Monday, September 11, 2017

Brexit: Will the United Kingdom be able to keep it's access to the single market and exit the EU?

About Brexit and EU Strategies

 There are currently a lot of discussions around the topic of Brexit. These debates revolve around what the Treaties stipulate as well as the expected consequences of the Brexit. It is argued by the British government that a compromise on Britain's future access to the single market can be found restricting at the same time the influx of immigrants coming from EU countries citing the agreement that is currently in place with Liechtenstein. 

I would like to share an analysis made by my colleague Lefteris Kaloterakis where we try to answer most of the frequently asked questions. According to Article 50 of the Lisbon Treaty, the current negotiations must be concluded within 2 years (the process officially began on the 29th of March). Of course the European Council (by unanimous vote) can negotiate or prolong the procedure, but the question is if the United Kingdom really has a lot of negotiation space in order to have access to the European single market and to exit the EU. In this article we will also compare the future position of the United Kingdom with other countries as Liechenstein, Norway and Switzerland that have agreements with the EU, have access to the single market without being part of the EU. Furthermore, we will discuss also the Brexit in the light of the proposed strategies for the European Union. See the article  below

On the 29th of March, British Prime Minister Teresa May sent a letter to the President of the European Council Donald Tusk. With this letter, she notified the Council of the decision of the United Kingdom (UK) to leave the European Union, following last June’s referendum. The letter triggered a procedure that is outlined in Article 50 of the Treaty of Lisbon  (Treaty of the European Union – TEU). This article gives any EU member the right to quit unilaterally, and describes the procedure for doing so. According to article 50, the leaving country has two years to negotiate an exit deal and the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the European Union. 

Once it's set in motion, this procedure cannot be stopped except by unanimous consent of all member states. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification letter has been sent, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period. This means that Britain will have a very short time to (re) negotiate all the different treaties.

In her letter, the British prime minister Teresa May stated that the UK will quit the single market, the customs union and leave the jurisdiction of the EU Court of Justice. She also indicated that the desire of the British government is to negotiate terms of the future partnership with the EU (i.e. a new trade deal between the EU and UK) together with those of the withdrawal from the EU . The rationale behind this request is that UK will avoid a prolonged period of uncertainty over the future status of its relationship with the EU. However, in its negotiating guidelines  for Brexit, the European Council underlined that the framework of UK’s future relationship with the EU will be discussed only after “sufficient progress” on the withdrawal has been made.  Of course, it is up to the EU institutions and EU Member States to define what “sufficient progress” means.

If no agreement is reached within the two-year period and no extension or transition period till the introduction of a new trade deal is granted, then the UK will automatically loose access to the common market and higher World Trade Organization tariffs will automatically apply for its products. Many fear that such a development (also called as “dirty Brexit”) could have serious consequences to the British economy but there will also be implications for the European economies. Additionally, before the conclusion of the negotiations for the terms of its exit from the EU, the UK will still be a member of the Customs Union and therefore not allowed to conduct trade agreements with third countries. This means that despite the British government’s willingness to agree new trade deals with countries like the US, this cannot take place yet.  In fact, a European Parliament resolution threatened to exclude the U.K. from EU discussions on trade and “other policy areas” if it begins talks with non-EU countries or if it favors “its own interests” before formal withdrawal.

It is still difficult to assess  what the consequences of Britain's exit will be both for the UK as well as for the EU. As it was mentioned earlier, the British government will have a very short time frame to conclude difficult and complex negotiations. Moreover, the Brexit campaign gave several promises to the electorate during the campaign which raise the bar of what the voters expect as a result from these negotiations. For example, they were that once out of the EU, the UK will be able to stop free movement from EU nationals, retaining at the same time some of the benefits that stem from the participation to the common market.

