What would ‘out’ look like?
Testing Eurosceptic alternatives to EU membership
Advocates for Brexit have suggested a range of alternative options for the UK instead of EU membership. This report rigorously examines four of the most widely canvassed alternatives: the Norwegian option, the Swiss option, relying on WTO trading rules alone, and a special preferential UK deal. The study involved six months of work and interviews around Europe.
The analysis shows that the arguments advanced for how Britain could do better outside the EU are based on false premises which do not stand up to close scrutiny. It tests a series of common claims about the economic consequences of leaving the EU and different scenarios in which Britain would have to negotiate trading relations on its own with Europe and the rest of the world. These include:
• The Norwegian option: Norway adopts two-third of EU legislation including on free movement of people and EU social rules. It has no say in the content of EU law. Norwegian firms face greater bureaucratic hurdles to trade than UK firms, and Norwegian per capita contributions to the EU budget are only slightly lower than the UK.
• The Swiss option: While the Swiss arrangement leaves them nominally free not to adopt EU law, the EU retains the right to exclude Swiss firms from the Single market. As a consequence Swiss federal laws contain a statement as to their compliance with EU law and in practice Switzerland automatically updates its laws to follow the EU. Switzerland is not part of the single market for capital and services and it has a large trade deficit with the EU in both. Switzerland was obliged to agree on free movement of people with the EU in order to access the single market for trade in goods. It is also obliged to make a financial contribution to the EU. Contrary to some claims, Switzerland does not have a superior set of free trade agreements with the rest of the world.
• The World Trade Organisation (WTO) option: It would oblige UK firms in key goods sectors to pay tariffs when exporting to the EU. UK firms wishing to export would still have to meet EU regulatory rules and the development of those rules would no longer involve UK representatives. Some key services for the UK simply could not be traded into the EU including retail financial services. Finally, it is implausible that the UK could strike better trade deals with third countries than the EU.
• A UK special free trade agreement with the EU: An analysis of the voting rules and the predicted economic costs and benefits of Brexit make it clear that the UK will be unable to force the EU as a whole to give it a special deal. Some individual member states may wish to maintain a tariff-free trade with the UK. However, the negotiating context means that the best the UK could be offered is the content of the Norwegian deal and the powers available under the Swiss deal. The latter would allow it to suspend the whole agreement if the UK failed to update any laws in line with EU legislation.
The report also reviews the economic literature that attempts to quantify the costs and benefits of leaving the EU. It concludes that a precise figure is hard to establish but that a reasonable person would conclude that overall the likelihood is there would be substantial economic costs.
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