BREXIT.No 1

Preliminary Remarks

Perhaps the most startling aspect of the result of the 2016 referendum has been the alacrity with which politicians and the media have interpreted the result as a 'decision' of the UK to leave the EU and as the 'unchallengeable will of the British people'. Both these positions ignore two salient facts. First, no constitutional decision has yet been made. Any such decision is for the UK government and UK parliament to make. We do not live in a plebiscitary democracy, but a parliamentary representative democracy. Second, given the relatively narrow margin of the result of the consultative referendum and the fact that the majority represents only 37% of those eligible to vote, it is difficult to argue that this represents an unequivocal expression of the 'will of the people', or that it should not be challenged. The over 16 million people who voted to remain are being ignored.

In legal and constitutional terms the 2016 consultativereferendum is no more than a nation-wide opinion poll which, if it so desired, the UK parliament could ignore. Hence, no constitutional decisionon Brexit has yet been taken. Parliamentarians and the media seem not to understand the act which brought in the referendum, and clearly stated to be advisory. The recent High Court decision to rule that the government cannot legally invoke Article 50, but that it must be parliamentary decision now goes to the Supreme Court. Given the nature of the judgement it seems unlikely that the Supreme Court will overturn the decision. (Leaving aside that it would represent  yet another example of executive power over-riding legislative power in the UK).

Interestingly one of the reasons for the judgement involved an assertion that only parliament can determine the 'will of the people', not the government. A further  observation on the judgement is that the treaty of accession to the EU clearly indicates that this treaty is unlike any other treaty in that it creates domestic UK law. Hence, the EU is not, as the British establishment have implied over the past 43 years, that the EU is a kind of economic version of NATO. It is not simply an inter-governmental organisation bur, instead a confederation.

However, inpoliticalterms the issue presents major problems for UK politicians and hence the preponderant political view appears to be that we are setting course to leave the EU. Tonight I will assume that this is the case.

Nonetheless, there will remain the much wider issue of whether we want to live in a plebiscitary democracy or 'popular sovereignty'. This is a major question for another day. but it will still have a bearing on what will ensue in terms of the route taken to leave the EU.

Finally, it is worth observing that the UK is currently a semi-detached member in that we are not part of either Schengen or the Eurozone and we have a number of other opt-outs on justice and other areas. In essence the UK is a member of the internal market (including its four freedoms), save for not having a single currency; contributes to the EU budget, though with a substantial rebate, and is subject to the judgements of the ECJ, in the areas where the EU has competences (principally trade and internal market related matters).

Attitudes in the Rest of the EU

But the really interesting question for the UK government and parliament, in the current situation, is what are likely to be the views and negotiating position of the EU institutions (including the European parliament) and the national governments and parliaments of the EU? And how will they respond, both prior to any triggering of Article 50 and subsequently.Hence, tonight I want to focus substantially on this side of the equation, while indicating how this will impact on the UK side.

Currently there is bemusement, anger, and sadness in the rest of the EU at the position of the UK. In this context, it is important to recognise the very different constitutional legal cultures in the rest of the EU than in the UK.

This was brought home to me as long ago as 1975, during the then referendum campaign. I was trying to explain to a German lawyer friend, also a European Commission colleague, that if the result of the referendum was to leave the EU and the UK government and parliament agreed to implement the result, then the UK would indeed leave. It should be recalled that Article 50 did not then exist. He was astonished. He said that the UK had signed an accession treaty and this meant that it should hold in perpetuity, unless both parties agreed to dissolve the treaty. His  view was that the treaty could not be unilaterally abrogated by the UK. Apologetically, I had to explain carefully that under the constitutional conventions, binding only in precedent and legally, one UK parliaments could not bind a successor parliament and that though the treaty had been signed by the government it could recommend to parliament that it should repeal the 1972 act which gave legal force to the government decision. He was not impressed.

However, since the Lisbon Treaty we now have Article 50 as a legal route to secession for a county. So let us look at the current process of leaving, via Article 50,  and the initial response from the rest of the EU.

