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A blueprint for Britain outside the EU


Introduction

It could not be more apposite to describe an "out" vote in a British referendum, triggering an Article 50 notification – and thus setting us on a course to leave the European Union - as "a major historic geopolitical and economic event". 

Arguably, though, since the purpose of leaving is to arrest and then reverse the progress of political integration, such a vote would be more a political than an economic event, albeit one with considerable economic consequences.

In that spirit, we frame our submission for this "Brexit" competition, in which we are asked to look at the process of withdrawal and how the UK might fit into the geopolitical and economic landscape that would follow. This we do. 

But we are also asked to identify measures the UK needs to take in the following two years, domestically (within the UK), vis-a-vis the remaining EU and internationally, "in order to promote a free and prosperous economy". Identifying such measures, we believe, is neither possible nor even desirable. In the main body of our submission, we explain why and then set out how we would handle Article 50 negotiations and define the UK's position in a post-EU world.

Formulating our response

In confronting the task of identifying measures to promote "a free and prosperous economy", we would assert that there are a number of reasons why this is not a practical proposition.

The essence of our argument is that the European Union is a political construct, its objective to achieve political union primarily through gradual economic integration (the Monnet method). Thus, leaving the EU will be primarily a political act. In order to have succeeded, we assume that the "out" campaign will have been fought on the platform of divorcing us from the EU's ambition of political integration, for which there is no democratic mandate in the UK.

Although economic issues will have featured prominently in the campaign, their framing will largely be in terms of the voters needing assurance that their interests have been protected and any potential damage limited - successfully rebutting claims that leaving the EU will be economically disastrous. Thus, we  consider that the "out" vote will have been won on political issues, in the context where the vote could have been lost, but not won, on economic grounds.

During the campaign, expectations will have been raised of an early withdrawal from the EU. Therefore, public tolerance for protracted negotiations will be limited and the need for a swift conclusion will dictate the priorities and the tempo of Article 50 negotiations.

On the other hand, the UK will be confronting the task of unravelling over forty years of political and economic integration, the fruits of a process that started with the European Iron and Steel Community in 1950. A task of such complexity has never before been attempted. In fact, it has never been fully defined and is probably not capable of definition. As expressed in a recent House of Commons library research paper, "the full impact of a UK withdrawal is impossible to predict".

Economic issues in perspective

If we are correct in this analysis, Article 50 negotiations will be driven by the political imperative of early withdrawal. That tempo will not be compatible with seeking a careful resolution of complex economic issues and related matters "to promote a free and prosperous economy". 

Furthermore, we believe it would be irresponsible to the point of foolhardy even to attempt this process. In a global environment where the rate of change makes long-term economic planning a highly uncertain process, there are simply too many unknown unknowns to give anything but a rough and ultimately inaccurate estimation.

Therefore, we believe that the economic objectives of the negotiations should be limited in scope and confined to minimising any adverse economic consequences of withdrawal, while keeping the way clear for a favourable economic settlement in the future. 

The deciding factor here is that talks needed to conclude long-term, stable economic agreements would take several decades - evidenced by the EU-Swiss experience. Negotiations started in 1994, but it took 16 years, until 2010, for around 210 treaties to be finalised – with many issues still to be agreed. 

Therefore, we should not commit to a rushed series of negotiations, driven by a political timetable. Rather, we should address and resolve the fundamental mismatch in timing between the political and economic objectives, where the former requires speed and the latter a slow, measured approach. The overall strategy should be to separate the political and economic aspects of the negotiations, and deal with them separately. 

A twin-track approach

For that reason, we suggest that no attempt should be made to secure a definitive economic agreement under the aegis of Article 50. Nor should there be an attempt to settle the economic issues. Instead, our negotiators should adopt a twin-track approach: priority should be given to securing a speedy withdrawal from the EU; economic aspects should be "parked", so as not to interfere with the political objective. 

