Now we are set to leave the European Union, we at GMCC will respect the electorates’ decision and will be ready to speak up for the needs of the business community. This requires an understanding of the preferred route out of the EU. The official campaign however, offered little clarity with regards to post-vote strategy.
Many in the Vote Leave camp are suggesting that we should exit the single market at the same time as exiting the EU. Such a move would have volatile consequences; revoking Britain’s right to free movement of goods, services, people and capital with the EU in one fell swoop would surely cause the one thing that businesses want to avoid: uncertainty. This strategy, where we attempt an almost hostile breakup, risks being so economically problematic in the short run, requiring such enormous political effort, that any long-term objectives and benefits are derailed before coming to fruition.
The EEA/EFTA option increasingly referred to as the “soft exit” is the one that most overcomes this problem. It puts all the usual rhetoric about immigration, sovereignty and red tape to one side and concentrates instead on minimising economic disruption and uncertainty. It is also the most likely outcome of a leave vote, for a vote to leave is not a vote for Vote Leave. On June 24th everything becomes Westminster and Brussels based. It will be politics through and through, negotiated by a pro-remain parliament with the other EU nations. They will not try to negotiate some bombastic revolution, but an exit that is as easy and as painless as possible for every party involved.
Critics of the EEA/EFTA or Norway option say it is EU membership in all but name, but that is sort of the point. We can revoke our membership of the EU but keep almost all aspects of the current arrangement and remain as closely tied to the single market as ever, safeguarding jobs, exports, finance and investment. It is an “off the shelf” option that has been done before, has the most chance of being secured quickly with minimum fuss, and overcomes the short-term problems of uncertainty to the largest extent. If Britain successfully implements this soft exit in the short term, it can then take all the time necessary to build towards other arrangements, whatever they might be.
With regards to trade deals, EEA/EFTA membership would ensure continuity of our existing EU trade relationship. For other arrangements the government should hope to invoke the continuity of all existing treaties through the process of international law, and seek to replicate all other pieces of legislation to remain in effect as they do today. In other words, no renegotiation of anything should be the target and is theoretically achievable. This would mean that the UK retains full access to the EU single market and maintains trade agreements with non-EU countries. It also means we keep the free movement of people and Visa-less employment for EU citizens. In terms of business, this is the least risky of all the exit strategies by a fair margin.
This position, if secured, would have its benefits. Britain would gain seats on many international bodies that play larger global regulatory roles than the EU such as the WTO, UNECE, ILO and many others. Britain would still be able to sit individually on many EU bodies with veto rights, as other EFTA members do currently. Britain would be able to choose what EU programmes – such as Horizon 2020 or Erasmus - to be involved with. It would have to pay for these privileges as it does currently, but the choice would be there. Britain could control its own defence, foreign affairs and justice policy. It could negotiate trade deals with non-EU countries, set its own level of VAT and back away from joint liability of EU debts. Britain would have access to the EEA emergency brake on immigration. Imports from outside the EU would not be subject to EU tariffs, potentially lowering the cost of living. It would also bolster the power of EFTA, taking advantage of existing EFTA trade deals with the likes of China and Canada, and would secure Britain a top seat at what would be the world’s fourth largest trading bloc.
There are drawbacks too, but they are minimal when compared to any other exit strategy. By operating in a global field and not being part of the EU customs union, Britain as an EEA member would be subject to rules of origin (ROO) laws on its exports. Treasury reports have estimated the cost of ROO on transactions to be 2%-3.5%, although changes coming into force in January 2017 will lower this. Norway exports more to the EU than the UK, but ROO are not generally considered to be an issue. We would still have to contribute to the EU, and would still have to accept some EU laws, but not as much as we do currently. This cost would certainly be outweighed by the removal of both uncertainty and the need for fast political regime change. With an issue as big as this there are obviously many, many other things to consider and many other potential pitfalls, but with this route as much economics and as much risk is taken out of the picture as possible. Critics would say that it doesn’t adequately address the main reasons for the referendum, but outside the EU the UK would be free to move in any direction it wishes in the longer term, once a relatively painless exit has been secured and there is a wider understanding of what life outside the EU might look like. This wouldn’t just be the best outcome for business, it would be the only strategy with a chance of uniting a divided parliament, public and business community towards a common goal.
Below is a chart showing the differences between EU membership and EEA membership, courtesy of the Adam Smith Institute: