The UK opts for Brexit, what next?

The British people in their referendum yesterday expressed their wish to leave the European Union. It is a decision I deeply regret. I believe it will have negative consequences for the UK in terms of economic growth and possibly constitutional stability. For the EU, it is not possible now to foresee the longer-term consequences. At a minimum, it adds one more dossier to the already overloaded agenda of EU leaders.

The referendum result in itself has no legal power. A British withdrawal only begins when Article 50 of the Lisbon Treaty is activated. EU political leaders in their statement today called on the UK to activate this quickly in order to minimise the period of uncertainty. The UK Prime Minister, David Cameron, has indicated in his statement today that this should be left to a new Conservative Government under a new Prime Minister, who he has indicated should be in place by October. On this issue, the British hold the cards. Indeed, given that the withdrawal process must be negotiated over a two-year period in any case, and that reflection is needed on both sides before negotiations begin, the EU leaders’ view seems petulant. European Council President Donald Tusk’s own statement was noticeably more restrained.

It is clear that the ideal of European co-operation based on shared values and binding rules has suffered a setback. On the other hand, unlike previous attempts to unify the continent, this was always to be an exercise of choice. For those of us who believe in the merits of the European project not only on idealistic grounds but because of the tangible benefits it can bring, it is mainly a matter of waiting. We must work to make the Union a success and a sufficiently attractive goal that in another generation it will be the objective of a new cohort of British leaders to seek re-admission.

This perspective lays out a very clear strategy for when the negotiations on the withdrawal process begin. We have heard some politicians call for retaliation. Defectors must be punished. The UK must be taught a lesson so that other Member States do not get the same idea and seek to follow its lead. This is a nonsensical and self-defeating approach.

Certain negative consequences are inescapable, but not because of ill-will. The fact that the UK will withdraw from the single market inevitably means that trade costs will rise because UK exports of goods and services to the EU will no longer be considered ‘internal’ trade. Goodwill alone cannot remove this obstacle.

Outside the single market, the UK will develop its own rules and regulations different to the EU. Suppose, to take an example, it decided to authorise the cultivation of GM grain crops. It is simply not conceivable that the UK could continue to export cereals to the EU without additional inspections and paperwork to show that its exports were free of GM varieties that had not yet been authorised for import into the EU. The same issues arise whenever regulations differ.

Also, the UK will most likely not be in a customs union with the EU. In any free trade agreement, it would maintain its own tariffs on third country imports. This means all UK exports to the EU (and all EU exports to the UK) will have to undergo a rules of origin check to ascertain that the imported goods are, indeed, mainly produced in the UK. Otherwise, for example, if the UK had a zero tariff on imported beef, Brazilian exporters could simply ship beef to the UK and re-route it into the EU thus avoiding the payment of EU duties. Again, even with goodwill, this clearly will not be allowed to happen. So trade costs will rise (this paragraph added 25 June 2016).

But beyond these inevitable consequences of a break-up, the EU’s long-term interest lies in maintaining as much mobility of goods, services, capital and people as is possible. Any future trade arrangement should not re-erect tariff barriers. Participation in the EU’s student mobility scheme and research programmes must be encouraged. The UK should remain a member of the EU’s Emissions Trading Scheme. There may be scope for cooperation with specialised agencies such as the European Food Safety Authority, the European Chemicals Agency, and others.

The EU clearly also needs to look at the reasons for its own failures in recent years. The eurozone has failed to stimulate demand and its deflationary bias has meant that the economic crisis in peripheral economies has been deeper and lasted longer than is necessary. While the problems caused by migration from Eastern Europe have been greatly over-stated, steps need to be taken to ensure a sensible solution to the issue of access to welfare benefits which should not be left to the European Court to decide.

For readers of this blog, this also means looking at the future of EU agricultural policy. While the overall majority in favour of Brexit was small, it was more than 2 to 1 among UK farmers. Possibly this was because UK farmers are in the older age group, and there was a strong correlation between age and support for Brexit. But it was also likely that gripes by farmers about CAP regulations, environmental rules and restrictions on the use chemicals played a role.

It appeared that often the EU was a convenient scapegoat when in fact the issues were the result of national decisions and problems. The UK Rural Payments Agency has been notoriously poor in disbursing farm payments, and had to revert to paper claims last year when its IT systems did not prove up to the task of managing the transition to the new CAP.

I have sympathy for UK farmers’ annoyance with what they see as the excessively politicised nature of EU decision-making across a range of issues such as GM approvals, neonicotinoids and glyphosate. However, the issue here is communicating a better understanding of the nature of risk to the wider public and political decision-makers, not an easy task given the self-echoing nature of social media and internet chat rooms.

Nor is the issue necessarily one of simply removing regulations and letting farmers do what they want, but rather ensuring that the regulations are sensible, effective and understandable. The last CAP reform acknowledged the value of flexibility in implementation to take account of the diversity of agricultural production systems in the EU. But this recognition of the need for flexibility was offset by a detailed micro-management of issues that failed to take into account the place-and region-specific nature of many environmental problems related to agriculture.