Such a stratagem would be advantageous to the EU, allowing the remaining Member States to resume their political integration without undue delay, released from the drag of countries such as the UK which have no enthusiasm for the process. 

Within that overall strategy, our aim should be to agree an interim solution to protect our economic position. The best outcome might be an economically neutral transition from EU member state to our new status - whatever that might be -  aiming for a longer negotiating cycle outside the Article 50 process. 

To that effect, we should seek to include in the Article 50 agreement a "sunset" or "break" clause which would permit renegotiation of the settlement at five- or ten-year intervals. The final shape of post-exit Britain should thus emerge from a series of organic changes, rather than from a "big bang" leap into the dark. 

An interim settlement

One way of achieving a stable interim settlement might be to secure EFTA membership and, through that, continued membership of the EEA. By this means, we could maintain our membership of the Single Market and continue trading with EEA member states on current terms. 

We would stress that EFTA/EEA membership would be an interim measure, a short-term solution that should not prejudice subsequent negotiations. 

Furthermore, we would not necessarily see the structure and role of EFTA as static. Nor should we assume that, if the UK decided to leave the EU and join EFTA, other countries would not follow us – immediately or after a short lapse of time. Even by virtue of UK entry to EFTA, the organisation would change. One possibility is to expand it even further, creating an overarching free trade agreement covering all EEA members. EFTA might take over the management of the Single Market from the EU, giving all members a direct stake in rule-making. 

An independent Advisory Council

At or before the start of any negotiations, it is essential that the Government should appoint an independent Advisory Council – with provision for expert sub-committees – to advise on the negotiation process. We would see it retained as a standing body after we leave the EU, then to inform further plans and negotiations, as we seek to determine a final position. 

In many ways, this is the proper, democratic way to identify measures the UK needs to take "in order to promote a free and prosperous economy". The Council should work in a transparent way, initiating a range of studies and promoting discussion and debate at all levels, working with Parliament and other bodies to ensure that UK needs are fully understood and have the widest possible backing. 

We would be especially keen to see such a body examine the effect of the increasing globalisation of trade and the role of international standards-setting bodies working within the WTO framework. Their initiation of rules, which subsequently drive regulation at regional and national level, is blurring the distinction between membership of the EU and world bodies. 

For instance, much EU financial regulation coming through the system is implementing "quasi legislation" comprising the Basel III agreement. The detail was agreed at this higher international level by the British government before it was submitted to the EU for processing into actionable regulation. Even out of the EU, we would be adopting such "quasi-legislation". 

On that basis, immediately following withdrawal from the EU, we may see little change in our regulatory code. Over time, positions might diverge if we chose not to adopt measures at international level which are adopted by the EU. Generally, though, we would probably tend to keep in line with the EU and the rest of the global community. 

What we need, therefore, is clearer oversight over standards-setting international bodies, with creation of a working framework to guide the British Government in this poorly defined area of governance. This might be an ongoing role for our Advisory Council. 

As to the formal ending of our membership of the EU, in accordance with the Article 50 procedure, a new treaty between the UK and the remaining EU Member States would be the final stage of the process. In ratifying the treaty, it is inconceivable that the terms should not be put to a national referendum. Following that, the UK would repeal the European Communities Act (ECA) – via a repealing Act. 

EU regulation

As to the acquis communautaire, the abrogation of the treaties would not affect any EU legislation already transposed into UK law, whether in the form of Acts or Statutory Instruments. The repeal of the ECA does not affect the validity of SIs previously made thereunder. 

On the other hand, European Regulations have direct effect and gain their authority from the ECA. With the repeal of the ECA, those which have not been transposed into UK law will cease to have effect. 

In this context, it is sometimes asserted that, when we leave the EU, only our exporters will have to continue to observe EU regulations but, for everyone else, they will cease to be relevant. This is not true. In many instances, EU regulation has replaced domestic law, a process often accompanied by modernisation of the regulatory codes. Removal of EU regulations would leave significant areas of economic activity unregulated, while reversion to previous law would not be practical. 

