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03 May 2016

Britain’s Future in Europe: The known Plan A to remain, or the unknown Plan B to leave

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Graham Bishop reviews CEPS's book and says it is a "piercing analysis" which "shows with remarkable clarity some of the profound issues that the Leavers have not addressed."

The Centre for European Policy Studies (CEPS) team - led by Michael Emerson - has produced a timely update [1] to their analysis of the UK Government’s `Balance of Competences Review’ (BOCR). The 3000 pages of the BOCR did not reveal any significant need to adjust Britain’s policy relationship with the EU, so the Prime Minister’s February agreement only had to “marginally improve” the status quo as we are already `in‘ what we like and `out’ of what we don’t. So UK electors now know what is in Plan A to `remain’.

Emerson has  now felt compelled to turn the team’s forensic analysis to the practical implications of the `Leavers’ policy prescriptions for Plan B “Since the posing of a choice between a ‘known’ and an ‘unknown’ is a big hazard in democratic deliberations, this study does some homework that the secessionists have been unable or not wanted to do.” CEPS has tried to fill in the omission in 32 very readable pages.

It quickly becomes clear why the secessionists did not do their homework. UK-based observers often try to infer what “Brussels” may be thinking but the CEPS researchers – as a formidable group of former `insiders’ – already know, or can simply ask their appropriate friends. This deep knowledge of intricate detail shows through with remarkable power. The Leave campaigns now owe it to the British electorate to provide their operational plans for June 24th that deal with the issues raised. After all, they have had years to prepare.

“The overall conclusion is that all three Plan Bs fail to come up with something preferable to Plan A, as a matter of cold calculation of concrete costs and benefits. It would also inflict huge damage on the entire European project…”  The latter may explain recent comments from both French and German Finance Ministers:  they will be tough negotiators and there will be `consequences’.

Leavers argue for a swift serving of the Article 50 Notice to quit so the UK may formally leave the EU around June 30, 2018. Any extension of the negotiations requires unanimous agreement and Romania – presumably a prime target for the Leavers’ new immigration treatment - has just stated it intends to veto the EU’s deal with Canada on the grounds of unequal visa treatment with other EU states.

Plan B.1 is the simple `clean break’ on Day 1: “scrapping all EU law, including all its international agreements, and thus create initially a huge legal void that would be unthinkably catastrophic for the economy... deleting from the UK statute book around 5,000 regulations, directives and decisions relating to the internal market for goods, services, capital and people and around 1,100 international treaties between the EU and third countries, including all the EU’s preferential trade agreements.” The Government paper points to Treaties with 53 countries so it is a shock to find the actual number of Treaties involved.

Plan B.2 “quitting politically while staying within the single market and/or the customs union, and thus minimising economic disruption” However, it means taking EU rules but ‘no say, still pay’. The merits of keeping EU technical standards become obvious as CEPS argue that - when translated into tariff-equivalents - costs can be much greater than the tariffs themselves, perhaps 20%. Remaining within the customs union has some specific merits: Complex ‘rules of origin’ mean around 40% of value must be added in the exporting country. The corporate and governmental bureaucracy of proving ‘origin’ is costly. According to CEPS, it could be equivalent to a 5% tariff, with another 3-4% for border control costs. “Quitting the customs union would mean the opposite of what advocates of secession want, by increasing the regulatory bureaucracy, not lessening it.”

Plan B.3 “trying to negotiate the best possible deals with the EU and its international trading partners.”  This is the messiest of all. There will be no `Swiss model’ as the EU now explicitly opposes cherry-picking. “The EU has drawn the conclusion that the Swiss model was systemically defective, has broken down and will not be repeated.”

A WTO-based deal may not be very attractive as an important phrase in the EEA Agreement in Article 102.5 stipulates how disputes over non-compliance should be met as regulations diverge:  the “affected part” of the agreement may be “provisionally suspended”.

“Moreover, the idea of the UK replacing the EU’s international free trade deals with something better and faster is an illusion, since major trading powers will continue to view the EU as their priority.” The EU is already negotiating deals with most major countries where a deal is not yet in place. Why would those states prejudice their prospects with the market that is five times that of the UK? 

Leavers argue the EU would be keen to conclude a friendly free-trade deal. “This is an illusory and misleading simplification, which grossly fails to understand the likely EU response.” The EU would certainly first respond by asking that the UK sets out its intentions and requests in full.” CEPS expects the EU to play a tough negotiating game with a long period of uncertainty. Such a period would help the rest of the EU gain market share from the UK over both its two ‘crown jewels’ – the City and foreign direct investment (FDI).

Scrapping the free movement of people is a key goal of the Leavers. On the one hand, the UK labour Market would become less flexible and poorer in skills – at a time when our unemployment rate is already so low that it is below the NAIRU. CEPS believes the EU would surely reciprocate, requiring work permits for UK citizens with long, uncertain and bureaucratic procedures.

For British `ex-pats’, there are legally secure mechanisms for cooperation between national health services, which eliminate risks of non-coverage, or discriminatory lack of access to free health care. CEPS is clear that “Secession would also mean that the EU’s current social security arrangements for non-active migrants would cease for UK citizens on the continent.”

This piercing analysis shows with remarkable clarity some of the profound issues that the Leavers have not addressed – at least in public. The assumption that the EU would easily and quickly strike a deal giving as good an access as today to the EU market seems to be implausible – based on careful study of the large body of existing precedents in the EU’s negotiating process.


Graham Bishop is a Professorial Research Fellow at the Global Policy Institute.

© Graham Bishop

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