These issues need to be taken on board as discussions start on the future of the CAP after 2020, now without the UK. It should not be simply more of the same.

This post was written by Alan Matthews.

Picture credit: Public Domain Images

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9 Responses to “The UK opts for Brexit, what next?”

  1. Sebastian Lakner
    June 25, 2016 at 11:37 #

    Dear Allan,

    thank you! That is a very good and reasonable way to deal with Brexit in the most possible constructive way. I was also thinking into that direction yesterday: That we need to reform the EU and as agricultural economists we need to be more clear about the CAP in that sense, that it is one of the large policies within the EU and to my understanding one policy, which still has a lot of potential for improvement.

    I guess more flexibility and less administration is a good one. However, I would like to add a bit to one of your examples in your post: The examples of GMO and glyphosate are taken as examples for citizens, perceiving agricultural technologies as very risky and therefore asking the policy to simply forbid those technologies, which they perceive as risky. It is right to do more about information. However in the past there have been such technologies, which were in fact risky (like e.g. Atrazine), and therefore the claim, that consumers and citizens are highly irrational in that respect and the only thing we need to do, is to tell them, that they are all wrong (I’m exaggerating…) is too short from my perspective. I think, we still need to take the concerns of society very serious. Its 98% of the population in most of the Western EU countries and the consumers of farm goods.

    That does not mean, that we should also inform people. I guess glyphosate (a highly debated issue in Germany…) is a good example, where we need to raise awareness, also in that sense, that if we forbid this, there will be other pesticides following, pesticides which might be even much more risky. So it’s good to inform and get more rational into the agrarian debates, but we should take risk-perception of people serious. Society has expectations to farmers, so farmers should not ignore those expectations. Because way round: The citizens could also think: How can the EU allow the farmers to use those risky pesticides. So I would suggest to do something in the middle: Take concerns serious but also get the debate more rational.

    And having said that, my main suggestion would be: Let agrarian markets work in the EU and only intervene into markets if we have very good and convincing arguments and if we can reduce societal costs by a market intervention. And we are still far away from that principle. This would also mean, we need to question the large income support, at least in the Western EU countries (as you did in one of your last posts). So thanks for the good post, we should be motivated to improve CAP!

    Sebastian

  2. Deborah Mallender
    June 25, 2016 at 15:05 #

    How wonderful to see true democracy at work. No more patronising rubbish emanating from a distant group of office workers, who suddenly know more about every industry even though most have never had any experience of running anything other than topping up an empty coffee mug. That includes YOU. Help yourself from now on in to any gobble cluck you wish to make up. I could use many more words to describe the utter crud I have seen posted above, but gobble cluck will do nicely. Good Bye.

  3. Alan Swinbank
    June 25, 2016 at 22:31 #

    Thank you Alan for your contribution.

    The debate in the dis-United Kingdom over Brexit has been extremely vitriolic, with the Brexiteers in particular engaged in a campaign of lies, half-truths, and xenophobia. One particularly annoying aspect of the ‘out’ campaigners has been their unwillingness to accept any contrary “expert” view challenging their fervent belief in the benefits of exit. It is, however, extremely difficult to determine what policies they plan to pursue, and how they will achieve the benefits they have promised.

    In the latest issue of EuroChoices a number of us set out our (now obviously discredited) “expert” view on the implications of Brexit for the UK’s future agri-food and rural policies, and other reports (a number of which are cited in EuroChoices) are in circulation.

    The British public have made their choice, but the 48% of us who voted to REMAIN have legitimate concerns that need to be addressed. The UK’s Parliament will doubtless debate the lack of a Plan B, and the unrealistic promises of the Brexiteers, in coming weeks. But UK citizens who would like to express their concern about this dramatic shift in European alliances, and help ensure a full parliamentary debate, might be interested to see the online petition at:
    https://petition.parliament.uk/petitions/131215/

    Alan Swinbank, Emeritus Professor of Agricultural Economics at the University of Reading in the dis-United Kingdom

  4. JC
    June 28, 2016 at 08:20 #

    Thank you, Deborah, for offering your unique perspective yet again.
    I truly believe your ideas have the power to change public policy. I often like to quote from your July 6 2011 post where you informed us that “With regards to the fruit imports situation most young children are able to eat a small apple.” Dare I say you have out done yourself with this “gobble cluck” post. Keep those ideas flowing !

  5. Alan Matthews →
    June 28, 2016 at 15:19 #

    @Sebastian

    Thanks for that response. UK farmers may have been influenced in their voting behaviour by EU decisions on restricting use of certain crop protection chemicals, although it is hard to know how important that issue might have been relative to the other issues that people were thinking about when they voted in the referendum.

    You raise the broader issue of how we should address risk when regulating the use of chemicals in food production. That topic deserves a longer post ! However, I do agree that we should pursue a policy of reducing the use of chemicals, and it is right that we should financially support in EU agricultural policy those who are taking initiatives in this respect and showing the way .

    You are right to highlight horror stories of where things have gone wrong in the past (it would be interesting to know what kind of risk assessment process was in place for those horrible examples). However, chemicals remain an important tool for farmers, and therefore we need a risk assessment process to decide which ones should be allowed and which ones not. Requiring a total absence of risk is an extreme position which would mean we would live without most modern conveniences.

