What Options for a New European Relationship Are Possible if Brexit Became the Will of the People?

As the United Kingdom (UK) seeks to renegotiate its relationship with the European Union (EU), it won’t be long before the following question will be put to the public ‘Should the United Kingdom remain a member of the European Union’?

Prime Minister Cameron addressing a European Council Press Conference- Photo Credit from The Daily Telegraph

If BREXIT is the outcome, the UK will enact Article 50 of the Lisbon Treaty, which is the mechanism for a member state to leave the EU. Despite Eurosceptics viewing BREXIT an end in itself, it will rather be a new beginning – a re-set to the UK’s relationship with the EU. What are the options Britain could construct for life outside the EU?

The most commonly cited alternatives to EU membership are fourfold, each of which is reviewed below:

1. Membership of the European Economic Area (EEA)
2. Membership of the European Free Trade Association (EFTA)
3. A Customs Union relationship
4. A Free trade option, through the World Trade organisation (WTO)
5. Membership of the EEA (the ‘Norwegian option’)

The EEA is a free trade area, supporting the movement of goods, services, capital and people within a Single Market. There are 31 states within it, comprising the EU, and EFTA states excluding Switzerland.

Norway provides an example of a possible UK position post-BREXIT, as it is a part of the EEA and EFTA, but is not a EU member. The country has chosen to enter into the Single Market and has signed 74 Agreements to participate in the EU’s Foreign and Security policies, as well as Justice and Home affairs.

Access to the Single Market is fundamental to the country, with over 80% of exports going to the EU and 60% of imports coming from the EU. In total, including an access fee, Norway pays a yearly EU contribution of £350 million, making it the 10^th highest budget contributor, despite it being a non-EU member. However, Norway lacks influence over the Single Market’s rules, and does not have representation or votes within EU institutions. The country has essentially chosen that it is in its national interest to have a ‘democratic deficit’ between its people and Brussels.

Under Article 102 of the EEA Treaty, Norway does retain the right to reject EU legislation, which is not deemed in its interests. Indeed, the country remains outside EU rules for the Common Agricultural and Fisheries Policies, giving it independence over some of the more controversial EU policies. Otherwise, EU regulation remains on the statute book in areas such as financial services and social and employment policy. It is noteworthy that Norway is subject to only 300 new regulations each year while EU members accept over 1,000, a 70% reduction. According to the Bruges Group, this reduction in red tape equates to a 3.5% GDP boost to the EEA economies.

Overall, Norway shows that the EEA model has the ability to allow its members to control the majority of its own affairs, while adopting those parts of the EU project that are in its own interest. It can be argued that through the EEA, Norway remains in Europe but is not run by Europe.

For many, this is a desired model for a post-BREXIT UK, but according to the CBI, the lack of knowledge of the EEA means that many trade barriers remain in place, in practice, creating substantial uncertainties and negatively affecting growth, trade and employment.

It could be that the Norwegian model works for a country of its size, but whether it is a match for the complexities of the much larger UK economy is less clear.

2. EFTA Alone (a part of ‘the Swiss option’ aka. ‘Britzerland’)

EFTA is the next step in creating distance from the EU core, removing the internal market for services while retaining freedom to pursue separate social and employment policies. EFTA’s prime mission is to promote free trade and economic integration between its member states. Currently the association has four members: Iceland, Liechtenstein, Norway and Switzerland.

The ‘Britzerland’ option comes from Switzerland being a member of EFTA but not of the EEA, which the Swiss rejected in a 1992 referendum. Switzerland, as a leading economy in Financial Services, has negotiated a package of over 120 bilateral agreements with the EU to mutual benefit, providing Swiss businesses tariff and duty free access to the Single Market in areas such as free movement of people, agriculture, the environment, justice and the elimination of technical barriers in goods, but it has no agreement on services. As a part of this arrangement the Swiss Government can cancel agreements if deemed no longer in their national interest.

Economically, like Norway, Switzerland is closely integrated with the EU on a sector-by sector basis, and the EU is its number one trading partner. The Swiss have managed to reduce trade barriers and are able to negotiate their own free trade deals as an independent trading nation. By adopting this relationship with the EU, however, Switzerland – like Norway – does not take a seat at the table within the EU’s institutions and has had to make substantial concessions to gain access to the Single Market, for example, 40% of Swiss legislation is derived from EU rules.

