2
Shipper
BULKDISTRIBUTOR
Into the
unknown
July/August 2016
After the Brexit vote a dark shadow
of uncertainty looms over the entire
British economy, writes BD’s
managing editor Neil Madden
A
recent cover of The Economist newspaper summed it up
pretty well – Anarchy in the UK!
Non-UK readers of that publication could be forgiven for not seeing
that the reference also carries a cultural nuance. The song of the
same name by punk rock pioneers The Sex Pistols was released in
1976. One of the key themes to emerge from polls among older
voters in the UK’s EU membership referendum is that many wished
for a return to an imagined past roughly dating around that period.
But it is to the future that Britain and the EU must turn. So what
happens now?
Basically, no one really knows as it’s never happened before (see
notes about Greenland below). This absence of precedent gave
ammunition to both sides of the debate as there was no counterfactual against which to gauge their respective claims.
Nevertheless, various questions, and some plausible answers,
abound. As Bulk Distributor went to press, it was not even known
when new Prime Minister Theresa May would invoke Article 50 of
the Treaty of Lisbon (which formally triggers the withdrawal process).
Assuming she does just that, a two-year period is stated in Article
50, following which European treaties would no longer apply to the
UK. However, that does not mean to say a two-year negotiation
period is inevitable. The official date of exit can be extended by
agreement, or, alternatively, the negotiation phase can continue past
the official date of exit.
When Greenland, which at the time was still part of Denmark,
opted to leave the European Economic Community (as it was then),
it took almost three years of discussion just over fishing rights to
formalise its post-exit relationship.
Given that the UK has been a member of the EU for far longer –
and obviously has a much bigger economy – many observers
anticipate that the withdrawal negotiations will extend beyond the
two-year deadline, and quite possibly beyond the next UK general
election, due to take place in 2020.
This is compounded by the fact that senior British civil servants
have already sounded warnings that the UK lacks sufficient legal
eagles with detailed knowledge of EU law to unravel decades of
common law making.
Eurovision?
A regularly touted argument of the Leave campaigners was that the
UK will still maintain trade relations with the rest of the EU, and that
there is little reason to think that much will change.
Objectively, the first assertion is undoubtedly true; the second is
much more questionable.
So what are the options for a post-Brexit UK-EU relationship? The
list of models currently runs to about seven, although many
permutations could also apply. However, four of them look the most
realistic. This is not the place to examine their pros and cons in great
detail, but in summary:
Custom made
An argument of the pro-leave campaign was that the UK could
negotiate a unique structured agreement, effectively cherry-picking
the bits it wanted. Leaving aside the fact that German Chancellor
Angela Merkel has clearly stated this would not be possible, the UK
approaches the negotiations with a weak hand.
First, in simple economic terms the UK is far more dependent on
the EU than the other way round. Britain sends just under half its
exports to the Continent (and Ireland), whereas the rest of the EU
sends around 16 percent of its exports to Britain.
Moreover, the UK’s two overriding aims – to control immigration
and to maintain preferential access to EU markets – are well known
to the other side. It is a big disadvantage for one party to negotiate
on a wide range of issues with its bottom line on priority areas
revealed in advance. The EU could play these issues off against each
other, and use their importance to the UK to extract major
concessions elsewhere.
Norway-light
Britain could follow the Norwegian example by rejoining the
European Economic Area. This would have the advantage of
simplicity as the legal framework exists. It entails participation in
large parts of the single market and the ‘four freedoms’ (free
movement of products, capital, services and, of course, people)
without the obligation to take part in other EU policies such as
agriculture, home affairs or foreign and defence policy.
The sticking points, though, are not limited to the free movement
of people. EU rules on competition, including state aid, have to be
followed. Also, since those countries are outside the EU’s Customs
union, the EU applies ‘rules of origin’ to its trade, which means that
if goods contain significant content from non-EU countries, EU tariffs
are applied.
The UK would still be bound to EU law without having a say in its
design, and would still have to contribute to the union’s budget.
Swiss cheese
Over the years Switzerland has concluded around 20 major
agreements and more than 100 sectoral agreements with the EU.
Geography plays a role here. Large volumes of intra-EU physical
trade have to pass through Switzerland simply because of where it
is. This hardly applies to Britain, with the exception of Ireland’s
imports and exports.
But Switzerland has no agreements on financial services, and while
the country is under no formal obligation to adopt EU legislation,
Brussels’ rules are still prevalent.
Importantly, the formal bilateral relations have become difficult
since the Swiss people in a referendum voted against unlimited
immigration from the EU, which would breach EU Treaties. A
proposal by Switzerland to allow the country to introduce
quantitative limits was rejected by Brussels, and the current stand-off
has confirmed the long-held view of Bru