The Process of Leaving

Introducing Article 50 and the process of the UK leaving the EU.

Some Implications of Article 50

Though Article 50 is the start of the withdrawal process, and the only legal routeout of the EU, it will not establish what any future relationship there will between the UK and the EU. It will simply establish the terms of the secessionTreaty, removing the entanglement of the UK and the EU, including, inter alia, the budgetary contributions and receipts. (Legally, the UK could leave as soon as Article 50 is invoked, but no-one is suggesting that this is practicable)

Whatever indications may accompany the withdrawal discussions, the nature of any new UK/EU relationship will involve separate negotiations leading to aseparate Treaty. Given the problematic nature of these latter negotiations - and hence the timescale required to complete -  it may be necessary, and possible, to agree a legal transitional arrangement.

Theresa May seems to be suggesting that the two sets of negotiations could run in parallel and hence the two treaties could be coterminous in terms of their resolution. My view is that this is extremely unlikely to be received favourably by the rest of the EU, and, in any case, is hopelessly optimistic, whatever the potential advantages for the UK. This position perpetuates the myth that the UK is the driving force in all these discussions. Below I indicate the initial, but considered, response to the referendum result by the other 27 Heads of State.

It will, of course, be possible - even if at the moment it seems unlikely - for the UK to change its mind and ask to abrogate Article 50, during the Article 50 discussions, and remain a member of the EU (albeit, as is indicated above, a rather 'semi-detached' member). The EU legal tradition is based on the notion that what is not expressly forbidden is always possible.

Initial Response of the EU

The initial response of the EU in terms of the Heads of State to the referendum result and the immediate response from the UK government that the UK haddecidedto  leave (preceded by the UK media, without demur!), was as follows.

It is clear that nothing will be done formally or informally in terms of discussions/negotiations prior to the triggering of Article 50. Moreover, The principal issue during the period following the triggering of Article 50 is negotiating a, hopefully smooth, withdrawal of the UK from the EU. It is important to recognise that the UK is thedemandeurin this process. The UK does not have the status as an equal in the process.Article 50 is simply discussing the legal terms of the withdrawal leading at the end of 2 years or conceivably before, a Treaty of UK Secession.

The withdrawal stage should not present insuperable political problems; though some of the technical issues in disentangling the UK from the EU are complicated, e.g. on budgetary issues, and will require compromise.

Though Article 50 suggests that the withdrawal phase negotiations "shall take account of the framework for the seceding country's future relationship with the Union", it seems unlikely that this commitment will be more than a broad indication of what a future, separate Treaty might look like. Partly this is because currently it is not clear what future relationship the UK wants or, indeed, to take the position of some 'hard Brexiteers', whether anyspecific 'relationship' will be required, e.g. staying in the customs union. This may become clearer over the next two years; though a number of uncertainties will remain, on both sides.

What is crystal clear from the European Council statement is that in relation to full access to the 'Single Market', the four freedoms are sacrosanct. The suggestion from UK politicians (by ex-Remainers and ex-Leavers) that this position merely represents a first stage 'negotiating position' is simply a fantasy.

I am now going to jump ahead and assume that the Article 50 process of withdrawal has been agreed and examine the possible contours of a new relationship might look like.

As I indicated earlier, it is at the juncture of UK parliamentary approval of a 'Treaty of Secession' and discussions - perhaps started during the withdrawal process, but very unlikely to have been concluded (whatever the desire of the UK) - on a new relationship with the EU that a UK decision point will be reached on leaving the EU. It will be at this point that, were parliament minded to do so, it could challenge the government's decision to leave. However, this is not the time to speculate on what might happen. We will assume that attention switches to the nature of the new, specific relationship between the UK and the EU.

The outlines of any new relationship between the UK the EU and the UK may, at this stage, have become  have become apparent, or at least clearer than they are now. What I now want to do, therefore,  is to look at what the rest of the EU are likely to be seeking from any new relationship with the UK. I am also going to assume that the EU negotiating team will be the same for both the Article 50 withdrawal negotiations and the far more difficult post-Brexit relationship.