That said, Switzerland has retained control over which EU rules combines with Swiss Law. An example is immigration, where the Swiss have a ‘safeguard clause’ giving the right to cap immigration for a limited time period. This provides stronger control of its borders despite being a member of Schengen. Like Norway, the Swiss are not affected by the Common Agricultural and Fisheries policies, giving it more freedom to pursue its own policy agendas.

The country’s relationship with the EU has been strained through the complex integration of rules and regulations. This raises questions over the model’s sustainability.  If the UK were able to follow this option it would achieve more democratic accountability and sovereignty over its affairs. To gain membership of EFTA, however, the UK would need to gain support from member states and undergo a long negotiation with both EFTA and the EU. This could take years, as it took Switzerland nearly 10 years to achieve their current unstable status, making EFTA application potentially problematic.

A United Kingdom flag flying next to a European Union flag

A recent YouGov opinion poll stated that the British Public still support EU membership by 43% to 36% – Photo Credit Via Daily Mail

3. Membership of the Customs Union (The ‘Turkish Option’)

The next level of separation from the EU, EAA and EFTA is membership of the EU Customs union alone. The Customs Union is made up of all 28 EU members, and certain other states such as Turkey, Monaco, Andorra and San Marino. All members support free trade, and together agree on a common external tariff, with no customs levied on goods and services that move internally between the Union’s members.

Turkey, as part of the Customs Union and not a member of the EU, EEA or EFTA, is excluded from EU trade negotiations but is required to adopt rules on competition and state aid, but it is allowed to retain the duties collected. Turkey has access to the Single Market for goods, but not for services or agricultural products, which means that, unlike EEA members, it does not benefit fully from the Four Freedoms. Unlike the Swiss and Norwegian models, Turkey does not need to pay any budget contribution to the EU.

In other areas, Turkey has to accept the laws and decisions of the European Court of Justice, without any representation on the court, so Turkey and the EU have had to harmonize legislation and enter an on-going process of further integration.

This model appears to be unique to Turkey’s situation; as for the present it also involves a significant ‘democratic deficit’, albeit one the country has entered into through its own choice as a part of its process towards EU membership.

This post-BREXIT outcome lacks many supporters, due to the complicated characteristics of membership rules and other re-set options open to the UK, but is still a credible option. It is, however, hard to imagine that this outcome would be acceptable to the UK or the EU when the direction of the UK’s travel would be in reverse.

4. The WTO Option (The “Clean Break”)

Finally, the last BREXIT option creates the greatest distance of all from the EU, by relying on trade relations solely through membership of the WTO. Unlike, all other options, this would not require re-negotiation with the EU in terms of the fundamentals of its relationship but it would require negotiations on trade terms to establish a new Free Trade agreement.

The UK would regain its seat at the WTO, as the EU would no longer represent it, but as a part of this the UK would have to withdraw from the EU’s existing trade agreements and the country’s exports would face very high tariffs and limited EU market access.

This last option would achieve major budget savings as a result of having no EU membership fee to pay, which in 2014 cost £9.8 billion. On leaving the EU, the UK would lose the tariff concessions it gains from EU membership, and the EU could treat the UK in a disadvantaged manner as a ‘third country’ in relation to trade. The UK could also struggle to maintain its current levels of external trade, which is why opponents describe this option as one of splendid isolation, with adverse political and economic consequences.

Conclusion

Having considered all four possibilities it seems that that there is no one option that perfectly matches the likely needs and wishes of the UK post-BREXIT. The issue, for those who propose withdrawal, is what aspect of the UK’s relationship inside Europe today is of highest importance and should be retained in a post-BREXIT world. Is it economics, integration, sovereignty or democracy? And perhaps the bigger question is could these goals be equally well achieved through re-negotiation with the EU without the challenges of an EU divorce?

*Author Biography

Christopher Bowerin is currently an undergraduate studying Politics and Business Management at Oxford Brookes University. Christopher has a strong interest in European and American politics, Middle Eastern Affairs, international conflicts and post-war reconstruction.

Twitter: @KBowerin

*Cover image ‘UK EU Flag’ by GPPW