Special Reports








Whether and when there will be a referendum on UK membership of the European Union are questions yet to be resolved - and, even when they are, further questions will arise, as to what outcome that referendum might produce and whether it would be acted upon by government.

Despite these uncertainties, however, it is not too early to think about what a withdrawal from membership might mean for the UK. So far, that question has prompted little beyond warnings of calamitous consequences on the one hand and predictions of a new golden age on the other. If a referendum is to make sense, it is surely essential that a level-headed assessment is attempted in advance of the decision being taken.

The first point to make is that, portentous though a withdrawal from the EU might be, it is not the same thing as withdrawing from Europe. The tendency to equate first the Common Market, then the EEC and now the EU with “Europe” has always been an obstacle to rational discussion. Those who have criticised particular aspects of these arrangements have always been lazily dismissed as “anti-Europe”, as though anyone could doubt that Britain is geographically, historically, politically, economically and culturally part of Europe, whatever institutional form that might take.

There is nothing “anti-European” about subjecting our relationship with the rest of Europe to careful scrutiny; and it is not exactly unknown in our history that we have fulfilled our European role while declining to throw in our lot with the dominant continental power.

The question has never been whether or not Europe, but what kind of Europe - and today, whether the “Europe” we have, with its increasingly obvious and possibly irremediable flaws, is the best we can manage. Any proposed withdrawal from the particular arrangements we define as the EU should, in other words, be seen in the context, not of a sudden and complete rupture of relations with the “Europe” of which we are inevitably a part, but of whatever new relationship could be put in its place.

Nor is it the case that a withdrawal would involve a totally new and unprecedented departure from our current stance. The UK has already, after all, resolutely steered clear of the euro - a decision that seems more strongly vindicated by every day that passes but which has also meant that there has been an increasingly significant but manageable distance between the UK and the central core of euro zone membership.

We have, in other words, already experimented successfully with a unilaterally determined exemption from some of the obligations of full membership. Consistent with this, a supposedly full-scale “withdrawal” would not be any such thing; it would be a negotiated re-definition of a relationship that is already accepted as not set in concrete. That re-negotiation would not be easy but - however strained relations between the parties might seem initially - both sides would have an obvious and common interest in preserving existing, and creating new forms of cooperation.

It is worth pausing to consider who the parties to a re-negotiation might be. While it would not necessarily be an explicit goal of the British negotiating position that other members should be encouraged to join the negotiation, that might nevertheless happen. A British “withdrawal” could trigger a wider attempt, involving other countries that would welcome the chance to achieve change, at redefining the shape of European cooperation.

Such a redefinition would not necessarily require a rejection of all that had been achieved. That would seem to be especially true of trade relations. Neither the remaining members of the eurozone (which might be regarded for all intents and purposes as a greater German economic zone) nor the UK (and perhaps others) would have any wish (other than as a reflection of a rather childish fit of pique) to see trade barriers re-erected.

The rest of the world is, after all, moving inexorably - albeit slowly - towards increasing free trade. The Doha round may have stalled for the time being, but other attempts (such as the Trans Pacific Partnership) are proceeding apace. It would be surprising, not to say irrational, for the different parts of Europe to move in the opposite direction and to set up trade barriers against each other.

A renegotiated trade arrangement might stumble for a time over particular issues, such as demands from individual industries and producers on either side for some degree of protection, and especially over British freedom to allow access to the British market for products that would compete with EU alternatives. It is hard to see, however, that there would be - as a matter of self-interest on both sides - any general and sustained move to raising tariffs. As with the initial negotiations for British membership of what was then the Common Market, difficult issues would be addressed on a case-by-case basis; they would be resolved by compromise and often by means of transitional arrangements that would allow time for adjustments but would almost certainly lead back to a pretty comprehensive version of free trade.

With the likelihood of an agreement in principle to keep trade relations open, the only significant long-term trade disadvantage to the UK would lie in not automatically being included in EU trade deals with third parties; and that would be offset at least in part by the greater freedom we would have to negotiate our own trade arrangements with producers of food and other primary products that are more competitive than the European producers with whom we are currently obliged to deal. We might be pleasantly surprised at how welcome such a prospect would be to some of our traditional trading partners, such as New Zealand.