One significant  difference will be that in the case of withdrawal agreement only the European parliament will have a vote on the terms. In the case of any new relationship Treaty,  individual member state parliaments will also have a vote. It will have to be agreed by all 27 member states, collectively and individually. (N.B. This assumes, as seems almost certain, that any such treaty will be regarded as a mixed agreement; as is the case with the CETA, with even more likely problems than the Wallonia problem for CETA).

Possible Bargaining Positions of the EU and Potential Outcomes

Who Decides and How

It is important first to appreciate the EU negotiating structure for both withdrawal and for a new relationship.

The European Commission has appointed Mr Michel Barnier as Chief Negotiator and Ms Sabine Weyand as Deputy Chief Negotiator.

The Commission will be negotiating on behalf of the European Council (i.e. the 27 member states, less the UK) and within the terms of a Council mandate, yet to be agreed.

The European Parliament has appointed Guy Verhofstadt as its representative/observer in the negotiations between the EU and the UK. The European Parliament will have to approve any deals.

The negotiating mandatefor the Article 50 withdrawal/secessionarrangements for the UK will be established between the Commission and the Council, to be negotiated by the Commission. It with cover how to disentangle the UK from its various responsibilities and the various rights, e.g. of UK European Commission staff and UK European parliamentarians. It will also have to consider how and when to extricate the UK from its various complex financial commitments relating to budgetary matters and legal matters.

The negotiating mandatefor the new relationship between the EU and the UKwill be established between the Commission and the Council, to be negotiated by the Commission. It will cover in outline all the relevant areas of trade, including tariff and regulatory issues, and legal compliance relationships, including specific areas of sectoral and trade sensitivity for each of the 27 member states. It is likely to be built on a template reflecting existing arrangements with other large countries outside the EU.

Moreover, this will be done prior to any discussions with the UK; though the UK's positions in many of the areas will be known to the Commission. The only aspects which will not be known will be the trade-offs which the UK may wish to make. (Anecdote - how the Brits negotiate)

Likely Positions and Outcomes

Obviously what I am going to suggest, at this point in time, is no more than an educated guess. But it is based on my own experience going back over 45 years and on attempting to read the current positioning of the EU negotiators, based on the various public statements being made.

As I indicated earlier the position of the British has never been easy for the other Europeans to understand. However, ironically, partly because of the dominance of English in discussions, it has often fallen to the UK to script versions of many EU agreements. This will not be the case in these negotiations; in my view to the detriment of the UK.

Sadly the British political and administrative establishment has neither understood the confederal nature of the EU and nor has it been an enthusiastic partner. Rather has it persuaded itself (and by default the British public) that the EU is essentially an inter-governmental organisation, an economic version of NATO.

This history means that there will be little sympathy for an ex-partner that has now gone beyond being semi-detached and has thrown a 'wrecking ball' into the midst of the EU. The EU, however problematic it may be, will arrive at a common settled position on all the major issues, and the French approach to negotiation (indicated above) is likely to dominate in the early stages.

There is a view in the UK that whatever trading arrangement is to be struck the UK will require, and will be granted, a special deal, unlike any of the potential other country-deal 'templates'. Sometimes this claim is related to the notion that the UK is the 5th/6th (no-one is sure) largest economy in the world. In fact, in PPP (Purchasing Power Parity) terms, i.e. adjusting for exchange rates, the UK is 9th or 10th in size, close to Indonesia. This view also ignores the fact that two of the countries higher than the UK are up to five times larger, e.g. the US and China. Coupled with earlier point that the EU (i.e. the 27) are four times less dependent on trade with the UK than the UK is with the EU, the problem of obtaining a deal which satisfies the EUis obvious.

The British 'exceptionalism' does not actually cut much ice with other EU countries, and will not in these negotiations. One or other templates will be used by the Commission; they will not start with a blank piece of paper.

So what are thepossibilities?

