David Cameron and Angela Merkel

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Brexit is More Complicated Than You Think360°ANALYSIS

What would happen if the UK left the European Union? Former Irish Prime Minister John Bruton explains the different options.

In June, the people of the United Kingdom may vote to leave the European Union (EU). At the moment, a narrow majority favors remaining in the EU, but a large group is undecided. That group could swing toward a “leave” position for a variety of reasons, including what might be temporary EU problems with refugees. However temporary the reasons might be, a decision to leave would be politically irreversible.

It would be wise for Ireland to give thought now as to how it might react to a decision by UK voters to leave the EU, and how it would play its hand in the subsequent negotiations. A number of scenarios will arise and Ireland needs to identify its red lines in each one of these.

NEGOTIATIONS COULD TAKE 21 MONTHS

The negotiation of a UK withdrawal from the EU will be done under Article 50 of the Lisbon Treaty. It will have to be a quick negotiation because the article contains a two-year time limit. In practice, the negotiation of withdrawal arrangements will all have to be finished in about 21 months.

From the date that British Prime Minister David Cameron informs the European Council of his decision to implement the referendum result, the two-year time limit starts to run. Assuming a June 2016 referendum, the withdrawal treaty would have to be negotiated, ratified and brought into force by July 2018. Therefore, the negotiations themselves between the EU and the UK would probably have to be finished at latest by April 2018 to allow time for parliamentary ratifications.

In the event that no agreement is reached within the deadline, the EU Treaties “would cease to apply” to the UK. The United Kingdom would simply be out of the EU, without even a trade agreement.

This would be exceptionally disruptive to the British economy and some, but not all, EU member states. It would be particularly bad for Ireland. The country’s exports to the UK would be at risk, and the border would be deepened with incalculable consequences.

UNANIMITY OF ALL EU STATES

The two-year limit could be extended, but only with the consent of all remaining 27 members of the EU. If the negotiations had become contentious, or if UK demands bore heavily against the interests of one or two states, the required unanimous consent for an extension of negotiating time could be withheld.

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This risk of a single refusal to extend time for negotiation adversely affects the dynamics of the negotiation—from a British point of view—because the UK has more to lose from failure. It is not inconceivable that a populist government in a member state might hold a time extension for the UK hostage to obtain some other unrelated matter, such as debt relief. A European Parliament in election year could also be a source of uncertainty.

While a time extension would require unanimity, the actual negotiation of the terms of withdrawal would need a “qualified majority” within the European Council.

NO GUARANTEE OF PROTECTION

This means that the terms of the withdrawal treaty would need the support of 72% of the remaining 27 EU governments, collectively representing at least 65% of the total EU population. Ireland, on its own, could not block a withdrawal treaty that contains terms that are against Irish interests. Nor could Ireland guarantee that it would agree on terms that would adequately protect Irish interests. For example, Ireland could not necessarily prevent passport controls or customs posts on the border in Ireland.

While 72% of EU member state governments must agree to the treaty terms, 100% of the 27 national parliaments must do so, and ratification could become entangled in general elections in some states in the interim.

Fellow EU member states will undoubtedly recognize that Ireland will suffer more than any other EU state from a UK withdrawal, but this does not guarantee that Irish interests will be taken into account in all cases. Quid pro quo will apply, and that could cause difficulties on vital Irish interests on EU issues that have little direct bearing on the UK withdrawal as such.

Given the short time involved, the United Kingdom will not have the option of pursuing a relaxed post-referendum exploration of different types of external association with the EU. It will probably have to decide at the outset what form of relationship it is seeking. It will have to choose among options that do not require the EU itself to change its treaties. The options were well-described in a recent paper by Jean Claude Piris, former legal advisor to the European Council.

OPTION ONE: UK JOINS THE EUROPEAN ECONOMIC AREA

The simplest option would be to join the European Economic Area (EEA), while leaving the European Union itself. The EEA allows Iceland, Liechtenstein and Norway to take part in the EU Single Market, but without being in the EU Agricultural, Fisheries, Judicial and Foreign Policies.

In the EEA, the UK would still have to contribute to the EU budget, to apply EU Single Market rules without having the say it now has in them, and to allow free movement of EU migrants to work in the UK on the same terms as locals.


Another option would be for UK to seek a trade agreement with the EU, like Canada has. This option is favored by some of those who want the the country to leave the EU…


Ireland’s problem with this option would be the departure of the United Kingdom from the EU Common Agricultural Policy, which would raise issues of fair competitive access for Irish farm produce to the UK market. The management of Atlantic Fisheries would also become more contentious.

