Christopher Howarth is a senior Political Analyst at the think tank Open Europe. Prior to Open Europe he worked as a Conservative Foreign Affairs Adviser and senior researcher to a Shadow Europe Minister. Follow Open Europe on Twitter.
Growing public frustration with the costs of EU membership is making the UK’s EU membership unsustainable and cannot be ignored. Moves in the eurozone towards fiscal union also mean the status quo EU membership terms we have may not be an option even if we wished it.
Given this, Open Europe has published a study of the UK’s trading interests and the most likely options for the UK if it were to choose to leave. We conclude that there is no clear-cut or easy option for the UK outside the EU making leaving the EU as complicated as staying in and renegotiating.
We found that the EU continues, on a purely trade basis, to be the most beneficial arrangement for Britain. If we left the EU we would have to negotiate a new trade agreement with the EU and probably one that would not, at least for now, serve the UK’s trading interests as well as the present one.
But, plainly, trade is only one part of the equation when it comes to assessing the costs and benefits of EU membership. Although, at present, all the alternative options come with major drawbacks in terms of trade, the price of membership remains far too high. Many of these costs are not directly related to trade, such as the UK’s contribution to the EU budget, the loss of national control over key political decisions that affect the British economy and society, and an increasing regulatory burden. These are the alternative options:
• The ‘Norwegian option’ or EEA membership: This would free the UK from the Common Agricultural Policy (CAP), EU fishing rules, EU-wide regional policy, and reduce our budget contribution. However, while guaranteeing access to the Single Market in services and goods, outside the customs union, access for goods would be subject to complex rules of origin and Britain would still be subject to EU regulations on employment and financial services but with no formal ability to shape them.
• The ‘Swiss option’ or free trade agreement: If we had the same Swiss-EU bilateral deal, we would also be without the CAP, EU fishing rules, EU-wide regional policy, and have a reduced financial contribution. This would offer more sovereignty and less EU regulation. However, the UK’s access to the Single Market would be dependent on the deal we could negotiate with the EU – the Swiss deal currently excludes the vast majority of services, including financial services.
• The ‘Turkey option’: The UK would continue to benefit from full access to the EU’s Single Market in goods by remaining in customs union with the EU but Britain would be bound by any external deals that the EU strikes in trade in goods without any formal way of shaping them. A separate deal on services would be required to maintain UK access to the Single Market in these sectors. It would be free from EU social and employment regulation, the CAP, CFP and EU-wide regional policy.
• The full break ‘WTO option’: If the UK left the EU without securing a version of the options above, the UK could fall back on its World Trade Organisation membership. This would see some exports facing relatively high tariffs (i.e. 10% on car exports) and market access for services would be limited.
So how do these alternatives stack up against the UK’s trade interests?
Well, 53.5% of UK goods exports currently go to the EU but only 39% of services exports. This makes the EU important – but the EU is likely to be an area of slow growth, while fast growing areas such as China and India together account for only 3.75% of UK exports, this proportion needs to grow. The UK is currently the second largest global services exporter but the single market in services has stalled. Services account for 71% of total EU GDP but only 3.2% of this is a result of intra-EU trade.
Given the proportion of goods trade we do with the EU the UK’s trading interests are currently best served by remaining within the EU’s customs union to allow goods to flow free without complex ‘rules of origin’. Our interests also demonstrate the need to push the EU to back services liberalisation at home and in EU trade talks abroad. However, the EU could retreat into protectionism and so thwart UK trade in the internal market or globally thus reducing its relevance to the UK. This makes it all the more important for the UK working with our allies to speak up for free trade: for instance, regaining an economic commissioner in 2014.
The Coalition should also conduct a full in-depth analysis of the options open to us, to move the debate onto a higher level and help us figure out the genuine reason why we were in the EU in the first place – as well as the areas we would do better on our own. With this the Coalition could then set out a vision for EU reform, and “examine the balance of the EU’s existing competences” and as it is pledged to do. The UK should also continue to concentrate on growing its trade in the wider world where growth will be faster, and if at some point in the future the proportion of UK trade with the EU has shrunk our options will have grown.
Renegotiate our membership
In order to continue to justify its membership, the UK needs to achieve a new model for EU cooperation based on different – and equally legitimate – circles of EU membership. In this structure, the UK should remain a full member of the single market in goods and services and of the EU’s customs union, but take a ‘pick and mix’ approach in other areas of EU policy. This would achieve a vital reduction in the non-trade costs of EU membership, such as the EU budget and the burden of regulation, while allowing the UK to remain at the heart of the EU’s cross-border trade.
What a new UK membership of the EU could look like
There will be those who say that such a model is not possible – that there can only be one form of EU membership. That is plainly wrong as it ignores current fact as well as moves, by others, towards further integration. The status quo is not an option, we now need to decide for ourselves what we want.