1. A Summary Goodbye

Notwithstanding the polite diplomatic language in which this position might  be couched, the message will be clear. The intention will be to get the withdrawal of the UK achieved as rapidly as possible, followed by a rejection of any suggestion of any full or even partial access to the Single Market, unless the UK is willing to accept the four freedoms involved. Nor will full membershipof the customs union be likely to be attractive to the EU.

Given the above there may be an unwillingness on the side of the EU to get involved in a free trade deal, which would take a number of years and tie up negotiators when there will be other issues, and trade deals, which the EU may see as having higher priority. Such a 'clean Brexit' position will save an enormous amount of negotiating time and legal expense on the side of the EU.

On free movement, or rather on EU migration into the UK any agreement will be rather more to the benefit of the rest of the EU than to the UK. On issues other than trade and free movement there will, nonetheless, be a willingness to cooperate, as far as possible, on issues such as combating terrorism, crime, foreign policy, and defence.

(From the UK side this may be construed as a 'clean Brexit'. It means a reversal to the status quo antewhich obtained prior to 1973, with the exception of migration where the UK is dependent on other EU migrants. This is the position of UK government ministers such as Liam Fox)

 It may be argued that this negative attitude on the part of the EU reflects the French position, but it has adherents in other countries. They resent the exceptionalism of the UK government.  It is important to recognise the damage which the UK intention to leave has done already to the EU and will further damage the EU as it goes forward unless the departure of the UK is done swiftly and cleanly.

This EU position and the potential outcome for the UK may well not be the final position or outcome, as softer lines may be advocated by those countries who are traditionally closer to the UK than others, e.g. Ireland, Netherlands, Denmark, and Germany. But as has been argued above the 'semi-detached position of the UK makes it problematic in terms of what may be offered. Theresa May has indicated that her 'red lines' are related to not agreeing to free movement of people seeking work, not contributing to the EU budget, and not being subject to the ECJ (while at the same time of course wanting maximum access to the internal market!). It is difficult to see how far the UIK might be accommodated in any new relationship, without traducing the EU 'red lines' in terms of the Singe Market and the lesser red lines as far as the customs union is concerned.

This clean Brexit position has something to recommend it on both sides. Unless, that is, like me and many others you believe that such an outcome would be disastrous for the UK for many years to come. The UK will survive and eventually may prosper, but the economic, social, and political adjustments which will have to be made by the British people are exceedingly unlikely to be welcome. The idea that a reborn UK would rise phoenix-like, and pain-free, from the ashes of withdrawal is pure fantasy in the minds of extreme Brexiteers.

But let us explore how some compromise positions and outcomes - short of a clean Brexit - may be reached,assuming a willingness to compromise, on both sides, and taking account of the business interests involved.

2. A Canadian-type Solution

There has been some discussion of the UK being able, eventually, to secure a Canadian-type, free trade agreement. The EU would clearly not be adverse to this type of trade agreement; though the Canadian deal (CETA) has recently encountered some 'little local Belgian difficulties'! 

Moreover, it is by no means clear that, subsequently, the European Parliament will ratify, as it is asked to do, any agreement which does not completely rule out an ISDS mechanism for resolving disputes between corporations and states

The problem for both the EU and the UK is that, even with a speedier process for the UK than the 7-year negotiations on the current Canada deal, it will still take time, and be subject to delays in all countries, including their parliaments, and the European Parliament, ratifying any EU-UK deal and there will also be problems in including services in any agreement.

Moreover, these types of all-embracing investment agreements, which have clear benefits for transnational companies, are becoming unpopular, not only for the populace, but also for governments, when they are between developed economies. It seems doubtful whether this approach can survive. Instead I suspect that there will be a reversion to specific sectoral deals where the benefits of opening trade in specific sectors may be demonstrable, but where opening trade, and particularly investment, to large trans-national corporate entities, who can challenge national government regulation will increasingly be seen as the wrong way forward. Hence, it is not clear that the EU will necessarily want to go down the route of such a comprehensive  trade deal with the UK.

