What would a Brexit look like?

IOL pic jan28 david cameron REUTERS British Prime Minister David Cameron. File picture: Toby Melville, Reuters

London - As Britons debate whether to stay in or leave the European Union at a membership referendum, one of the key arguments is what a British exit, or “Brexit”, would look like?

Below is an outline of the process which would be triggered by a British vote for “out”, and some of the possible options suggested for the country's future relationship with the bloc.

Article 50

Article 50 of the 2009 Lisbon Treaty sets out the process of withdrawal for an EU member state. It has never yet been triggered. While Greenland left the bloc's predecessor, the European Economic Community, in 1985, no state has left the EU.

What happens?

After Prime Minister David Cameron notifies the European Council that Britain plans to withdraw, negotiations would begin on the arrangements for leaving and for Britain's future dealings with the remaining 27 member states.

Negotiations are conducted by the European Council. Britain would not be involved in the EU side of the discussion and would not have a vote on the terms of the agreement it offers.

Any deal must be agreed by both sides. On the EU side it requires the backing of the remaining EU leaders via qualified majority vote, as well as the European Parliament. Depending on what is included in the agreement, it may also need to be ratified by the national parliaments of all 27 member states.

Amendments would need to be made to EU treaties to take account of Britain's withdrawal, while Britain would have to prepare new national legislation to substitute for EU acts.

How long could it take?

The treaty allows for up to two years of negotiations. If no agreement has been reached by this point, all 27 other member states either have to unanimously agree to extend the negotiation period, or Britain exits with no deal in place.

During that time, EU laws would still apply to Britain.

What would Britain's future relationship look like?

* The Greenland example

Greenland left the EU's predecessor, the EEC, in 1985 after a referendum three years earlier.

After leaving the bloc, the Danish territory continued to receive EU funding and have tariff-free access to the market for fisheries products in return for allowing the EU fishing rights over its waters.

Most commentators argue there is little read across from the example of Greenland as it was not a member state in its own right, but joined as part of Denmark, and has a much smaller population of just 57,000.

Given there are around 2 million Britons living abroad within the EU, and 2.5 million EU citizens living in Britain, one element of the Greenland deal which may be copied however are its transitional arrangements.

Greenland's deal allowed for EU migrants who had acquired rights under EU law, such as free movement, to retain those rights for a transitional period.

* The Swiss model

Switzerland, along with Norway, Iceland and Liechtenstein, is a member of the European Free Trade Association (EFTA).

Its goods exporters enjoy tariff-free access to EU markets, while it is also free to negotiate its own trade deals with non-EU countries. It has a free trade deal with China for example, whereas the EU does not.

It has only limited access to the EU's services market however, and almost none for financial services - a significant contributor to the British economy.

While Switzerland has freedom over its own social and employment policies, something many in Britain would like, it also pays contributions to the EU budget and accepts free movement of people - two elements of EU membership “out” campaigners want to get away from.

Switzerland experiences far higher levels of net EU migration per head of its population than Britain. In a February 2014 referendum it voted to introduce quotas on EU migrants from 2017, something that would violate its bilateral pact guaranteeing free movement.

The EU has so far refused to agree to this curb and has threatened to suspend all other EU-Swiss agreements and market access if Switzerland imposes the quotas unilaterally.

* The Norwegian model

As well as being a part of EFTA, Norway has access to the EU's single market by being a member of the European Economic Area. In return, it accepts freedom of movement of EU citizens, pays contributions to the EU budgets and applies the single market's rules and regulations without having a vote on them.

Cameron has said Norway, which twice rejected EU membership in referendums, is not a model to emulate. It pays twice as much per head to the EU as Britain, takes twice as many migrants but has no “seat at the table”, he said.

Under the Norway model, most EU policy areas would continue to apply to Britain, in particular many of the employment laws often cited by businesses as overly restrictive.

Like Switzerland, Norway has the freedom to negotiate its own free trade agreements with non-EU countries. It is also not subject to the European Court of Justice, whose power many British “outers” are unhappy with.

* The Turkish model

Turkey, which is a candidate country to join the EU, has a customs union agreement with the bloc. The deal means it does not face tariffs to export most goods into the EU, and accepts the EU's external tariffs when trading with non-EU countries. It does not have any say in setting these tariffs however.

The agreement also does not cover services markets.

Free Trade Agreement (FTA)

Campaigners for “out” favour Britain agreeing a free trade deal with the EU, similar to that the bloc has just reached with Canada, which removed 99 percent of customs duties.

They say this would allow Britain to trade with the EU largely as before, while also leaving it free to agree trade deals directly with other countries such as the United States, its biggest individual export partner, and emerging markets.

“Out” campaigners argue that as Britain has a trade goods deficit with the EU - 7.6 billion pounds in December 2015 - the bloc could not afford to cut it off.

“We are too valuable a market for Europe to shut off. Within minutes of a vote for Brexit, the CEO's of Mercedes, BMW, VW and Audi will be knocking down Chancellor (Angela) Merkel's door demanding that there be no barriers to German access to the British market,” Conservative lawmaker David Davis said.

“The first few months after Brexit will probably be hysterical, but the leaders of France, Germany, Spain, Italy, Poland and the rest know that the way to lose elections is to destroy your own industries,” said Davis, who is backing “out”.

On the other hand, leaders determined to discourage others following the British example and breaking up the EU, could choose to make Brexit as painful as possible for Britain, EU officials and diplomats say.

The “in” camp also point out these deals take far longer than two years to agree - the Canadian agreement will have taken seven years by the time it is expected to come into force - and argue Britain outside the EU would not have the same clout in negotiating trade deals with the rest of the world.

Getting rid of barriers to trade in services, the dominant sector in Britain's economy, is also likely to be harder. Those backing “out” argue those barriers already exist within the EU.

World Trade Organisation terms

If Britain is unable to agree a free trade deal with the EU, it could fall back on WTO rules - described by some in the “out” camp as a “Brexit safety net” - which set upper limits on tariffs countries can impose.

This would give Britain low or zero tariffs on many of its exports to the EU, though tariffs in some key sectors such as cars, chemicals and food would remain relatively high.

Britain would also face barriers on services, particularly in highly regulated sectors such as financial services.

Under both a free trade agreement and WTO terms, Britain would not have to accept free movement.

“If we get WTO plus (a free trade deal), we are a lot better off. If it is just the basic WTO deal we are still better off. The cake is better with the icing, but we will still eat,” said David Campbell Bannerman, an EU lawmaker for Cameron's Conservatives, who is campaigning for “out”.

REUTERS

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