Thursday, 28 May 2015

European options


As I mentioned in my post on the British election result, one certain consequence of it was that there will be a referendum as to whether the UK remains in the European Union. This will have major consequences for Britain and for British businesses but also for the EU itself and for those doing business with Britain, and for those who currently come to live, work and study in Britain, and, actually, for the way the world geo-politics are configured.
Already there have been some important developments. First, who will get to vote in this referendum? There are various possibilities but what seems to have emerged is that the electorate will be those entitled to vote in a British general election. One consequence of this is that it excludes 16 and 17 year olds, unlike last year’s referendum on Scottish independence. Another is that citizens of other EU countries living in the UK will not have vote unless they have joint citizenship (there are some technical reasons why this does not apply to Irish, Maltese and Cypriot citizens in the UK). A third is that British citizens who have lived abroad for 15 or more years will not be able to vote.
This decision on the franchise can be seen as an attempt to assuage the demands of those who want Britain to leave the EU, in particular by excluding EU immigrants, which looks like smart politics from British Prime Minister David Cameron, who is widely believed to want the UK to stay in the EU. It heads off accusations of a rigged vote. On the other hand, it seems entirely illogical. If Britons who have lived in other EU countries for more than 15 years aren’t allowed to vote (apparently on the grounds that they have substantively exited the UK for another country) then why aren’t those from other EU countries who have lived in the UK for more than 15 years (and so made a similarly substantive commitment to the UK) not allowed to vote?
I know a great many people in both camps and in fact two of my closest friends are a French woman who has lived in the UK for 20 years, has a business, husband and children here but can’t vote, and an Englishman who has lived in France for almost 30 years but has children in the UK and pays taxes here but can’t vote. What such examples really show is that the extent of European integration already makes it absurd to try to separate out a British and non-British electorate.
The other big development has been an indication that the question asked in the referendum will be in the form (if not the exact words) of ‘should Britain remain a member of the EU’. This is significant because it means that those arguing to stay in will be arguing for a ‘yes’ vote, which is believed to be more psychologically appealing than asking people to vote ‘no’. Thus, unlike the decision on franchise, this seems to be likely to favour the pro-EU case (and hence has been criticised by those who want Brexit).
Alongside these really very important developments, the British Prime Minister has begun the process of ‘re-negotiation’ with the EU. It is not really clear what this means as there is no forum for such a re-negotiation and no mechanism for it. Anti-Europeans perceive, rightly I think, that no fundamental re-negotiation is possible, certainly not on the key issue of free movement of labour. The question is whether something that looks like a substantive re-negotiation but isn’t can be presented to the electorate as if it is. This is the hope of the pro-EU group and the fear of the anti-EU group.
Yet this attention to the terms on which Britain might stay in the EU completely fails to address the equally, or even more, important question of the terms on which Brexit might happen. Those advocating it oscillate between, and often treat as interchangeable, quite different scenarios.
One is direct single market access via European Economic Area (EEA) membership (the ‘Norway’ option). This is perfectly feasible, but wouldn’t deliver what Eurosceptics say they want. Not in terms of sovereignty (Norway has less control than the UK over the single market rules it must abide by), cost (Norway pays more per head) or immigration (there is still free movement of people) or the ability to negotiate third party free trade agreements (it does so via EFTA*).
A second scenario is single market access via European Free Trade Area (EFTA) membership by multiple bilateral agreements (the ‘Swiss’ option). That is much less feasible, as Switzerland’s idiosyncratic position developed piecemeal over many years. A Brexit on this model would have to negotiate multiple separate agreements (Switzerland has 120) over an unknown timescale with no way of knowing the outcome. The Swiss model does not enable free movement of services, which would be a major problem for the UK’s service-based economy. Moreover, the EU Commission is deeply hostile to the Swiss approach to free movement of people, and it is simply inconceivable that an opt-out on free movement would be granted alongside EFTA membership any more than it could be re-negotiated within the framework of EU membership.
The third scenario is a Free Trade Agreement (FTA) with the EU. It is absolutely crucial to understand that this is not the same as single market membership. In general, FTAs eliminate tariffs, whereas a single market eliminates non-tariff barriers to trade and harmonises regulation.  A particular difference, appealing to some Brexiters, is that an FTA would exempt the UK from free movement of people. But the consequence would be that 2 million or more British people working or living in the EU would lose their automatic right to live there, so Brexiters need to explain what arrangements would be made for them and for their families. It’s no good imagining that things would go on as at present or that post-Brexit the EU is ‘bound’ to accept British immigrants on rules other than those applying to other countries. Brexit (in this third sense) won’t just be some sort of game, it will be a fundamental shift in which Europeans lose their right to move freely to Britain and Britons lose their right to move freely around Europe.
A UK FTA with the EU would also mean ceasing to have access to the FTAs held between the EU and other countries such as South Korea and Singapore – in due course the UK might sign new deals, but that could not be guaranteed nor would the terms and timeframe be known.  What is certain is that the UK on its own could never get a better FTA deal with such countries than that which it enjoys via the EU, for obvious reasons of market scale.
The key question would be whether the EU would sign such a deal, on what terms and in what time frame. It cannot be assumed that a deal would be inevitable ‘because the UK is a big economy’: plenty of bigger economies don’t have an FTA with the EU. Anyway, it’s also the terms that matter: not all FTAs are the same.  As regards time frames, the EU deals with Singapore and South Korea took several years to negotiate: these kinds of arrangements are incredibly complicated. What happens in the meantime? Brexiters don’t say because they don’t know. They sometimes say that on exit it will just be a matter of trading on WTO terms. But the WTO does not establish global free trade, which is why individual countries negotiate FTAs within the WTO framework. For example, under WTO ‘most favoured nation’ rules, on Brexit the UK would pay a 15% tariff on food exports to the EU and a 10% tariff on car exports. Of course trade would not completely cease on Brexit, but the issue is on what volume and on what terms.
Even more fantastical is the idea floated by some Brexiters of the UK joining a Commonwealth free trade area. There is no such entity and no plans or possibility to create one. This idea is simply nonsense.
It’s hard to resist the conclusion that the anti-EU camp deliberately confuse the very clear differences between these Brexit scenarios. When challenged that leaving the EU will mean exiting the single market they invoke the Norwegian or Swiss model; when arguing that leaving the EU means avoiding the free movement principle they invoke the FTA model. This slippage really needs to be confronted and challenged by what we now know will be the ‘yes’ campaign. And that campaign needs to do something more than present the economic case for staying in: the EU represents not just an economic bloc but also offers multiple opportunities for study, research, culture and retirement. Moreover, it operates to secure peace within Europe and is a force for projecting a European view into the world polity.
It’s a perfectly reasonable to say that we should leave the EU. But if the British people are to be asked to vote for EU exit they deserve to be given a proper explanation of what happens next.  Just saying airily that it can all be negotiated afterwards isn’t good enough, nor is it good enough to conflate the very different options just outlined. And it will certainly 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. There’s no way back in. Which is what makes it a big moment.

 *There is a lot of confusion in these debates about the meaning of EFTA and the EEA, and their relation to the EU. Briefly, the EEA members are Iceland, Liechenstein and Norway. EFTA consists of those three countries plus Switzerland. Both EEA and EFTA groups are de facto subject to EU principles and regulations.

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