Britain's Future in Europe

The Known Plan A to Remain or the Unknown Plan B to Leave

Michael Emerson

• Publisher: Center for European Policy Studies
• Year: 2016
• Print ISBN: 9781786600707
• eBook ISBN: 9781786600714
• Edition: 2
• Topic: Politics & International Relations
• Subtopic: International Economics
• Index: Politics & International Relations

Following the agreement made by Prime Minister David Cameron with the EU on 18-19 February 2016, the day for the referendum for the UK to remain in or leave the EU is set for 23 June 2016. This will be the most important decision taken by the British people in half a century, and whose consequences will live on for another half century.

The first edition of this book, published in March 2015, laid the foundations for any objective assessment of the workings of the EU and the UK's place in it. It was widely acclaimed and rated as "a myth-breaking exercise of the best kind".

This second edition adds a substantial new chapter following Cameron's agreement with the EU and announcement of the referendum. It reviews both the 'Plan A', namely the status quo for the UK in the EU as amended by the new agreement, and three variants of a 'Plan B' for secession. The key point is that the 'leave' camp have not done their homework or 'due diligence' to specify the post-secession scenario, or how the British government would face up to the challenges that this would bring. The authors therefore do the 'leave' camp's homework for them, setting out three Plan Bs more concretely and in more depth than the 'leave' camp have been able or wanted to do, or any other source has done.

The book is therefore unique and essential reading for anyone concerned with the fateful choice that lies soon ahead.

PART I. THE KNOWN PLAN A TO REMAIN OR THE UNKNOWN PLAN B TO LEAVE

1. The known Plan A to remain

The status quo for the UK in the EU has been described in detail in the first edition of this book (and reproduced elsewhere in this second edition). The comprehensive survey of the workings of the EU’s present competences that are relevant to the UK (i.e. mainly the single market, while excluding the euro and Schengen policies), produced abundant evidence from independent sources showing that the sharing of powers between the EU and its member states was mostly ‘about right’.

Cameron’s negotiations for a better deal with the EU crystallised around his requests under four headings. This resulted in a unanimously agreed Decision made at the European Council on 18-19 February 2016 covering all points, as summarised in Box 1.¹

The Decision first recalls the existing set of special arrangements from which the UK benefits:

- opt-out from the euro

- opt-out from the Schengen area

- opt-out from most provisions in the field of police cooperation and judicial cooperation over criminal matters, with the possibility to opt-in selectively at any time

- exemption from the Court of Justice ruling on the application of the Charter of Fundamental Rights

It might have added the special budget rebate from which the UK and some other member states benefit.

As a result of these special arrangements, the UK is already out of those EU activities that it does not like, while remaining in those that it does like, namely the single market and general political deliberations. This amounts at the strategic level to what has been called ‘having the best of both worlds’, in and out at the same time.

Box 1. Measures decided by the European Council on Cameron’s four points

1. Position of non-eurozone member states

• Discrimination between euro and non-euro economic actors prohibited
• Eurozone measures to respect the internal market of EU as a whole
• Banking union open to non-euro member states as an option

2. Competitiveness

• Better regulation, lowering of administrative burdens
• Repeal of unnecessary legislation, with an annual review mechanism
• Ambitious trade policy towards the US, Japan, Latin America and Asia-Pacific

3. Sovereignty

• Ever-closer union of peoples not a legal basis for extending EU competences
• All member states do not have to aim at a common destination, with recognition that the UK does not want further political integration
• Role of national parliaments enhanced with a new ‘red card’ mechanism (55% of vote trigger)

4. Social benefits and free movement of workers

• Safeguard mechanism, restricting non-contributory in-work benefits for four years
• Member states control over benefits for non-active EU migrants
• Indexation of exported child benefits
• Measures against abuses, such as marriages of convenience

Against this background, the agenda for plausible renegotiation was extremely limited. Various Eurosceptics have argued for a repatriation of various EU competences, but as just remarked the UK government’s own review showed no objective justification for this. Others would like to opt out of the free movement of people, but this is clearly a red line that the rest of the EU would not accept, with insistence that the four freedoms for goods, services, capital and people are a whole, and cannot be subject to picking and choosing.