3. The EEA-type Solution

As this type of solution - effectively associate membership of the single market - is already available to the EU negotiators it may well be one that is offered to the UK. The problem is that the UK government appears to be ruling out any such approach, because it would have to accept freedom of movement, and hence an inability to control migration as well as being subject to the jurisdiction of the ECJ.

Some on the Remain side and a few on the Leave side still appear to favour this type of arrangement, with perhaps some element of control over EU migrants being agreed in negotiations.

However, the apparently entrenched positions on both sides appear to rule out such a deal. It would, of course, also involve substantial payments to the EU.

Remaining in the EU - insofar as the UK is involved in the EU at present - would appear to a preferable option to this arrangement. It would be seen as effectively nullifying the Brexit vote, but without any of the current, positive benefits of EU membership.

4. A Turkey-type deal

Turkey is involved in the EU customs union for goods only. It might be possible to add, as is the case with Switzerland, financial services. When some Brexiteers talk about a specially-designed UK deal with the EU, this is the sort of deal envisaged. The Turkey deal does not involve free movement of people to work.

But there is a major problem from the EU side. The UK has a substantial £billion surplus in services(around 65% of the surplus being  in financial service) with the EU, i.e. the UK is competitive on services. It seems unlikely that the EU would contemplate including services in any customs union arrangement.

From the UK side another problem is that any such deal would involve subjecting the UK to the jurisdiction of the ECJ; which appears to have been ruled out. For the EU the ECJ must ultimately be involved in regulating any such deal.

5. A Ukraine-type Solution

It has been suggested, by Andrew Duff, that a possible model for Brexit which the EU might entertain is for an agreement for the UK similar to that which obtains for the Ukraine; despite the obvious differences.

From the EU perspective, it might certainly be a possible option to be explored; it might also have some attractions for the UK..

However, aside from the problem that the ratification of the agreement is stalled because of the referendum vote against in the Netherlands, the deal is intended to pave the way, eventually, for Ukraine to join the EU. This is an ultimate objective, though not stated or referred to in the agreement, and which, not surprisingly, has incurred considerable opposition from Russia. To be fair similar agreements are in place for Georgia and Moldova and these have not been so contentious.

It may be argued that these problems would not occur with an EU-UK deal. This is not the place to explore all the ramifications of such a deal, but various elements, some of which already mentioned, will give rise to concern on both the EU and the UK side.

In its favour is that the framework would provide a comprehensive and specific EU-UK deal and one which offers a template for EU negotiators, for which they will have a preference, rather than starting from scratch.

Whether he same will apply to the UK politicians and civil service negotiators is another matter.

Moreover, the UK is not Ukraine and the many differences in the situation seem to place a number of barriers to following this route. Nonetheless, given the problems with the other possible approaches discussed above, it should not be ruled out.

Conclusions

The Problem

Leaving aside the possibility - which cannot be ruled out entirely, despite the current political rhetoric - that, in the end, the UK remainsa member state of the EU, there appear to be the four possible outcomes discussed above. All of them are possible, but uncertain to be welcomed by the EU, and probably inadequate a far as the UK is concerned.

I would have liked to have come up with a less dystopian view, but the more I explored the various negotiated outcomes the less likely a genuinely satisfactory short- to medium-term positive outcome appeared to be possible.

The legal withdrawal process, via Article 50, is relatively straightforward; though there are a number of detailed and complicated areas to address, not the least of which is disentangling the UK from the EU budget and its implications.

The problems arise when one examines the potential for a new relationship and trade deal. (I do not anticipate substantial problems in securing good cooperation on issues relating to crime, security, and defence, but it will not be as smooth as before. On defence we will still be in NATO (please note no referendum on this partnership!). On foreign policy there is likely to be a difference in attitudes to Russia going forward, with a less antagonistic line pursued by the EU, led by Germany).

The three current demands of the UK government relate to controls over migration from the EU (and elsewhere); to want deep access to the Single Market, and to be outside the  jurisdiction of the ECJ. As explained above these demands, unless relaxed appear to rule out any comprehensive trade deal.