  6. Simon Ward
    June 28, 2016 at 21:10 #

    I was not in favour of Brexit but it is worth understanding that there were legitimate reasons why the vote was as it was. Furthermore, few of those voting to remain did so without legitimate concerns and reservations.

    Thus EU politicians often appear to act as demagogues reflecting a populist view rather than a technically correct view. No politician is immune to popularity but the Council appears too often to avoid making technical decisions relying on popular opinion.

    The glyphosate debate symbolises the issue. The facts are reasonably clear: the WHO classified it as probably carcinogenic to operators – the same classification as eating red meat or burning wood. There may be justification to warn people against eating red meat, having wood burning stoves and asking operators of sprayers to button up. There is no justification for singling out one of the three, and spending time not reaching a decision, particularly after collecting evidence to show that the risk is low (or non existent). It has to be assumed glyphosate has been singled out because of NGO pressure alone -NGOs also have a need to be populist rather than scientific so assessment is crucial.

    It is possible to argue that the politician is simply a conduit for a popular view. But we believe that the politician should work with its experts and have time to assess information on our behalf in order to reach a technically correct outcome. This is not necessarily a populist outcome. It is not enough for politicians to avoid decision and pass back to the unelected Commission in order to avoid responsibility.

    Ironically the referendum was an example where we did not adopt this approach.

    Similarly UK opinion polls have tended to show that the population is marginally against GMs but in the last 20 years both major UK parties have supported their cultivation because the evidence of risk is negligible compared with the advantages. In the UK GM sugar beet is less environmentally damaging than the non GM variety and growing of maize is the issue and not whether GM or not GM. Clever food retailers might label a product as GM free which may achieve a price premium or simply show that consumers considered there was no additional value. Legislation to enforce a popular opinion rather than a technical judgement is not appropriate,

    We are concerned that policy too often focuses on mechanism and not outcome. Crop diversification is a good example. There is not good evidence to suggest that splitting a 10 ha parcel into two to meet the diversification requirement is any better than allowing the crops to be grown in sequence (on our soil types). In fact there is very little evidence, if any, that there is is any gain in soil conservation in doing so where all crops are arable. The Commission review in June this year reported on change in practice and not delivery of benefit or return on investment. It would appear that this view is largely accepted but no one has done anything about it -further more how was the decision made in the first place. If maize for AD is a problem deal with it.

    We did not join the Euro and while there has been dissent from time to time the reason was as has now been revealed. If Greece had been on the drachma or Spain on the peseta it would have been possible for the currency to fall in value allowing recovery and sharing of the pain. A strong EU would have acknowledged this and removed it as a criteria for new members.

    I could write an essay on this but suspect no one will read even this. As a consultant and analyst my job is to look for improvement. Alan if you read this I would be happy to produce a better organised and more considered article – I may appear critical but the objective is to make the EU a better place for its population.

  7. Derrick Wilkinson
    June 29, 2016 at 18:13 #

    Thanks you for another excellent post!

    I’d be interested in your thoughts on the suggestion that the the UK could simply become a signatory to all the EU FTAs – making bilateral agreements trilateral agreements, and so on. Balances of concessions would still be distorted if EU–UK trade relations are anything other than as now, but by much less than if the question of 3rd country agreements remains unresolved.

  8. Alan Matthews →
    July 9, 2016 at 21:37 #

    @Derrick

    An interesting idea! One that might be worth pursuing in the Brexit negotiations if it goes ahead. I see four immediate issues. First, the EU27 member states would have to agree (and if some MS want to show that life outside the EU can be difficult, they may not be in a mood to agree). Second, the counter-parties would have to agree. They might be happy to do so as it would be a way to protect their existing market access to the UK market after withdrawal. Third, the UK would have to agree. As one of the complaints of the Leavers was that the EU’s FTAs were often inadequate because of the need to placate protectionist forces elsewhere in the EU, the UK might be reluctant to sign up to these agreements if it thought it might be able to negotiate better terms of access on its own. Finally, national Parliaments in the EU might have to agree because most of the newer and more valuable EU FTAs are mixed agreements and require each Member State as well as Council/Parliament approval. If you think of what happened to the EU-Ukraine FTA in the Netherlands recently, one might well wonder if approving accession of the UK as a third country to these agreements would sail through without problems. But this kind of lateral thinking is very useful. Thank you.

  9. Alan Matthews →
    July 9, 2016 at 21:51 #

    @Simon

    Thanks for your comments. I share your views on the specific decisions on glyphosate and GM, but I wonder if it is fair to blame ‘the EU’. On both of these issues, the EU Commission has shown that it is prepared to endorse the decisions of EFSA, but it must also take account of the views of member states and the Parliament (otherwise it is accused of being out-of-touch with public opinion). On both these issues, the problem was that only a handful of Member States were willing to stand up for their scientific advice. So I think it is Member State ministers and member state representatives in the Parliament rather than ‘EU politicians’ who are responsible. But too often the EU gets the blame.