The entire corpus of food hygiene regulation is one example: requirements for food premises - ranging from abattoirs to restaurants - are set out in EU regulation. Repealing these would remove enforceable controls over commercial food production. There are no longer any regulations of UK origin. 

Similarly, much of the fisheries (CFP) and agricultural (CAP) regulation is implemented by EU regulation. Repeal would leave large gaps in policy areas of considerable economic significance to those affected. 

It would, however, be difficult and time consuming to replace EU regulation - and hardly possible within a notional two-year period of Article 50 negotiations. The best option, therefore, would be to re-enact the entire body of law, converting it, en bloc, into British law (by a device similar to the ECA). This process of repatriation would then allow for selective repeal and amendment in an ordered manner. 

That would mean re-enacting policies such as the CFP and CAP, until such time as replacements could be devised and implemented. To accommodate the technical, legal and social complexities, the process would doubtless take many years, especially as one would expect considerable debate and consultation - in and out of Parliament - before the final shape of any policies was decided. We would expect the Advisory Council to assist with the process.

In making assessments of the utility of regulations, it should not be assumed that regulation is necessarily burdensome. We took evidence from a senior Norwegian official who suggested that, in some cases, strict regulatory standards are a necessary and acceptable price to pay for what he termed "certainty".

For instance, companies preparing product for export did not always know from the outset the destination of any particular batch. Therefore, they wanted freedom to produce to generic standards which would be accepted in any country to which product might be despatched. They did not want to be producing different batches to different standards. 

Much the same applies in domestic trade. Companies supplying to supermarkets find that, in the absence of relevant regulation, they are prey to different contract standards applied by their powerful customers. The availability of universally recognised statutory codes relieves producers of the need to work to different standards, and iy simplifies "due diligence" certification necessary for insurance and product liability purposes.

EU third country treaties

Additional complications arise with treaties made between the EU and third countries, of which there are nearly 800 registered on the EU treaty database. Some of these are merely memoranda of understanding, and others are time-expired. Many are substantial agreements, from which the UK gains advantages, but only by virtue of membership of the EU. 

On the face of it, the UK is excluded from the terms of such treaties once it leaves the EU. Therefore, each treaty will have to be examined and, where necessary, new treaties agreed between the UK and the relevant third countries. That would require extensive negotiations, with replacement treaties agreed and ratified before the UK withdraws from the EU. The need to carry out so many negotiations in a relatively short time would stretch diplomatic resources, risking delay in the withdrawal timetable. 

A possible alternative, to cover us in the short-term, would be the agreement of a limited treaty of association with the EU, which gave us nominal membership status for the strict and exclusive purpose of taking advantage of the treaty provisions. 

Before the completion of any Article 50 agreement, there would be many other issues to deal with, such as our participation in co-operative enterprises currently defined by the EU Treaties. These might include international aid, defence and external services. 

The UK may also wish to continue working closely with EU institutions and agencies, as in the European Defence Agency and Europol, within the framework research programme, or on individual projects such as Galileo. 

Although we would be outside the EU treaty framework, we note that Norway, which is not an EU member, participates in EDA programmes on a case-by-case basis, without voting rights. Similarly, Norway is an active member of the European Research Area and plays a full part in the framework programme, while Israel, also not an EU member, is amongst the many countries with a stake in Galileo.

Our degree of participation would have a bearing on another crucial issue, the financial arrangements in the transitional period and after the final split. An immediate clean break would be unlikely. Within any multi-annual budgetary period, the EU would expect forward commitments to be honoured, and programme participation to be financially supported.

These are complex issues and, were we selected to offer a full submission, these and others would be addressed. Within the constraints of this initial submission, though, we can do no more than rest our broad case on the terms stated. 

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With the current revision and additions, this brings is to just over 2,600 words, slightly over the length of a final submission. We are allowed to go to 2,500 words excluding summary, footnotes, title page, figures and tables, references and appendices.