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EU Referendum Report: The Penultimate ChapterBack

European

With less than a week to go until the EU referendum, the media storm has really picked up. Whilst we hope the NFDA EU Referendum Series has provided you with some useful facts, figures and insights into the arguments from both Remainers and Leavers, for many the real impact of Brexit or remaining in the Union is still quite unclear.

In our penultimate chapter of the EU Referendum Series, we look to pin point some of the more certain truths and look at comments from those in the know, hoping to provide you with one final summary before vote day. The full report can be accessed via the following link: www.nfda-uk.co.uk/reporting/eu-referendum

24 June 2016: A vote for Brexit…

The Rt Hon Michael Gove MP, Lord Chancellor and Secretary of State for Justice, Conservative MP for Surrey Heath, former Times columnist:

“The day after we vote to leave, no laws will have changed, no iron shutters will have clanked down at the portal of the Channel Tunnel… It will be the start of a process. It will be in Britain’s hands how we manage it and how long it takes”.
Sir Stephen Wall, Portland Chief Adviser on Europe, a former UK Permanent Representative to the EU in Brussels and EU adviser to Prime Ministers Margaret Thatcher and Tony Blair:

“[We] will still be a member of the EU the morning of the 24 June 2016 and, very probably, still members on 24 June 2018. Britain is bound by treaty obligations to her partners in the 27 other Member States of the EU and those obligations (and rights) only cease when the existing network of mutual obligations has been unwound.”… “The initial shockwaves of vote to leave would be felt in financial markets (Britain’s in particular, but probably right across Europe) and in British politics. David Cameron as Prime Minister would be on the line.”[1]
Sir Andrew Cahn is non-executive director of Nomura, former senior civil servant working across the Cabinet Office, the Foreign Office, the Ministry of Agriculture, and European Institutions before becoming the CEO of Government Department UK Trade & Investment for five years. His comments are such:

“Brexiteers are likely to say that nothing will change on 24 June. But of course it will… Who will be Prime Minister and what sort of policies will her/his Administration wish to follow? If David Cameron stays in office, with Boris Johnson in Government and Michael Gove promoted, and George Osborne out of the Treasury, then there will be a fair amount of continuity. But more likely we will have a new Prime Minister, with a new Cabinet.”

“Just possibly, the politics could get really messy… A more likely scenario is that the Government rapidly invokes Article 50 of the Treaty of Lisbon… This will be politically very attractive, indeed probably inevitable, as a symbolic burning of boats. But tactically is unwise since at the end of the process the UK just has to accept whatever arrangements the EU imposes upon us.”[2]

Article 50 – Lisbon Treaty

Sir Andrew Cahn ‘[the] best option would be to announce general objectives for the new relationship with the EU, get a long way down that negotiation and only when an outline deal is insight, invoke Article 50’.[3]

Article 50 of the Lisbon Treaty is the ‘formal (two-year) process’ for how negotiations will take place if a country decides to leave the EU. If no agreement is concluded within two years, that state’s membership ends automatically, unless the European Council and the Member State extend this period.

The legal consequence of a withdrawal from the EU is the end of the application of the EU Treaties… although any national acts adopted in implementation or transposition of EU law would remain valid until the national authorities decide to amend or repeal them. Experts agree… complete isolation of the… effects of the EU acquis would be impossible, if there is to be a future relationship between former Member State and the EU.’[4]

Brexiters see this process as favourable, whilst Remainers point out it is still very much in the hands of the EU.

Michael Gove, explains ‘[the] EU is legally bound to pursue friendly, neighbourly relations with every country around its borders and it would be in the interests of German car workers, Italian fashion houses and French farmers – that free trade and friendly cooperation were further enhanced. …You do not close the shop to your best customer’[5].

However, Remain campaigner, Sir Stephen Wall, points to the fact that ‘[under] Article 50, the European Council would meet but without the British being present. The 27 other EU Heads of Government would decide the terms of the negotiation … If no agreement has been reached between the 27 members and the member leaving, the 27 could make a ‘take it or leave it’ offer to the UK… If the UK declined whatever terms were on offer, she would leave viz-a-viz the EU a third country whose trading relationship with the EU would be governed by WTO rules… where tariffs on EU trade with third countries apply, such as vehicle exports, prices would rise on both UK exports and imports’.[6]

World Trade Organisation (WTO)

The International Monetary Fund (IMF), enforce the position ‘the UK would need to negotiate the terms of its withdrawal and a new relationship with the EU—unless it abandoned single market access and relied on WTO rules, which would significantly raise trade barriers.’[7].
Roberto Azevêdo, WTO Director-General said that he expects any talks to be long and difficult, adding: “We haven’t had any discussions about the process. We don’t know what the process would be. We do know it would be a very unusual situation.”

During an interview with the BBC (7 June 2016),he warned that it would be impossible for the UK to “cut and paste” its old EU trade deals into new agreements, explaining that the UK would be starting from scratch without the institutional machinery necessary to negotiate trade deals, failing to have the investigative bodies that would look into issues such as steel dumping. Whilst commenting he felt “uncomfortable” being dragged into the UK’s referendum debate, he thought it was right to counter a great deal of misinformation about the UK’s future as a WTO member.