Cameron’s four sets of requests were thus seeking, and in the end largely secured, a set of additional assurances (outlined in the box below): i) the City would not be subject to discrimination by the eurozone; ii) the agenda of internal and external economic competitiveness would be boosted; iii) the UK would not risk being dragged into some future European federal super-state and iv) the UK could take steps to deter perceived ‘benefit tourism’ by EU migrants.²

The Decision detailing these measures is legally binding under international law and will be backed up by a combination of legislation that the Commission undertakes to submit, and Treaty amendments that are pledged to be introduced on the next occasion when treaty revisions are made. These provisions will only be initiated after the UK has notified the EU that it remains a member state.

A broader interpretation of the decisions may be as follows.

On the position of non-eurozone member states, the UK’s concern has been to protect the City against financial market legislation that could be decided by the eurozone majority in the Council, and which might have a discriminatory bias against the City. Assurances on this point are detailed, and will be reflected in future treaty amendments. Negotiations on the detail were difficult because of the legitimate concern of the eurozone to avoid installing procedures that would restrict the capacity of the eurozone to respond rapidly to crisis situations.

On competitiveness, the UK’s objectives are of fundamental importance and are shared by the EU institutions and other member states. The Commission is already at work trying to cut regulatory ‘red tape’, and this British crisis here serves the useful purpose of enhancing the priority attached to the painstaking and detailed work in pursuit of ‘better regulation’. Similarly the British interest in extending the EU’s set of liberalising trade agreements with major third countries, including the US and Japan, is given a boost.

As regards the ‘ever-closer union’ phrase in the preamble to the treaties, the Decision is a reassurance to those in the UK who have feared that this is a mechanism for moving continuously towards some kind of federal destination for the EU. The Decision confirms what is the considered view of most Europeans in any case, namely that this wording is no legal basis for constitutional change. As an act of reassurance to certain segments of political opinion in the UK, it has its importance. However for the rest of the EU these provisions have the far more worrying prospect of opening up a Pandora’s Box of claims for special arrangements by any other member state.

As regards the role of national parliaments, the debate has centred on what is informally called a ‘red card’, namely procedures for a sufficient majority of national parliaments to block legislation that they consider unjustified on grounds of the subsidiarity principle. The key issue here was to find a solution that might indeed enhance the role of national parliaments, without on the other hand making the legislative process even more complicated and potentially unworkable. The result is that 55% of national parliaments, weighted by their votes for this purpose, will be able to get a contested draft law tabled afresh at the Council, which will then discontinue the legislative process unless adequate amendments to the draft are introduced. It remains to be seen whether national parliaments will use this provision more actively than the existing ‘yellow’ and ‘orange’ card mechanisms on which it builds.

Finally, on the most difficult issue of social benefits for intra-EU migrants, agreement was reached on a complex set of safeguard measures. The challenge was to find measures that would provide reassurances against so-called ‘benefit tourism’ without calling into question the principle of free movement of people and non-discrimination by nationality. The core measure decided upon is a new “alert and safeguard mechanism” that can be triggered when there is an inflow of workers for other member states “of an exceptional magnitude over an extended period of time”, and which put “excessive pressure on the proper functioning of public services”. A member state that considers that it has such a problem can notify the EU institutions accordingly, and the Council may on proposal of the Commission authorise restrictions on non-contributory benefits for newly arriving EU workers. These restrictions may last up to four years for individuals, while the authorisation for the regime itself can last for seven years. In addition the level of exported child benefits (i.e. where the child resides in the home country of the migrant worker) may be indexed on ‘conditions’ (e.g. cost of living) in the home country. Further legislation will be proposed by the Commission to crack down on marriages of convenience and other forms of abuse of social benefit systems. Finally, as regards EU migrants not seeking work, the Decision confirms the possibility for member states to control the right to residence as a function of sufficiency of the financial resources of the immigrant, and thereby their access to social benefits.

Conclusion. Overall, the February 18-19 Decision of the European Council makes only a marginal change to the UK’s relationship with the EU, which could only be the case since the UK has so many important special arrangements already. It also serves to some degree to boost various economic reform efforts of the EU. It provides political reassurances to various segments of British political and public opinion who have unwarranted fears that the ‘ever-closer union’ means that the EU is on automatic pilot towards becoming a federal super-state. However re-assuring for the UK, it is by the same token worrying for the rest of the EU as setting a precedent for any other member state to claim its own special arrangements.

Footnotes

¹ For the complete text of the Decision, see www.consilium.europa.eu/en/meetings/european-council/2016/02/18-19/

² For a detailed legal analysis, see, see Stefani Weiss and Steven Blockmans, “The EU deal to avoid Brexit: Take it or leave”, CEPS Special Report No. 131, CEPS, Brussels, February 2016.