The original aims of the Common Market, as a customs union and free trade area, could in other words be achieved in substance without having to take on the obligation to limit our trade relations with other parties - an obligation that has been particularly onerous for a country like the UK that previously enjoyed unmatched trading links around the world.

It would no doubt be argued that the EU has now become much more than a customs union and that the removal of tariffs was just a small step towards the economic integration that has been attempted and largely achieved. It is certainly true that the EU has quite deliberately put in place a comprehensive and coherent structure of rules designed to provide a level playing field - in other words, to ensure that member states do not gain a competitive advantage by resorting to non-tariff devices, such as the preferential treatment of local bidders for major contacts - and that this means that any expectation that free trade could be maintained after withdrawal, would need to take account of the need to keep these rules in place.

There is considerable substance to this point, and the conditions on which free trade (at least in the sense of tariff-free access to each other’s markets) could be maintained would no doubt be the subject of tough negotiation. But there is no need to despair; free trade agreements have been regularly concluded around the world without the degree of economic integration between or among the parties that has been the goal in the EU. An all-or-nothing stance by the EU - either full integration or no free trade - would in the end be self-defeating. Finding a solution to this issue would be as much in the EU’s interests, and therefore as much their responsibility, as it is the UK’s.

Consideration would have to be given to the UK’s continuing rights and obligations in respect of treaties negotiated by the EU with overseas partners. It might prove possible to establish that, in principle, the UK either did or (more likely) did not continue to be bound by such provisions; otherwise, these matters would need to be addressed on a case-by-case basis. Where it seemed clear that the outcome was not in accordance with what we wanted, we might need to negotiate new arrangements with treaty partners.

What other aspects of economic relations would need to be considered? One of the often touted advantages of EU membership is the encouragement to potential investors of locating new productive capacity in the UK on the basis that they would thereby gain access to the whole European market. The significance of that factor would, though, be much reduced if something approaching free trade with our European partners were maintained; and, to the extent that any loss were suffered, it would be offset by the increased incentive to invest in the UK as the safest way of gaining tariff-free access to what would remain a valuable British market.

If satisfactory trade arrangements could be negotiated, as they surely would, it seems unlikely that other aspects of what would normally be regarded as international relations would pose particular problems. While the EU would presumably continue to take responsibility for its own foreign policy and international relations as a single entity, the UK might enjoy greater freedom to identify its own foreign policy goals and to exploit the advantages that its own particular history and range of relationships provide - and it is in any case inconceivable that the foreign policy objectives of the EU and the UK would diverge any more significantly than they do - and are allowed to do - at present.

Defence policy would seem to present even less of a problem. That issue would continue, as at present, to be defined within a NATO rather than an EU context. Either within the EU or outside, the UK’s relationship with the US would remain of prime importance.

The UK would of course cease to be represented in EU institutions such as the European Council, the Council of the European Union (or Council of Ministers) and the European Parliament. The UK’s continued participation in Europe-wide cooperative arrangements, such as the Council of Europe, and the European Convention on Human Rights (including the acceptance of the jurisdiction of the European Court of Human Rights), would, however, remain unaffected, since they are not EU bodies. Withdrawal would however mean that the European Court of Justice (a quite different body) would no longer have jurisdiction over the UK since we would no longer have obligations under EU law - except, perhaps, to the extent that we might identify transitional arrangements where we might accept such jurisdiction for limited purposes.

There would of course remain many opportunities for functional cooperation on a Europe-wide basis - that is, cooperation on issues of common interest where the advantages of joint action and policy-making might transcend EU boundaries or rest on a rationale that goes beyond or is independent of EU purposes.

It is in terms of the impact on the domestic economy and internal law-making and regulation that the thorniest problems might arise. A termination of membership would, first, put an end to the UK’s contribution to the EU budget (always a sensitive issue) but would also remove current EU subsidies to a wide range of economic and social undertakings. Arguments will differ as to where the balance of advantage would lie, but it seems likely that the UK would make a net gain in purely financial terms. There could be a price to pay, however, in respect of the disruption involved in making new domestic funding arrangements so as to maintain desirable operations that had hitherto been EU-funded.