The reaction of the rest of the EU - coupled with their anger at the UK leaving - to the current UK position appears to leave them with little choice, but to refuse any comprehensivetrade deal. The only exception is the sort of sui generisarrangement speculated on by Andrew Duff and to an extent based on a Ukraine-type agreement, but again the outlook is not good.

So What is to be Done?

Let me finish on a more positive note. For the UK as a whole and for any sub-geographical areas there appear to be negative, or at least less-positive, outcomes in any new relationship after Brexit. But it may well be possible to secure somesectoralagreements which will leave key sectors in a not too disadvantaged position. For the North-East this is a position which is critical, in relation to three major sectors, automobiles, chemicals, and pharmaceuticals, and their important supply chain companies in the North-East. To an extent a sectoral approach is similar to the Swiss-EU trade agreement, but this has provided an enormous headache for the EU and keeps having to be revisited. Though, as suggested above these sectoral agreements may replace the increasingly problematic comprehensive TIP (trade and investment partnership) deals, for the time being, and bearing in mind the Swiss experience, the EU may not be strongly pre-disposed to a sectoral approach, unless pushed by business interests in some sectors, e.g. as we have seen, automobiles.

The Nissan announcement appears to support this view that an approach to try to achieve sectoral deals may be the approach that will be followed by the UK negotiators. If so it is not one which will be easy or rapidly successful. I do not know the details of what has been agreed between Nissan and the UK government, but it seems likely that support for R & D, e.g. on electric vehicles or driverless cars is part of the agreement. The fall in the value of sterling and the high productivity of the Sunderland plant are two other factors which appear to have led Nissan to confirm the short- to medium-term commitment to building the next two models in the UK. This is very welcome news for this region, and possibly for the important UK automobile industry as a whole, but it is neither a full-blown industrial policy, nor does it represent an easy or rapid route to any trade deal between the EU and the UK post-withdrawal.

Postscript

Although Brexit appears to paint the UK as the recalcitrant 'outlier' in terms of its rejection of the EU, this is by no means the full story.

In a number of other EU countries, both outside and within the Eurozone there are now strong populist murmurings of discontent. The Visigrad countries, ostensibly in relation to migration, are arguing for more national control, and even repatriation of some powers; Greece, though not arguing for leaving the Eurozone or the EU (principally because the alternative would be worse); France, with Le Pen suggesting that she would call a referendum on France's membership if elected president next year. In Italy, Renzi may lose the referendum he has called on reforming the constitution to be held in 2016. Italian popular opinion has turned against the strict fiscal rules imposed by the Eurozone and the result of this referendum is certainly in doubt. Right-wing and left-wing populist movements around the EU are a clear indication that the Monnet-inspired, elitist, 'functionalist' approach to pursuing a federalist agenda is no longer appropriate, realistic, or justifiable.

Populism is problematic and dangerous, and is not democratic. However, elites in representative democracies need to respond to populist discontents - many of which are genuine - by communicating clearly the analytical and empirical content of the policies they advocate. Genuinely democratic governance in the areas of social, economic, and political is extremely difficult in this day and age, but it is possible.

In a European context we need a new European settlement; a new Messina conference, and a genuinely reformed EU (sufficient to include the EEA countries) which recognises the need to move more gradually, and with the supp[ort of the peoples of Europe, towards the essential further integration, required in a globalising world to protect its citizens.

Moving forward with theinformedconsent  of all of its citizens, including those in the UK, must be the only way forward for the whole of the EU.

Were the UK to espouse such a view then we would be seen as abandoning our exceptionalism and embracing our European future. For the UK this means having a vision of the realities of the modern globalising world; not simply repeating, as Theresa May does, that the UK is definitely leaving the EU because a proportion of our population is discontented.  May's position ignores the expressed wishes of over 16 million UK citizens who voted to remain in the EU. This is elective dictatorship not democracy.

The British people require a vision which is both realistic in terms of political economy andis capable of responding to the discontentexpressed by the 17.4 million who voted to leave, but accepts that it is the responsibility of the UK government and the UK parliament to take their own view on the best way forward for the country, and to represent the best interests of its people.

Michael Lloyd 

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