There is little doubt that in the case of a Brexit, the UK would still need to trade with other European single market countries, considering that about half of its trade in goods and in services is with them. Britain could therefore find itself in a similar position to countries signing up to the European Free Trade Agreement – being compelled to abide by the rules of the single market, but having no longer a say in how these rules are drafted. André Sapir and Guntram Wolff point at what they define as the UK’s ‘sovereignty myth’: by opting out of the union, the UK could in fact find itself with less sovereignty, not more.
Those who argue that Brexit would let the UK “take back sovereignty” overlook the impact of trade on domestic law-making. Even if the UK leaves the EU, it will continue to be subject to EU regulations as long as it trades with European countries, as the products or services it exports would have to meet EU rules. It would still belong to geographical Europe, and remain highly connected with the continent. Cutting trade ties altogether is not an option.
Trade with the European single market is crucial to the UK’s economic prosperity. 52% of the UK’s trade in goods is with other European single market countries, and 42% of trade in services. Even 30% of trade in financial services is with the EU. This means that if there is a Brexit, the UK will still need to trade with the remainder of the European single market, which is currently made up of the 28 EU countries and four members of the European Free Trade Association (EFTA).
The benefits of the single market go well beyond standard trade agreements, which focus on reducing tariffs. At its core, the European single market project is about non-tariff barriers to trade, relating to standards and the application and interpretation of rules. These standards apply not only to products, but regulation on workers’ rights and health and safety.
Countries like Norway, Switzerland, Iceland and Liechtenstein, which are not in the EU but are part of the European Free Trade Association, find it crucial for their economic prosperity to belong to the same market, as over 50 percent of their total trade is with the EU. They agree to apply EU rules and usually accept the jurisdiction of the European Court of Justice. Membership of the European single market offers economic benefits, but it comes with a cost for the four EFTA countries: the rules of the single market are decided by EU members alone. The EU shares its single market with these countries, but the decision about rules requires approval by the European Council of Ministers and the European Parliament.
Non-EU countries have no say in that process. True, there is a difference between Norway, Iceland and Liechtenstein on the one hand and Switzerland on the other. The former accept all the EU Single Market rules, whereas Switzerland only accepts EU rules in some domains and negotiates bilateral agreements with the EU in others.
But the fact remains that the four EFTA countries are highly dependent on the EU single market because of geography. In reality, staying outside the EU gives them little or no autonomy in shaping its rules. The UK is, of course, a bigger and more influential country and would likely have greater leverage in negotiations than the EFTA four. The question is whether that influence would be bigger inside or outside the EU.
At the moment, being an EU member, the United Kingdom is a full participant in drafting EU single market rules that apply to the entire single market. It is not just one among 28 participants: with the EU Commissioner for financial services, the UK holds a key position in the decision-making process in an area of vital interest. More generally, the UK is second only to Germany in terms of top-ranking positions in Brussels. And while UK influence in the European Parliament has somewhat declined, especially since the withdrawal of the Conservative party from the European People’s Party (EPP), the UK still has significant clout.
Leaving the EU also would mean that the UK would have to negotiate bilateral trade deals with all the EU’s preferential partners (perhaps soon including Japan and the United States) if it wants to keep the same market access to these countries as it currently enjoys. Negotiating such trade agreements is a long affair. Since the turn of the millennium, the average time taken to conclude a trade agreement was 3.5 years in the U.S., 5.6 years in Canada and almost 7 years for the EU. Certainly, trade would suffer in that period.
In short, being a member of the EU gives the UK strong influence and the ability to exercise sovereignty at EU level. If it left the EU, the UK would face a choice between negotiating with the EU and the rest of the world about the terms of the trade agreements, or turning towards isolation. Isolation might mean “sovereignty” in some sense, but it would come at a high cost for a traditionally open economy like the UK. Continuing to trade with countries in Europe and elsewhere would require lengthy negotiations. Compromises in terms of regulation and product standards would be inevitable. Some would view this again as a loss of sovereignty.
Ultimately, pooling sovereignty by being a member of the EU is the best way to shape trade, inside and outside Europe, according to UK interests. It is simply a myth that leaving the EU would give back sovereignty in a meaningful way.
Note: This article gives the views of the author, and not the position of EUROPP – European Politics and Policy, nor of the London School of Economics. A version of this article was cross-published at Brugel.