There would also be the possibility, if not the necessity, of unwinding existing rules, in matters such as the form of agricultural subsidies and agricultural price structures. Freed from the constraints of the Common Agricultural Policy, the possibility would open up of reverting to a cheap (or at least cheaper) food policy (with consequent benefits to the costs of British industry) so that subsidies were paid direct to farmers, and consumers gained the benefits of lower prices. The removal of CAP rules, and greater national freedom in matters of trade policy, would of course allow us to use cheaper food imports from efficient non-EU producers to set domestic prices.

By virtue of staying outside the euro zone, the UK has already preserved some degree of freedom to set its own exchange rate and monetary policies - an opportunity of which we have signally failed, under current policies, to take much advantage. While the euro zone continues to struggle with the consequences of an inappropriate austerity, the UK could, if we so chose, exploit the removal of our obligations under the Maastricht Treaty in order to put in place more expansive fiscal and monetary policies - something of which the domestic economy is desperately in need. In any event, decisions on such matters, for good or ill, would clearly be for the British government and the Bank of England, rather than the European Central Bank.

It is a matter for speculation whether the reclamation from the EU of wider powers of self-government might prompt a revived appreciation of the value of parliamentary government, and a renewed willingness to require elected and accountable governments to take the major decisions on economic policy rather than sub-contract them to unaccountable bankers. In any event, it might be a salutary experience for British parliamentarians to find that the buck stops with them, rather than across the Channel.

The most complex area for adjustment would probably be the large volume and wide range of existing EU-originated regulation that applies in the UK. Much of that would be acceptable and could continue to be applied without difficulty; but the opportunity could be taken to weed out those regulations that are there because the EU required them but that are seen as inappropriate or unnecessary in the UK context.

There would of course be an increased legislative burden, as the UK legislature and administration took over responsibility for the rules and requirements in areas that had hitherto been an EU domain. This should not cause major problems, other than cause more work for legislators and civil servants, with perhaps a small marginal additional cost. The maintenance of an optimal degree of consistency with EU legislation would no doubt be seen as desirable, but the option would be there, in any given instance, to legislate for specifically UK interests.

A British withdrawal might, as well as producing a change in the composition of the EU, arguably have some impact on that of the UK as well. Any such change would be likely to occur at around the same time as decisions were being taken or contemplated about Scottish independence and, possibly, about the future of Northern Ireland.

It is hard to foresee how these possible developments might interact with each other. Much could depend on timing. In respect of a referendum on Scottish independence, the argument might be made that a UK withdrawal from the EU - if it had happened or was seen as likely - would make an application for EU membership from an independent Scotland both opportune and advantageous, and - for those who remained in favour of EU membership - this might become therefore an argument for voting in favour of Scottish independence. On the basis of initial EU responses to the prospect of a Scottish application for membership, however, the EU would be reluctant to involve itself in such an issue before a referendum on UK membership and would be unlikely therefore to give any encouragement to this line of argument.

Scottish opinion might in any case take the view that a UK withdrawal from the EU would mean - on the assumption that membership of some larger entity would be valuable to a newly independent country - a choice between the protection to be gained from the UK on the one hand or the EU on the other. It could provide an additional reason, therefore, to those who were not in favour of continued EU membership for remaining within the UK.

The Northern Ireland issue is likely to be less pressing. That section of Northern Irish opinion that saw EU membership as an important element in maintaining Irish prosperity might see a UK withdrawal as requiring an agonising reappraisal of the future relationship between the two Irish entities. But it seems more likely that the bulk of Northern Ireland opinion would wish to stick with the UK, whether in or out of the EU; and the advantages of EU membership to Ireland might seem less obvious as the Republic struggles with euro zone-imposed austerity.

The conclusion must be that none of these issues poses insuperable difficulties or creates irremediable disadvantage. All can be resolved by negotiation and adjustment. This is not surprising. The future of Europe and of the UK’s role in that future offers choices. It is not possible or sensible to prescribe in advance and without admitting the possibility of future variation the shape that that future might take. The history of Britain in Europe is one of continuing evolution. If it happened that a referendum were to take place and the British people were to decide on withdrawal and the British government then acted on that decision, that would not be definitive for all time. We should then merely set about making sense of the next stage in that evolution.

The proponents of a fully integrated Europe should not despair. To acknowledge that there is not yet a United States of Europe, with a single political identity that makes it possible to accommodate without undue strain a range of divergent economic interests, is not to admit defeat but to recognise the need to build a Europe on the basis of democracy and popular will if the result is to be sustainable.

Bryan Gould