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