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André Sapir – Bruegel and ULB
André Sapir is Senior Fellow at Bruegel. He is a Professor of Economics at Université Libre de Bruxelles (ULB) and a former economic adviser to the president of the European Commission. In 2004, he published ‘An Agenda for a Growing Europe’, a report to the president of the Commission by a group of independent experts that is known as the Sapir report. André holds a PhD in Economics from The Johns Hopkins University, 1977. He is also a Research Fellow of the Centre for Economic Policy Research (CEPR).
Guntram B. Wolff – Bruegel
Guntram Wolff is the Director of Bruegel. His research focuses on the euro area economy and governance, on fiscal policy, global finance and Germany. He has joined Bruegel from the European Commission, where he worked on the macroeconomics of the euro area and the reform of euro area governance. Prior to joining the Commission, he was an economist at the Deutsche Bundesbank, where he coordinated the research team on fiscal policy. He also worked as an adviser to the International Monetary Fund.
The EU would lose sovereignty over it’s 2nd largest economy with its exports having to comply to UK standards just as the UK has to comply with the standards of other export markets, the difference is we would regain our seat at the WTO & have an equal voice to that of the EU in the setting of international standards.
“The EU would lose sovereignty over it’s 2nd largest economy with its exports having to comply to UK standards just as the UK has to comply with the standards of other export markets”
You say that as if creating technical barriers to trade (what you’re describing) is somehow a good thing. That’s a situation that isn’t in the UK’s interest or the EU’s interest. It’s the whole reason why we have the single market in the first place – to get rid of these barriers and allow proper competition/free trade to take place. Yet in the next comment you’ll no doubt claim you support free trade – despite arguing for something that actively inhibits it from taking place.
But that is, in essence, what most of the leave campaign consists of: people who claim to support free trade because they think it sounds good, but who are perfectly happy to create barriers and red tape for businesses of the kind you’re describing just to be rid of supposedly damaging foreign influence over the country (immigrants first and foremost). If you want to put forward that kind of nativist, cut our nose to spite our face, nationalist worldview then fine, but don’t pretend it’s a practical argument about economics.
It should be important to note what a trade deal actually means and who it effects. If we do not have a trade deal it doesn’t mean that you can’t do business with a country/area. It might mean that it costs more to do business with that area. Our service business really isn’t effected by trade deals and probably won’t be effected very much by Britain leaving the EU. However the biggest worry is the uncertainty and the effect that the UK leaving will have on the world around us. The prospect of a collapse in the EURO in Europe and the possibility of other countries following us. Also do we want our government tied up for years negotiating trade agreements that we may already have.
“the biggest worry is the uncertainty and the effect that the UK leaving will have on the world around us. The prospect of a collapse in the EURO in Europe and the possibility of other countries following us. Also do we want our government tied up for years negotiating trade agreements that we may already have.”
If we already have them, why would we be ‘tied up’? If we already have them, we just continue with them, but the source of authority for them switches from Brussels to Westminster.
As for your other point, the infamous ‘uncertainty’ (which happens every time there’s an election or referendum, and somehow everyone survives and trade keeps on going and the sky doesn’t fall in) that’s why we should leave in a way that causes minimum disruption to all nations including ourselves. But it’s not a good reason for staying in the EU.
The amount of instability and disruption caused by joining didn’t stop us joining the EEC, even though it had significant and negative repercussions on Commonwealth countries and caused UK prices to go up. The amount of instability caused by not joining the Euro wasn’t a big deal. Trade is never hampered by elections or referendums – we never, ever suspend democracy for the sake of doing business, and we don’t need to. Trying to make us vote a certain way because of speculative ‘economic instability’ is nothing other than trying to put fear into people to make them conform. Trade is set up in such a way that it always continues. Trade is a natural human instinct as well as driven by rich businesses who will lobby the government for what they want no matter which way the public vote in any election or referendum. Plus ca change, plus c’est la meme chose.
If other countries ‘follow’ us that is their democratic right to decide. If they choose to leave the EU, who are you to stop them? If they’re sensible they should leave in an orderly manner, but no-one should try to prevent the public from exercising their democratic will. Otherwise you are advocating that democracy is not as important as money, and you are saying that you would rather everyone sacrifice democracy for the sake of the EU and for the sake of keeping other countries in the EU. It all seems a bit feeble, this EU in your mind, as if it’s a fragile little thing that will break if anyone leaves. Can’t be that well built then, can it? You may have noticed that there is an Article 50 in the treaty allowing countries to leave, so the EU seems to have more confidence in itself than you have in it.