2. The unknown Plan B to leave

All that is known is the procedure to be followed. Article 50 of the Lisbon Treaty (TEU) reads:

1. Any Member State may decide to withdraw from the Union with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of guidelines provided by the European Council, 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 Union. …
3. 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 referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to the contrary.

The Plan B for secession would have to specify operationally and realistically what the UK government would try to do, starting immediately after a referendum vote to leave. The secessionists have not wanted or been able to do this. They have not done their homework or ‘due diligence’ over their own proposal. Here we do it for them.

In the first edition of this book, six options were already identified on the economic side: i) a simplistic big-bang exit, ii) the Norwegian model to remain in the single market, iii) the Turkish model to remain in the customs union, iv) the Swiss model, which is a messier version of Norway, v) a simple WTO trade model, and vi) a global free trade model. Other authors see a similar landscape.³

The conclusion from this large variety of economic options might be that ‘anything could happen’, which is theoretically true but unhelpful. Nevertheless, the options can be narrowed down by focusing on three main alternatives, with a view to assessing whether any of them are superior to Plan A.

The big uncertainties are all on the economic side. Politically, institutionally and legally, the prospect is clear. The UK leaves all the institutions of the EU, and all EU laws, regulations and policy positions cease to apply, unless there would be explicit steps to retain elements of EU law, which returns us then to the major economic options.

Among the objections raised to remaining in the EU, we note the argument of Chris Grayling MP, since he was the first cabinet minister to have spoken out in favour of secession. The crux of his argument goes as follows:

And so we have reached what I believe is a crucial crossroads for the United Kingdom. The crisis in the Eurozone and the migration challenge have led to calls for still more integration and a move towards much greater political union. It is a path that the UK will not and should not follow. ⁴

It is true that the eurozone needs further measures to make it more robust, and that there is a call for strengthening the external borders of the Schengen area to cope with the combination of refugees and economic migrants flooding into Europe. However, since the UK is in neither the eurozone nor the Schengen area, it is a non sequitur to say that this means political union for the whole of the EU. On the contrary, any measures in the direction of political union for the whole of the EU would have to be agreed by unanimity, i.e. with British assent.

Plan B.1 – A clean break, ‘big bang’ Brexit

On Day 1 of withdrawal, the UK is freed of all EU laws and regulations, or in the language of the Treaty of Lisbon (TEU, Article 50), “[T]he Treaties shall cease to apply”. This would mean deleting from the UK statute book around 5,000 regulations, directives and decisions relating to the internal market for goods, services, capital and people and around 1,100 international treaties between the EU and third countries, including all the EU’s preferential trade agreements. (The EU’s extensive legislation in the realm of justice and home affairs, the Schengen area and the eurozone would not be affected, since they already do not apply to the UK).

However, the practical realities would be even more complicated with respect to around 1,400 internal market directives, which are implemented by national legislation, and therefore would not be automatically repealed since they are of British jurisdiction. The radical ‘clean break’ would then in theory require an omnibus UK law repealing all domestic legislation that has been adopted in order to implement EU directives.

In the external trade domain, all the EU’s current preferential and free trade agreements would cease to apply to the UK. The default solution would be that the UK would move to WTO-based trade relations with all such third countries. The UK might continue with the EU’s external trade tariff regime bound in the WTO as its MFN (most-favoured nation) rates for the time being without the EU’s existing free trade agreements, but this would be a big backward step for the economy compared to the status quo. Alternatively, to be more radically liberal, there is the simple scheme recently proposed to the House of Commons Select Committee on 3 November 2015 by Professor Patrick Minford that the UK should simply scrap all tariff protection unilaterally for the whole of the world without seeking any quid pro quo, and thus do it very fast. Various secessionists speak vaguely of the ‘Singapore model’, but none are saying clearly that the UK should completely open its goods and services markets without negotiating reciprocal advantages. If they did, the idea would be crushed in public debate.

Overall, this Plan B.1 would result in a colossal legal void that would be an unthinkable disaster for the modern economy, creating an anarchic emptying of the rule of law and huge legal uncertainty for business internally ...

Table of contents

• About the Contributors
• Glossary
• Preface
• Executive Summary
• Part I. The known Plan A to remain or the unknown Plan B to leave
• Part II. Questions
• Part III. Evidence
• Part IV. Conclusions
• Appendix Balance of Competences Review - Schedule of the British government’s work