However, Professor Minford, of the Economists for Brexit, still believes that the WTO is all that the UK would need to trade. He argues ‘[what] other trade agreements do we need? My advice would be: none. We already sell all our non-EU exports and all our exports of services around the world under WTO rules, about 70% of all our exports. Now the other 30%[8], to the EU, would join in.’[9]

If not WTO, which trade deal for the UK?

Camp Remain have looked towards the Norway EEA agreement, Switzerland’s bi-lateral trade deal and the forthcoming Canadian-EU pathway. The Leavers, on the other hand, have started to distance themselves from one type of agreement. Focusing now on the UK’s own deal.

Gove summaries ‘The fact that so many countries [trade agreements] have been named exposes the flaw in the question. Every country has its own model – and so would Britain.’…’It is absurd to suggest that the EU would seek to put up trade barriers with Britain in a fit of pique.’[10].

Sir Andrew Cahn’s prediction is in line with this, ‘Expect a demand for a new UK option, essentially with full access to the Single Market but none of the obligations to pay into the budget or allow free movement of people. Do not expect to achieve anything like this’.

David Frost, CEO of the Scottish Whisky Association, a former British Ambassador and trade negotiator, and a member of the Advisory Council of Open Europe, explains that the most important decision for the UK in Brexit will be trade negotiations, ‘It will have to do this with limited policy capability, given that the UK has not conducted any trade negotiation of its own for forty years… no doubt… with partners who will not necessarily be wanting to make things easy… the more independent your national trade policy is, the more difficult it is to negotiate completely barrier-free access to any other country’[11].

Professor Ngaire Woods of Oxford University, Dean of the Blavatnik School of Government and Professor of Global Economic Governance[12], explained the process of making a trade deal as such:

“The essence of trade deals is how much market you have got to offer the other side? So, if Switzerland wants to go and have a trade deal with China, it says, “here’s our market, quite small, your market’s enormous, we need a trade deal with you”. And China says, as they’ve done, “fine you can give us completely open entry into your economy, and we will open up for you to trade into ours in 15 years- time” …

“Now when investors decide they want to come to Britain, they want to know two things: they want certainty about what the rules are going to be, and they want a big market share. So, if Britain says “well, we’re not sure what we’re not sure what we’re going to have, it’s going to take us a few years to negotiate and we’re not going to have access to the big market”, Britain’s got a problem”.

Once again, there is an alternative view point. George Eustice MP, is a Conservative politician and Minister of State for Farming, Food and Marine Environment. He believes that negotiating a Free Trade Agreement with the EU would be ‘very easy’, providing rationality from both sides paved the way. He states that one of the necessities will be for the UK to open negotiations with the wider British Isles.[13]

Continued influence?

The key point with a bilateral or Norway type agreement is that the UK would be subjected to the rules provided by the EU. The sticking point, is that the UK would have no say on any new regulations and/or the costs of policies. Norwegian Prime Minister, Erna Solberg, told the BBC in March 2016, that Norway “are integrating the laws [the EU] are making for the single market… but basically we have left part of our democracy to Europe”.

Leaver campaigner, George Eustice MP, has said he believes that the UK will remain essential to both the EU and USA in completing the TTIP deal.  The ‘UK will become the pivotal power that brokers a new translantic free trade agreement’ as the TTIP will fall following British Brexit. This will mean that the previous agreement would be ‘morphed into at least three parties: the US, the UK and the EU.’[14]

Others, have stated otherwise. Pierre de Boissieu is a French Diplomat and former French ambassador to the European Union. He served as Secretary-General of the Council of the European Union until 2011. Boissieu states, ‘Some argue that the affection people have for Britain, its intimate knowledge of the ins and outs of EU life, the professionalism of its civil service and its NGOs – that all these things would enable the UK to continue to influence the policies and decisions of the EU even if no longer a member. But real world experience suggests otherwise… the US is able to exercise considerable influence in Brussels; but that influence is nothing like as great as that exercised by a Member State … countries such as Norway, Switzerland, Canada or Turkey, is even more markedly less.’[15]

Facts

Does Britain face extra EU costs if it remains in the EU?

The claim: Boris Johnson stated that Britain’s contribution to the EU will have to increase because the EU is “living beyond its means” and the European Parliament has asked for more money to spend on dealing with the migrant crisis. The UK will also be liable for additional payments to bail out eurozone countries.

Facts: The UK has a veto on the overall size of the EU budget and it’s already been agreed that non-eurozone countries will not have to pay for future eurozone bailouts, reinforced in the UK-EU agreement, finalised in February 2016.

Vote Leave says the EU has not “paid its bills” and the unpaid sum reached 24.7bn euros in 2014. It argues that when payments do happen, the UK’s portion of it will be £2.4 bn. However, this is not accurate. The EU has a “ceiling” on its spending and it cannot go over this upper limit. On David Cameron’s insistence, the ceiling in 2014-2020 was for the first time in the EU’s history reduced in comparison to the previous period (2007-2013). The “unpaid bills” Boris refers to are in reality a ‘back-log’ of projects proposed by the EU for member states that it will finance.
Has the UK been a relatively unsuccessful exporter to EU?