Freedom of movement and residence for EU nationals was established by the treaty of Maastricht in 1992 and is the cornerstone of EU citizenship. It guarantees to every EU citizen the right to move freely and to stay at work in another member state, enjoying the same rights with the nationals of that state. This right is one of the four freedoms the treaty of Maastricht established, the others being free movement of goods, right of establishment and freedom to provide services, free movement of capital. Those four freedoms are the basis of the EU internal market.

Freedom of movement and residence for EU Nationals within the EEA
The Single European Act which laid the foundation for the common market defined the common market as “an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured”. Finally, on the 1st of January 1994 the agreement on the European Economic Area (EEA) was entered into force. The EEA brings together the countries of the EU as well as three other European countries (Iceland, Norway and Liechtenstein) that have signed the European Free Trade Agreement (EFTA) in a single market known as "internal market". All members of the EEA have have the obligation to respect the four freedoms upon which the common market is founded. The only EEA country that imposes quotas to the number of EU nationals as well as to nationals of EEA countries is Liechtenstein. In 1995, the Council of the EEA recognized that Liechtenstein has a "very small inhabitable area of rural character with an unusually high percentage of non - national resident employees and that is was of vital interest of Liechtenstein to maintain its own national identity". As a result, a quota system that is reviewed every five years has been put in place. 

Another example of a country that has a special relationship with the EU is Switzerland. Switzerland did not join the EEA but has signed a several bilateral agreements with the EU and is a member of the internal market, the Schengen area and the Dublin asylum system. Finally it participates in mobility and research programs of the EU. On the 22nd of December 2016, the EU approved a Swiss law that will enable the movement of EU nationals to Switzerland without quotas. It was the result of two years of negotiations after the 2014 referendum to introduce immigration quotas into the Swiss constitution. The new Swiss law gives priority to Swiss based job seekers (Swiss nationals as well as foreigners registered in Swiss job agencies) but does not impose any quotas on EU citizens. 

The EU had already announced right after the Brexit referendum that a compromise on the freedom of movement along the lines of what was promised during the campaign is not possible. If a country wants to be part of the common market, it must accept the four freedoms. Right after the referendum, the British government was therefore presented with two options regarding their Brexit strategy. One option was to remain to the common market accepting in principle the free movement of persons and the second one was to withdraw from the common market altogether. Mr May’s government chose the second path. It is easy to understand why. Stopping free movement of EU workers was a key issue in the referendum campaigns. Even though a poll showed that most Britons favored continued access to the common market (90%), at the same time, 70% percent of them was in favor of limiting EU immigration.

Of course, during the negotiations for the new trade deal with the EU, the UK government will try to ensure that their products and services will have as much access as possible to the common market. But the outcome of this complex and difficult negotiations is difficult to foresee. Other EU governments do not want to leave the impression that the UK was able to leave the Union ensuring a better deal for its products than the one it had when it was a member. Therefore, the amount of access that British products will have in the single market is still under question. This also applies to small start-up  or larger international companies in the fields of finance, electronics and manufacturing that are currently have bases or increased presence in Britain.  It is unknown how they will react to possible limitations in access to the free market. Thirdly, the future of London as a world financial centre is at stake. The immediate effect on the economy after the referendum result was negative . Confidence in the sterling has already been reduced and there are also some early signs of discouragement in investment. Finally, many UK citizens living in EU countries are anxious about their future.

There are also other pressing questions that arise from Brexit and can put in question the survival of the United Kingdom itself. For example, will Northern Ireland want to unite with Ireland ? Will this also not open the old conflict in Northern Ireland? Will Scotland leave the United Kingdom (although after the negative election results for her party last June, the Scottish Prime Minister freezed plans for a second Scottish referendum)? What will happen with Gibraltar?

There will also be financial implications for the EU itself. Trade with the UK is likely to be affected and the status of EU nationals living in UK is also in question. But the most important implication for the EU is not economic but political. For the first time in its history, the EU is losing a member. 

