What are the options for the UK outside of the EU?
Created | Updated Apr 8, 2012
The European Union has been going through a difficult period over the last few years, and this has given heart to the numerous politicians and voters in England who think that the United Kingdom should redefine its relationship with the EU or simply leave altogether. Several newspapers in the UK are more or less clearly working towards that outcome, and several politicians would certainly be happier in something that more resembled a free trade area. Being critical towards the EU also gets very good poll ratings.
This movement has culminated in the December European Council where David Cameron, on behalf of the UK, vetoed the idea of using the existing treaties to strengthen fiscal co-operation, leading to the 17 Eurozone members, plus the other Member States1, agreeing to conclude a separate treaty. Many politicians and journalists in both the UK and other European countries have concluded that this is the beginning of the end for the UK in the EU, although that may be a little hasty, as we will see.
The discussion around the EU is an important debate to have in a democracy – should the UK be in, out, or somewhere in the middle? But what is less encouraging is that this debate seems to be being held in a vacuum from which all of the facts have been extracted. It's a bit disconcerting, and one can wonder what sort of informed opinion any eventual referendum on this question might be based on. This aspect – what the alternatives might be to the EU – is part of the general fog of ignorance. Euromyths are being peddled more or less daily.
The grass is always greener on the other side, of course, but let's at least give it a chew before we tiptoe over the cattle grid for good. This Entry tries to set out some likely options, along with their positive and negative aspects for the UK. But let's start with some arguments that are likely to be invalid.
Some Straw Men to Sweep Out of the Way
We won't trade with you!
This is an argument poorly used by both sides. On one side, the idea that the EU might sulk and erect trade barriers if we lose; on the other, the idea that a simple trade deficit between the UK and the EU might satisfy as a chip to balance out a cherry picking of the UK's favourite bits of the EU.
Neither is likely to happen – we'll all still be in the World Trade Organisation (WTO) for one. What is most likely under all but the most dystopian scenarios is that the EU and the UK continue to trade with each other without any particular barriers. The threat of using the trade deficit is completely empty – no UK government is in any position to instruct its subjects to buy American rather than German cars2. A trade relationship is much more a structural set-up than a bargaining chip, except in very dramatic circumstances.
The only real potential trade problems are more subtle – important points for the UK could be ignored because no one else in the remaining 26 countries cares when making the EU legislation. Sure, the UK mission would buzz around lobbying friendly countries, but if you're not in that negotiating room, your points can drop off when the discussions get to the difficult bits. This can create a drift into what are called MEQR by lawyers – Measures Equivalent to a Quantitative Restriction on trade – little things that just make life harder for smaller exporters, without the Commission there to really take them on. A good example of this is the Chocolate Directive – seven years to negotiate the Directive that creates the internal market for chocolate, mainly because the UK makes chocolate in a way that is very different from continental practice. Without the UK at the table, those peculiarities would probably simply have been brushed aside.
We'll have a bonfire of the EU regulations!
This is also really not that likely for three reasons:
You can't sell on the EU market without matching their standards (and the EU is a big export market for UK firms).
Any exporter wishing to sell in the EU will in any case still need to comply with all the product legislation, and in some cases (food hygiene for example) process legislation as well3. So the UK could get rid of REACH, the EU's ambitious chemical legislation for example, but you still couldn't sell a chemical product across the 26 remaining Member States without being REACH-compliant.
Much legislation is finalised through standardisation.
Another factor is that quite a lot of industrial legislation is now elaborated through what is called the new approach – the EU sets basic requirements for, say, lift safety, and then standardisation organisations (CEN, CENELEC etc) fix the details. Would we really come out of the European standards? It seems unlikely.
The UK would probably have some kind of legislation in place anyway.
Some types of legislation would probably get weaker. The UK doesn't like employment protection legislation very much, for example. Fishery and farm support policies would be different. But – and this is where a lot of the calculations on the 'real' cost to the UK of EU membership fall down – if we left the CAP4, for example, would the UK really cut all support to hill farmers? Would they not need to compensate for the loss of structural fund payments in our poorer areas? Would they get rid of environmental laws? The truth is probably a lot more nuanced – all laws create winners and losers, and those that gain from EU law would probably not see that legislation willingly stripped away.
We'll have these bits but not those bits, thank you.