The claim: Boris Johnson stated that since 1992, “Twenty-seven other countries not in the EU… have done better than the UK at exporting into the single market”. The figures, based on Civitas research, uses the Organisation for Economic Cooperation and Development (OECD) trade statistics.

Facts: In terms of volumes of sales, the UK has done much. However, if the UK’s success is measured by the percentage increase in the amount is exports, then Boris is correct.

As the BBC explains: “The measure he is quoting is the percentage increase in exports of goods to the 11 founding members of the single market between 1993 and 2011… Top of the list is Vietnam, which achieved a 544% increase in exports. But its start level was pretty low… In regards to services, the UK comes in at number 22 in terms of percentage increase, but is second in value of sales (behind the USA).” Britain’s services industry now accounts for almost 80 per cent of the UK economy (Office for National Statistics (ONS)), preceding its pre-recession size.
Does the EU control UK VAT rates?

The claim: Michael Gove stated that the UK “cannot lower VAT rates as long as we are in the European Union”.

Facts: EU rules do not permit VAT to be reduced in member states, on goods and services, below 15%. This is the standard rate of VAT for the EU. The standard rate of VAT in the UK is 20%. The Government is currently able to reduce VAT by 5% if it so wished.

Uncertainty

Laws – if the UK leaves the EU, will we repeal all EU law?

There is no precedent to how repealing legislation would be handled or what the results would be. It is extremely difficult for either campaign side to argue one outcome. The only thing that is certain is that some laws would undoubtedly be repealed. One of the main issues that either sides has to contend with, is the unknown EU legislative requirements on the UK following new trade deals with the EU. In this respect, it is hard to know which laws the UK would be required to keep in order to satisfy new UK-EU trade agreements.

Would Brexit increase austerity measures?

The reality of Brexit impacting on austerity measures is dependent on the UK economy. If the initial shock impact is quick to return to pre-Brexit standing, extending austerity measures may not be required. However, it has been agreed by near all economists, from both sides of the debate, that Brexit will have an immediate negative impact on the economy.

What remains uncertain, is the period of time the economic downturn would last, how quickly trade deals would be formed and whether investment would continue to thrive or essentially be ‘pulled’.

If GDP declines, as is predicted by many economic reports and as discussed earlier in this referendum series, it is hard to imagine a Conservative Government will not increase the UK’s years of austerity. To what extent you believe this will happen, will be dependent on how quickly you believe the UK economy will ‘bounce-back’.

Full report: www.nfda-uk.co.uk/reporting/eu-referendum

[1] Sir Stephen Wall – Life in the exit lane (for Portland Communications) pg 18

[2] Sir Andrew Cahn – The Home Front, Whitehall, Westminster and the business of Government (for Portland Communications) pg 26-27

[3] Sir Andrew Cahn – The Home Front, Whitehall, Westminster and the business of Government (for Portland Communications) pg 28

[4] Article 50 TEU: Withdrawal of a Member State from the EU – Briefing European Parliamentary Research Service, European Parliament February 2016.

[5] Rt Hon Michael Gove MP – Evolution not revolution (for Portland Communications) pg12

[6] Sir Stephen Wall – Life in the exit lane (for Portland Communications) pg 19 -20

[7] United Kingdom—2016 Article IV Consultation Concluding Statement of the Mission – International Monetary Fund – 13 May 2016

[8] The figure of exports is closer to 40 per cent, than 30 per cent. HM Revenue & Customs: The proportion of total exports to the EU was 48 per cent in April 2016. Over the past 18 months, this has ranged from 38 per cent to 48 per cent. The proportion of total imports from the EU was 47 per cent in April 2016. Over the same period, this has ranged between 47 per cent and 55 per cent. (last updated 9 June 2016).

[9] Professor Minford – The Economy after Brexit – Economists for Brexit pg13,

[10] Rt Hon Michael Gove MP – Evolution not revolution (for Portland Communications) pg 12

[11] Ibid

[12] Professor Ngaire Woods of Oxford University during an interview on BBC News Night Professor Ngaire Woods is the inaugural Dean of the Blavatnik School of Government and Professor of Global Economic Governance. Her research focuses on global economic governance, the challenges of globalization, global development, and the role of international institutions. She founded and is the Director of the Global Economic Governance Programme (www.globaleconomicgovernance.org). She is co-founder (with Robert O. Keohane) of the Oxford-Princeton Global Leaders Fellowship programme. She led the creation of the Blavatnik School of Government at Oxford University and, before her appointment as Dean, served as the School’s Academic Director.

[13] George Eustice MP – An exhilarating opportunity (for Portland Communications) pg57

[14] Ibid

[15] Pierre de Boissieu – A letter to the British (for Portland Communications) pg66

Posted by Sue Robinson on 17/06/2016