an ally. The EU
is currently the largest economic bloc in the world (however this would change once the UK had
left) and as such, the UK would not wish to lose trade because of a political negotiation. Therefore
a UK Government negotiating would need to be clear that some concessions would be necessary
for future relations.
The second aim of leaving the EU would be to open the UK’s trade opportunities with the rest of
the world. For the past 40 years and more, the UK has had its free trade with countries outside the
EU negotiated by the European Commission. It would be strongly in the UK’s economic interest
firstly to ensure that any internal economic reforms that are needed (planning, visa restrictions
etc.) are in place in order to target bilateral free trade agreements with markets like China, but also
the Anglosphere (see above table). The UK should also seek membership of the North American
Free Trade Area given the shared interests that the American and Canadian economies have on
both sides of the Atlantic.
The UK’s history, identity and culture is based on its global role. Since the UK came into being in
1707, it has always been outward looking and based on world trade. 40 years out of 306 years
have been based on European policy and not global policy.
Leaving the EU would allow a return to the UK’s natural state of being a world trader.
8
References
IMF world GDP figures 2012, 2013
BBC website
Reuters News Agency
Canadian Government website
Australian Government website
UK Trade and Investment website
European Commission website
Open Europe
World Bank website
The Commonwealth Secretariat
US International Trade Commission
9