OPTION TWO: THE SWISS APPROACH

A less simple option would be for the UK to make tailor-made agreements with the EU, like Switzerland has. This negotiation would be a very complex process where tradeoffs would have to be sought between different sectors and national interests. The Swiss model has not worked well from an EU perspective, and one could expect EU negotiators to take an exceptionally tough line if this is what the UK wants. The issue of access to the UK labor market for EU citizens would certainly be a demand from Brussels in such a negotiation.

In practice, if not in theory, the UK would have to implement EU law in all the areas for which it sought access to the EU market. This would be very problematic from the point of view of the financial services exports from London to Europe.

Once such a deal had been concluded, the EU would be under pressure to tilt its own internal rules to favor financial service providers in the European Union itself. If a system of mutual support and supervision of financial service providers existed within the EU, and the UK was not part of that, there would then be valid grounds for objecting to British financial service providers benefitting from a market they were not supporting on the same basis as EU providers.

This could hurt London, and Dublin could be a beneficiary. Outside the European Union, the UK could do little to stop this. The European Banking Authority would have to leave London, and there would be a good case for relocating it in Dublin.

OPTION THREE: A CANADA-STYLE AGREEMENT

Another option would be for UK to seek a trade agreement with the EU, like Canada has. This option is favored by some of those who want the the country to leave the EU, so it needs to be studied.

The first thing to say about this is that it would have to be negotiated within the two-year time limit applying to a withdrawal treaty under Article 50, and would presumably have to be part of the treaty itself. The existing Canada agreement took six years to negotiate and dealt with a much less complex relationship than that between the UK and the rest of Europe. It is very hard to see how all of this could be done in the timeframe. The European Parliament would actively involve itself in the details. The UK would be excluded from the European Council discussions on the topic.

A Canada-type agreement would not necessarily mean continuing tariff-free access to the EU for all UK goods. Some tariffs remain on some Canadian goods for the time being.

It is unlikely that a trade agreement like this, or even a Customs Union of the kind Turkey has with the EU, would allow the UK access to the EU financial services market—and financial services are one of the UK’s biggest exports.

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It is clear that under a Canada-style agreement, the UK would have to comply with EU rules on any goods or services it wanted to export to Ireland or any other EU member state. The UK would have no say in the framing of these rules, but it would still be bound by them.

Of course, the UK would be free to make its own rules for goods and services sold within the country, but the downside of this is that British firms would then have to operate under two different rule books—one for the UK and another for the EU—thereby adding to their costs and damaging their competitiveness.

Once a Canada-style agreement had been made, the UK would be out of the EU and would have no control over any further rules on new topics that the union might need to make.

The Canada agreement is clear that it does not restrict the EU making “new laws in areas of interest” to it.

If the Canada model was followed, there would be a Regulatory Cooperation Forum to cover this sort of thing. In the Canadian model, this forum would allow: “exchange of information and experiences”; “only provide suggestions and make no rules”; and “not have decision making powers” In other words the UK would be in a worse position than it is as a voting member of the EU.

If, after the UK had withdrawn, the EU deepened its service market further, allowing new access rights across border-for-service providers within the EU, the UK would miss out on this and would have to negotiate access for its service providers on a case by case basis.

The rights of the 1.8 million UK citizens now living in EU countries would also be less secure. British citizens, living in Ireland or the European continent, would enjoy only what Canadians enjoy.

EXISTING EU TRADE DEALS

Furthermore, the UK would have to start from scratch negotiating trade agreements with countries all over the world, and to replace the trade agreements it now has with all those same countries as a member of the EU.

The British Parliament would certainly be busy as well, in that it would have to pass new UK laws to replace all the EU regulations that are now part of UK law. The only alternative to this would be for the UK to decide to leave all the “acquis” of EU rules and regulations.

One proponent of a UK exit from the EU, Lord Lamont, admitted in a debate with this author that this is what they would have to do. Leaving the EU, only to leave EU rules on the UK statute book, seems like a lot of trouble to achieve very little.

A SECOND REFERENDUM?

There would be no second referendum on the final terms of any withdrawal treaty. This has been made clear by British Chancellor George Osborne. That has to be his position because if there was to be such a referendum, the choice would be to either leave on the basis of the terms of a withdrawal treaty, or stay on the basis of the EU membership exactly as it is today.

If a second referendum was formally in prospect, it is hard to see that the EU side would have any incentive at all to offer the UK any concessions. They would be mad to do so because concessions would only make a withdrawal more attractive.

Clearly, the architects of the United Kingdom’s renegotiation/referendum strategy did not adequately consider how hazardous the voyage is, on which they have so casually embarked. They may have overestimated the European Union’s political capacity to devise yet another special deal for the UK.

Ireland, for its part, will have to adopt a very tough, deliberate and multifaceted negotiating strategy, as long as this avoidable uncertainty prevails.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

Photo Credit: 360b / JMiks / Kostasgr / Shutterstock.com


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