Britain’s relation with the EU was not always easy. The United Kingdom always had always had problems with the growing influence of the EU. Despite the exaggerations, that were often accompanied by serious inaccuracies, many of the arguments of the Brexit campaign on the deficiencies of the EU should have been heard earlier. For the past few months, the British Government was involved in lengthy negotiations with their European counterparts that resulted in the agreement reached  on the 20th of February 2016. This agreement provided for several exemptions for the British but was not part of a wider effort to reform the EU. As a result, it was more difficult for the Bremain campaign to give a positive image of a common European future. The British people were not convinced that there was any intention in Brussels to revive the European project and the rest of the European peoples were wondering why only the British would get these exemptions. In fact, the seeds for the result of the 23rd of June 2016 were planted four months earlier when the February agreement was reached. The European Institutions therefore bear a big part of the responsibility for this result.

The future of the project seems more at stake than ever before. Everyone agrees that the EU needs to be reformed, but there is no consensus on “how”?  Do we need more Europe, or less Europe? Do we need a Europe that will pursue collective responses to all the problems that we are facing or do we need a smaller Europe that focuses on the major issues and does not interfere in areas that should be the competence of the Member States? How can we bring Europe back? What was the vision for the European project? And how can we go back to the roots?

Many argue that the European project is not salvageable. They think that the solution lies in the dissolution of the EU. The ECPM holds the view that this is not the way to move forward. Despite its failings, the EU gave to the continent five decades of peace and unprecedented prosperity. If Member States follow a lonely path towards nationalism, it can turn again in rivalries among countries.
The European Commission, wanting to shape the debate for the future of the EU, presented a “white paper”   where five scenarios for the development of the EU between now and 2025 were outlined. These scenarios are the following: 1) the EU continues as before, 2) It becomes only a single market and nothing more, 3) those who want more, do more, 4) does less in a better way, and 5)Member States do much more together.

For ECPM, the fourth option is the one that is closest to what the founding fathers envisioned. EU Member States should have closer cooperation in the fields of environment, immigration, energy and common market. These are the issues which Member States cannot address by themselves. The European Institutions must therefore have a say in these policy areas. At the same time, the EU must refrain from interfering on issues like social policy, cohesion, health policies, culture, (vocational) education, youth and sport. For us, continuing as if nothing has changed (scenario 1) or moving towards a federal Europe (scenario 5) are not credible choices. Continuing in a “business as usual mode” brought us Brexit, the euro crisis and a rise in Euroscepticism across Europe. An effort towards a federal Europe may lead to more “exits” from countries that are against such a prospect. Additionally, to focus only on the single market (scenario 2) is also problematic. It will most probably lead to a weakening of EU’s standing as global actor as well as of its stature in the eyes of its citizens. The third option, although interesting, can have negative consequences. A multispeed Europe can lead to strong countries like Germany taking the lead and creating groupings within each “speed”, eroding the sense of unity among Member States.

Therefore, the EU institutions must realise that their purpose is to serve the European peoples, rather than the ideologies and priorities of a closed cast of Eurocrats. To do this they must fully respect Member States' national identities, cultures and constitutional traditions. The key word in this respect is subsidiarity. The ultimate goal of the EU should not be to become a new economical or military "global power block". The ultimate goal of the union should be to apply the values where this unique co - operation of nations is found upon. These key values are respect for life, freedom, solidarity, respect for diversity, democracy and peace. They should be applied in a way that will lift the peoples of this continent and beyond.

For the EU to be reformed, the European Commission should critically evaluate the policy areas they are involved in. They should respect the principle of subsidiarity and stop interfering in areas that are competences of the Member States. We need a cultural change from a bigger Europe to a smaller and more effective Europe. Moreover, the Lisbon treaty must be amended. The amendments should emphasize the role of the member states and reduce the number of policy fields the European Union is involved in, especially those fields that can also be directed by the member states. These changes would also give the EU more decisiveness on many major issues where the EU should take the lead especially those issues that cannot be solved by individual member states. On these fields, the member states should not pursue their national interests but find common solutions for our common problems.

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