Brexit Debate – Michael Gove and the Single Market

IIEA14th June 20168min
Following comments by UK Justice Secretary, Michael Gove, who suggested that the optimal situation for the UK is one in which they are “outside the Single Market but still have access to it”, I have drawn on analyses from Michael Emerson, the House of Lords and Her Majesty’s Treasury to investigate what that arrangement could look like.

Introduction

Following comments by UK Justice Secretary, Michael Gove, who suggested that the optimal situation for the UK is one in which they are “outside the Single Market but still have access to it”, I have drawn on analyses from Michael Emerson, the House of Lords and Her Majesty’s Treasury to investigate what that arrangement could look like. The conclusion is that that although the UK could have limited access to the Single Market, none of the possible alternative plans are preferable to the UK remaining in the European Union.

Michael Gove’s Position

On the BBC’s Andrew Marr Show the Vote Leave leader, Justice Secretary Michel Gove, stated that a vote to leave the EU is also a vote to leave the Single Market.  Arguing that the EU was “set on a course of deeper integration” he stated that Britain “should be outside the single market but have access to it. While the UK would no longer be bound by EU regulation, legal judgments and free movement rules it would, in reality, still have access to the EU’s internal market of 500 million people since free trade across the European continent would not suddenly come to a halt.” Gove’s position has been interpreted as a claim that the UK could have the best of both worlds by being outside the EU Single Market

Michael Gove’s argument is central to the whole debate on UK membership.  As Martin Wolf has remarked in the Financial Times, “Those in favour of leaving are looking for options. But they confront a dilemma: the more power over its policies the UK regains, the less favourable the market access it keeps.”  

Article 50

The House of Lords EU Committee has indicated that Article 50 of the Treaty on European Union is the only way to leave the European Union that is consistent with the obligations of international law. Article 50 defines the procedure for negotiation of a withdrawal agreement.

While an agreement on the specific issue of withdrawal from the EU might be attainable, the major political task is likely to be the negotiation of an agreement on the UK’s future relationship with the Union. Any agreement would be subject to an acceptable outcome on the sensitive issue of the acquired rights of UK citizens living in other EU Member States and EU citizens living in the UK

The process for arriving at such an agreement would depend on its scope and content but it would almost certainly need the unanimous agreement of all other 27 Member States in the Council, in some cases even possibly requiring ratification by referendum. Disentanglement from the complexities of EU directives as enshrined in UK legislation would require a review of the entire corpus of EU law as it applies nationally and in the devolved nations.  Such a review would take years to complete. The involvement of both Westminster and the devolved assemblies would add to difficulties, which have led one leading lawyer to say: “The long-term ghastliness of the legal complications is almost unimaginable.”

Alternatives

Michael Emerson, writing as editor of the CEPS study ‘Britain’s Future in Europe’, argues that “the ‘leave’ choice is unknown territory, since it has not been specified by the secessionists beyond vague statements like regaining freedom from Brussels and being able to engage in freer trade with the world at large.” He looks at three variants of a ‘Plan B’ which span a range of views.

Plan B.1 involves getting out “simply and fast, with a clean break on Day 1. This would mean scrapping all EU law, including all its international agreements, and thus create initially a huge legal void that would be unthinkably catastrophic for the economy. No British government would conceivably do this.”

Plan B.2 involves leaving the Union politically but remaining in the Single Market with a view to minimising economic disruption. “This could be workable, since the mechanisms already exist and have been tested with some other non-EU countries. The problem here, however, is that it would mean still taking on a lot of EU policy without having a say in its making, i.e. a loss of sovereignty (‘no say, still pay’ as some have dubbed it).”

Plan B.3 involves negotiating the best possible deals with the EU and its international trading partners.  “This however becomes a very messy prospect, with years and years of negotiation lying ahead in a climate of uncertainty over the outcome. The UK’s preferred deal with the EU would aim at maximum freedom of action including an end to the free movement of people, but at the same time retaining maximum continued access to the EU market for goods and services. Negotiations with the EU towards this end, however, would be very problematic, encountering predictable objections to this ‘cherry-picking’ approach….the idea of the UK replacing the EU’s international free trade deals with something better and faster is an illusion, since major trading powers will continue to view the EU as their priority.”

Emerson’s overall conclusion is that all three variants of a Plan B fail to come up with something preferable to Plan A (‘remain’) as a matter of cold calculation of concrete costs and benefits.

Treasury View

Her Majesty’s Treasury has published its analysis of ‘the long-term economic impact of EU membership and the alternatives.’ The conclusions confirm the Emerson view.

“The economic analysis shows that all the existing alternatives to EU membership would come with a significant economic cost. They would make it more difficult and expensive to trade with Europe and across the world, and lead to a reduction in foreign investment. Alternatives with significant access to the Single Market would require the UK to implement its rules but the UK would no longer have a vote on these rules. They would require the UK to accept the free movement of people and continue to make financial contributions to the EU. No country has been able to negotiate a better deal than these alternatives and it would not be in the EU’s interest to agree such a deal for the UK.”

The analysis concludes that all available alternatives would increase the costs of trading with the EU, but none would provide the full access to the Single Market that the UK currently enjoys. The EEA model of membership would give the most access but with increased transaction costs as a result of customs checks, and would see the re-introduction of tariffs for agriculture and fisheries. A bilateral agreement would give some access to the Single Market but, significantly, with important limits in the services sector. A basic WTO arrangement would see a crucial closing of the UK’s access to global markets and the likely introduction of a broad range of tariff and non-tariff barriers. “The reduced access to the Single Market under all the alternatives would make the UK a less attractive destination for foreign investment.”

The Treasury paper concludes that “no other country has been able to agree significant access to the Single Market without having to accept EU regulations, the free movement of people and financial contributions to the EU. But in accepting these obligations, outside the EU the UK would have to give up its current significant influence over EU decision-making and become a rule-taker rather than a rule-maker.”

A final critical Treasury argument is that “to allow the UK to access the Single Market without agreeing to the rules of the Single Market would put their own businesses and consumers at a disadvantage.” The report points out that “while the UK is an important market for EU exports, the UK has its trading relationship with 27 countries at stake, whereas the rest of the EU have only their trading relationship with one country at stake – less than 8% of EU exports come to the UK while 44% of UK exports go to the EU.”

 

References

Michael Gove    Quoted in Financial Times, 8 May 2016.  (www.next.ft.com)

Michael Gove    Quoted in Financial Times, 8 May 2016.  (www.next.ft.com)

Michael Emerson    Britain’s Future in Europe.  The Known Plan A to Remain or the Unknown Plan B to Leave.   Brussels, Centre for European Studies.  (www.ceps.eu)

HM Government     HM Treasury analysis: the ling-term economic impact of EU membership and the alternatives, April 2016.  (www.gov.uk/government/publications)

House of Lords   European Union Committee.  The Process of withdrawing from the European Union.   11th Report of Session 2015-16, 4 May 2016.  (www.parliament.uk)