This is the absolute worst of the misconceptions – the 'fantasy EU'. Leaving the EU would start negotiations in which the UK would be negotiating with 26 other countries. They would develop a common negotiating position, but in developing this they would all try to protect their own interests. So Spain would be looking for fisheries concessions, Poland would want freedom of movement guarantees, the Germans would want help with the financing, etc. There is no chance of simply cherry picking the bits that people might like – if you want a bespoke relationship, you would have to worsen your position in some areas in order to improve in others. That's the essence of negotiation. If you want to experiment with this, try pitching up at your local cricket club (or other social organisation of your choice) and say to them that you still want to play, but that you're only paying half the subs and that you'll bowl, bat but don't like to field – see how you get on. This does not mean that you cannot negotiate with the EU to arrive at a different relationship – simply that it is likely that it will still contain some aspects that you do not like.
This is the deal and this is how it'll stay.
Highly unlikely – the EU is affected by the UK being within the EU, just as the UK is affected by its membership. If the UK leaves, things that they argue for in the EU may get a lower profile – we may see a more protectionist approach to international trade deals, for example. On a smaller note, we can expect things like the Zoos Directive to be quietly shelved.
Before We Get to the Door
We should look at how much the UK could realistically opt out of whilst still remaining in the EU. We should also remember that the UK is already one of only three Member States with an opt out from the Euro (the others have to come in when ready) and one of two Member States outside of Schengen5.
Social chapter?
Possible. This is employment law, maternity leave, frivolous things like that. The UK stayed out until 1997, when the Blair government took us in. Would create some gnashing of teeth in Western Europe, where we are already seen as half way towards the US long hours low productivity model. In November 2011, David Cameron apparently agreed a form of deal with Angela Merkel on partial withdrawal from the Working Time Directive.
Environment, Health and Safety?
Highly unlikely. The deal on environmental issues is that all businesses incur roughly the same costs, no matter where they are. Neighbours of the UK can still remember our reputation as the dirty man of Europe, and have no desire to receives waves of air or water pollution again. Also see the point about separate international treaties.
Fish?
Not impossible, but given it's such a tiny sector of the UK economy, would it be worth it?
Rebate?
Ah, the age old discussion ever since Margaret Thatcher banged her handbag on the table at the Fontainebleau European Council. Horse trading is the name of the game here – no matter what happens, some sort of financial payment will be required – even in the EEA.
Financial Regulation?
Possible in part – this is David Cameron's number one target at the moment. Given that the City is such a big part of EU finance, what you would be really looking for would be an agreement not to regulate certain issues, or to do so under unanimity rather than an opt out.
Free movement of persons?
Lord Glassman, mover and shaker of Blue Labour6, has called for the renegotiation of this basic freedom. Seems unlikely though – what would you do with the several hundred thousand EU citizens already here – and all the pensioners that went the other way to France and Spain? This is one of the four fundamental freedoms in the original treaty – seems a bit difficult to argue that you didn't understand this when we signed up in 1976. You'd almost certainly have to leave the EEA (explained below) as well as the EU to get this.
Apart from the case by case issues, it's only fair to note that the possibility of constituting a sort of 'club of the unenthusiastic' with Poland and the Czech Republic, and maybe Hungary and some Scandinavians is a real one. You would then have a Eurozone inner caucus, with an outer layer around it. How this would work in practice is not clear – the risk is that the outer layer gets outvoted by Qualified Majority Voting on a regular basis. This risk is fairly theoretical though, as such a block would be large enough to have a significant impact on most occasions. Many people would argue that it already does, especially with the Netherlands also currently in that camp.
We'll be like Norway! (in the EEA, out of the EU)
If the UK left the EU, they would still be in the EEA – separate Treaty, dating from 2004. We would have guaranteed access to the EU market. The UK would be in a club with Norway, Liechtenstein and Iceland, but bear in mind that Iceland has applied to join the EU, and Liechtenstein is only in by accident7. With the EEA you also get EFTA8, which gives you some free trade agreements with various countries around the world.
The key thing to remember about the EEA, however, is that you have to apply all the single market legislation without participating in the negotiation of those laws. The Norwegians call this the fax democracy – it's faxed over to them and they have to get on with it. The EEA covers the four fundamental freedoms: people, goods, services and capital, but also what they call flanking policies: social policies, environment, health and safety, consumer protection. All the EEA countries are in Schengen. The elements that are not at all covered are agricultural and fisheries policy, customs union, common trade policy, common foreign and security policy, justice and home affairs and the Euro.
The EEA has its own bureacracy (the EFTA surveillance authority) and its own court (the EFTA court). You also still have to pay – the Norwegians will pay about 1.3 billion Euro over the five year period that the current EEA financial mechanism covers. There are also the costs of the EFTA administration – about 20 million Euro per annum. Unlike with the EU payments, you don't get any of that back in funds or grants. But the overall money is still less.
