Here’s what will actually happen if there is a Brexit
Europe is always a heated topic at a Conservative party conference. This year much debate has focused on David Cameron’s ongoing renegotiation of terms for staying in. By contrast, relatively little has been said about the terms on which Brexit might happen. Those advocating it oscillate between — and often treat as interchangeable — quite different and incompatible scenarios.
The truth is that anyone who works for, or consumes the products of any organization — in other words everyone — would be affected by a U.K. exit from the European Union. As someone who studies organizations for a living, I believe that it is strongly in Britain’s interests to remain in; it is why I am a member of the European Movement. Now, you may disagree with that view, but it is surely vital that when it comes to the Brexit referendum, voters know what happens next if Britain chooses to leave.
One possibility is direct single market access via European Economic Area (EEA) membership (the so-called Norway option) as advocated by, for example, the Tory eurosceptic Owen Paterson. However, it doesn’t appear that this would deliver what many Brexiters say they want: not in terms of sovereignty (Norway has almost no control over the single market rules it must abide by); cost (Norway pays more per head); immigration (there is still free movement of labor in and out of the EEA) or the ability to negotiate third-party free-trade agreements, which it does via the European Free Trade Area (EFTA).
A second scenario is single-market access via EFTA membership by multiple bilateral agreements (the so-called Swiss option), as sometimes argued by the U.K. Independence Party’s (UKIP) only member of parliament, Douglas Carswell. A Brexit on this model would have to negotiate multiple separate agreements (Switzerland has more than 120 which have developed over many years) over an unknown timescale with unknown outcomes. As with Norway, Switzerland is in large part bound by E.U. law and regulation. So far as immigration is concerned, the E.U. Commission is in ongoing dispute with the Swiss approach to free movement of labor and it is simply inconceivable that a U.K. opt-out on free movement would be granted alongside EFTA membership any more than, as Brexiters rightly say, it could be re-negotiated within the framework of E.U. membership.
The third scenario is a Free Trade Agreement (FTA) with the E.U., which is apparently the current UKIP position. It is absolutely crucial to understand that an FTA is not the same as single-market membership. In general, FTAs eliminate tariffs, whereas a single market eliminates non-tariff barriers to trade and harmonizes regulation. A particular difference from the previous scenarios, appealing to some Brexiters, is that an FTA would exempt the U.K. from free movement of people. But one consequence would be that British people would also lose their rights of free movement within the E.U.. That includes the two million or more British people currently working or living in the E.U. — and the arrangements for them are unknown.
Likewise unknown are the consequences for the similar number of E.U. nationals without British citizenship currently in the U.K. Brexit (in the FTA sense) would be a fundamental shift in which Europeans lose their right to move freely to Britain and Britons, both now and in the future, lose their right to move freely around Europe.
Would the E.U. sign such an FTA? Brexiters sometimes suggest that Article 50 of the Lisbon Treaty defines terms of exit. In fact, it simply defines the process for exit. The terms would have to be negotiated: not all FTAs are the same and they are not quick. For example, the E.U. deals with Singapore and South Korea took several years to negotiate. A U.K. FTA with the E.U. would also mean ceasing to have access to those FTAs held between the E.U. and other countries. In due course the U.K. might sign new deals. The terms are unknowable, however, and the expectation must be that they will be worse than those the E.U. has, for simple reasons of market scale.
One of the arguments put forward for Brexit is that E.U. membership precludes the U.K., signing its own FTAs. This is correct but there is an obvious reason. If it were allowed for the U.K. then it would also be possible for any E.U. nation to sign such a deal. That would in turn give a third-party country access to the single market, which would in turn create a trading relationship with the U.K., but in which it had had no say whatsoever — surely highly offensive to eurosceptics.
These are the three main scenarios, but it is also sometimes said that on exit it will just be a matter of trading on the terms of the World Trade Organization (WTO). But the WTO does not establish global free trade, which is why individual countries negotiate FTAs within the WTO framework. Of course trade would not cease on Brexit, but the issue is in what volume and on what terms – and what the consequent effects on non-EU inward investment in the U.K. would be.
Alternatively, some float the idea of the U.K. joining a Commonwealth free-trade area. But there is no such entity and no foreseeable plan to create one. Another suggestion is that the U.K. could join the North American Free Trade Agreement (NAFTA). This again is unrealistic: one obvious clue is in the name.
Flirting with fantasies like this does no one any favours. For the debate to be bona fide, we must be absolutely clear which of the different Brexit scenarios is envisaged and not to confuse or conflate them. If not, and the vote is to exit, it will be no good saying afterwards that “we didn’t understand what we were voting for” – the repeated complaint made by eurosceptics about the 1975 Referendum. By then it will be too late.