You aren’t objecting that, by leaving EFTA in 1973, the UK pulled other countries out of EFTA, thereby damaging free trade in Europe (the continent). You’re only complaining that, by leaving, others might follow us out of the EEC. So what? Trade will continue, cooperation will continue, science will continue, tourism will continue, transport will continue, you name it, it will continue. None of it depends on the EU at all. You’re hugely mistaken if you think it is.
EFTA used to have more countries in it than the EEC/EC. It could again. Trade would be freer, people would be freer, democracy wouldn’t be on the backburner, and sovereignty wouldn’t be getting transferred. What’s your problem with any of those things?
“It’s the whole reason why we have the single market in the first place – to get rid of these barriers and allow proper competition/free trade to take place.”
You’ve swallowed a lie there, hook line and sinker.
Removing barriers to trade was UK trade policy before the EEC (as it then was existed). It’s part of why we co-founded the EFTA.
When the EEC came into being it was a protectionist market. It still is. All customs unions are protectionist in nature and all trade blocs divert trade away from the globe and into regional or sub-regional levels.
The purpose of the EEC was always politicial union, achieved via the creation of a so-called ‘single market’ which would allow the step-by-step transfer of decision-making power away from the nation-states, which were seen as defunct, and into a new regional entity government by bureaucrats – not by politicians. This was its express design and purpose. It had nothing to do with facilitating trade. Trade was the method, not the goal. You have confused ends and means.
“You say that as if creating technical barriers to trade (what you’re describing) is somehow a good thing.”
Newsflash: the EU is a barrier to trade. It’s a customs union, not a free trade area or free trade association.
Furthermore, leaving the EU but re-joining the EFTA would mean we mean we’d retain access to the ‘internal market’ whilst also being able to sit at the top tables of the world, as we used to do and as everyone else outside the EU does. In other words – best of both worlds.
Another newsflash for you: barriers to trade exist all over the world. It wasn’t the EU that reduced or removed them. The UK was a big player in that process though.
Over previous decades tariff barriers were reduced via the GATT and WTO (note: the EU wasn’t the driver of that) and in their stead countries started using non-tariff barriers to trade. The EU was always part of this problem. Post-WW2 the UK advocated for a global free trade system, but the EEC (as it then was) saw protectionism as its path and wanted to draw in as many countries into its protectionism as possible, including the EU, so that the UK and Commonwealth could not swing the world in the direction of free trade. Fast forward to the present day and it’s done that. If you want rid of trade barriers, you should want to come out of the EU.
Yet again – an attempt to boost nebulous “influence” to the same level as self-determination or sovereignty.
What did Norwegian Minister Anne Tvinnereim say?
“We influence (EU) Directives at earlier stages.”
“We have experts working in Brussels …. and take part in Committees”
“We are able to influence Directives that are important for Norway.”
“Norway has the right to veto. If ….. a Directive it is too contoversial we can say “No” – while in the EU the countries are subject to majority votes. So I would say Norway is better off”
In short the right to say “No” is the ultimate influence.
Earlier she explains that adopting common standards for cross-border trade is perfectly reasonable – and mostly Norway has no problem with that.
Her conclusion is that, when it matters, Norway can do its own thing.
Surely that is of far greater value than having to accept majority votes all of the time?
“… with the EU Commissioner for financial services, the UK holds a key position in the decision-making process in an area of vital interest …”
The authors seem unaware that on becoming a Commissioner, the individual owes allegiance to the Union, not his or her original country, and must work in the interests of the Commission and the European Union, not that country.
It is not just one among 28 participants: with the EU Commissioner for financial services, the UK holds a key position in the decision-making process in an area of vital interest. More generally, the UK is second only to Germany in terms of top-ranking positions in Brussels. And while UK influence in the European Parliament has somewhat declined, especially since the withdrawal of the Conservative party from the European People’s Party (EPP), the UK still has significant clout.
France and Spain respectively hold a veto over the CAP and CFP and both are global minnows in those industries. The UK has to rely on QMV and a hostile environment with regard to the City et al (see Sarkozy and his appointment of M Barnier), similarly the UK can be outvoted under QMV in this crucial area by Germany or France and with even Spain and Italy needing little assistance; interests and viting weight are not aligned.
And as to the loss of soverignty? Could I suggest a read of the Robert Schuman Institute for Advanced Studies paper “Integration by steal; how the European Commission gained competence over foreign direct investment” The only part I disagree with is the unsupported conclusion as to motive.