Also, is the UK like Norway? Norway has a population the size of Scotland over a vast area, with lots of different resources. They have a GDP per capita that is more than double that for the UK, and a sovereign wealth fund and oil reserves that dwarf our own.
Nevertheless, for many Eurosceptic conservatives this is probably a good deal – trade but no politics. There would probably still be nagging stories from the tabloids about the single market legislation, but given that the UK government would have virtually no involvement in Brussels meetings (apart from one meeting a year) it would take the heat off the topic. Some Eurosceptics claim that the UK has very little influence in negotiations anyway, but this is certainly not true at the moment – the UK has been able to have a fairly dominating influence on what you might call 'low politics' – employment, environment, consumer protection – due to a loose coalition with the Dutch, the Scandinavians and the central Europeans.
We'll be like Switzerland! (A la carte)
What this means is that you negotiate every single aspect of your relationship with the EU on a case by case basis. And this means everything – when the Swiss wanted to join the Agency that produces common environmental statistics, they had to haggle. When they wanted to go through Schengen customs as if they were European, they had to let another umpty thousand lorries through their mountain passes. There is a whole unit of the European Commission Trade Directorate-General that is devoted to playing hardball with the Swiss. It's also very slow, and difficult to adjust.
Hang on, we're still signed up to all this other stuff
The EU is one international organisation, but the UK is signed up to many others. The first obvious one is that other popular target for the tabloid newspapers, the European Court of Human Rights. If you leave the ECHR, you probably have to leave the EU, but the converse is not true. The UK Attorney-General, Dominic Grieve, recently pointed out that as the UK was the first signatory of this Churchillian inspired Treaty, leaving was probably not on the cards. In addition, you can imagine how much delight every tin pot dictator in the world would take in bringing this up, every time the FCO9 tries to talk human rights.
Also, the UK is signed up to all post EU treaties as a member of the EU but also individually. So you would still keep your CO2 emission responsibilities under the Kyoto Protocol for example.
Tinfoil Hat Time
A couple of popular options in above-and-below-the-line discussions on the Daily Mail site should be mentioned here. The first one is NAFTA – North American Free Trade Agreement. Really, this is hard to see. Not only does NAFTA give very few trade advantages above and beyond the WTO, signing up would surely mean accepting the cultivation and sale without labelling of genetically modified organisms, as well as the other delightful food production habits of our cousins across the Atlantic. And again, the question is – what's in it for them?
The second is the Commonwealth. Well, for those who have maybe not been keeping up, the days when the empire primarily existed as a way to put grateful savages in touch with the best of British produce for a suitable price are gone. The bits of the Commonwealth that have any money (India, Australia, South Africa, Canada for example) have their own ambitions now, and some sort of exclusive trade link with a small island thousands of kilometres away is not really high on their list.
United Kingdom, You Say?
Those that follow British politics can't help notice that England and Scotland are becoming quite different places politically at the moment – up north you have the preservation of an essentially social democratic model – no university tuition fees, prescription fees etc. On top of this or perhaps because of this, independence or a maximum level of devolution are becoming ever more popular in Scotland, and the EU is relatively more popular. On the other hand, in England you have a country that is going down an Atlantic model of low tax and corresponding levels of public service, via austerity cuts. If English conservative party members were to agitate for a referendum on leaving the EU and win it in England, would this be the last straw for the Union?
There are all sorts of fascinating legal issues about what happens to Scotland's EU membership if they leave the UK, but the most likely outcome would be some sort of rubber stamp. Legal theory states that the remaining country keeps the treaty rights, and the new country needs to reapply (South Sudan had to apply to the UN, for example). However, the unification of Germany was done with the minimum of legalistics, and no treaty change. Greenland also left without a treaty change.
Is Breaking Up Hard to Do?
Well, on one level, Article 50 of the Treaty on European Union (part of the Lisbon Treaty) specifies that the Head of State or Government sends a letter to the President of the European Council, and they then set up a negotiating committee to set out the new relationship. They've got two years to get the job done. Simple. On the detail it would vary from quite complicated (we accept to remain in the EEA with broadly that package of benefits and downsides) to extremely difficult – a desire to negotiate the whole relationship on a case by case basis. The most likely outcome, as with any divorce, is that the lawyers would derive the most benefit. But it's definitely possible, and for Eurosceptics, the advantages may well outweigh the inconveniences.
