On June 23rd 2016, the British people will vote in a referendum on whether they wish for the United Kingdom to remain in or leave the European Union. A vote to ‘leave’ would be a major geopolitical event, but what would Britain's EU exit (or 'Brexit') mean for industry in the UK, continental Europe and the rest of the world? Eric Payne reports on foreseeable post-exit scenarios.

1. BREXIT IMPACTS
20 | EUROASIA INDUSTRY
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On June 23rd 2016, the British people will vote in a referendum on whether they wish for
the United Kingdom to remain in or leave the European Union. A vote to ‘leave’ would be
a major geopolitical event, but what would Britain's EU exit (or 'Brexit') mean for industry
in the UK, continental Europe and the rest of the world? Eric Payne reports on
foreseeable post-exit scenarios.
The UK voting to ‘leave’ the EU is broadly
associated with uncertainty and risk. The
governor of the Bank of England, Mark
Carney, says that a vote to ‘leave’ could
expose the UK to “material slowdown in
growth”. The perception in the City is such
that traders may well make that outcome a
short-term reality. By contrast, it is generally
perceived that remaining in the EU means
endorsing a static status quo.
Before discussing Brexit, therefore, it is
important to acknowledge that the UK voting
to ‘remain’ in the EU is not without uncer-
tainty or risk. The EU's 'Five President's
Report' lays out a timetable for the comple-
tion of economic and monetary union (EMU)
by 2025. European Commission President,
Jean-Claude Junker, has announced that he
will present a White Paper on the subject of
EMU in June 2017.
What further consolidation of the
Eurozone would mean for the UK, with its
euro opt-out and equivocal attitude towards
the EU institution's ongoing commitment to
political union, is not yet clear. The “special
status” that Prime Minister David Cameron
says he has negotiated with the other EU
Member States raises yet more questions.
What really interests and intrigues people,
however, are the possible Brexit scenarios.
Political realities
Broadly speaking, there three immediate
post-exit options for the UK: the WTO option,
the ‘Swiss’ or bilaterals option, and the
‘Norway’ or EFTA/EEA option. Before looking
at each of these, it must be noted that what
the UK government would be able to nego-
tiate with its EU counterparts would be con-
strained by political realities, which, to be
frank, are not well understood.
The first and foremost political reality
is the fact that the only legally constituted
means for an EU Member State to leave
the EU is via Article 50 of the Treaty on
European Union (TEU). Moreover, Article
50 guarantees only two years to negotiate
an exit agreement. The negotiating period
can be extended, but the decision to do so
requires unanimous agreement among the
remaining EU Member States and, according
to a UK Government Command Paper, such
an extension would be likely to come at a
price. The paper says: “Article 50 provides
for a two-year negotiation, which can only
be extended by unanimity. There could be
a trade-off between speed and ambition. An
extension request would provide opportu-
nities for any Member State to try to extract
a concession from the UK.”
Thereby do we begin to limit the ‘plausi-
bility scope’ for the negotiation. Indeed, with
a two-year deadline in mind, the idea of
agreeing a comprehensive free trade agree-
ment (FTA) is a total non-starter. The EU-
Canadian Comprehensive Economic & Trade
Agreement (CETA) has taken seven years to
negotiate and is not yet ratified. Likewise,
the Transatlantic Trade & Investment
Partnership (TTIP) is three years in the
making and nowhere close to completion.
There is not one FTA listed on the EU Treaty
Database that took less than three years to
complete negotiation and ratification.
Some of those in the ‘leave’ camp sug-
gest that, in lieu of an FTA, the UK could
resort to trading with the EU under WTO
rules. That would be a disaster for UK-EU
trade. Under WTO rules, the EU is cate-
gorised as a Regional Trade Agreement
(RTA) which, the WTO acknowledges, “by
their very nature are discriminatory”. As
such, RTAs are permitted to discriminate
against third-countries, which, were the UK
to leave the EU without a replacement
trade deal, would include the UK.
The outstanding issue under those
circumstances, would not be tariffs, but
non-tariff barriers (NTBs), or what are
otherwise known as technical barriers to
trade (TBT). Without mutual recognition
of conformity assessment and an ongoing
commitment to regulatory convergence,
UK exporters selling into the EU market
would have no way to demonstrate con-
formity to EU standards. It is not suffi-
cient to conform, exporters must be able
to demonstrate conformity.
What that would mean in practice is cus-
toms inspectors having to detain shipments
and taking samples to send to an approved
testing house. The cost of that would be
paid by UK exporters, but the associated
delays would be even more damaging.
Highly integrated European supply lines,
relying upon components shipped from
multiple countries under a 'just-in-time'
regime, would be very badly impacted.
Writing on his personal blog,
EUReferendum.com, political analyst,
researcher and anti-EU campaigner, Dr
Richard North, asserts: “Then, as European
ports start having to deal with the unex-
pected burden of thousands of inspections,
and a backlog of testing as a huge range of
products sit at the ports awaiting results,
the system will grind to a halt. It won't just
slow down. It will stop. Trucks waiting to
cross the Channel at Dover will be backed
up the motorway all the way to London.”
A pragmatic compromise
Obviously it would be in the best interests
of all concerned to avoid such a catastrophic
outcome. So, what then is the alternative?
Fortunately, there is one, although it would
require a degree of political compromise.
In short, the most realistic exit option
involves the UK maintaining regulatory con-
tinuity by applying to rejoin the European
Free Trade Association (EFTA) to participate
in the European Economic Area (EEA)
agreement. The EEA is the 31-member state
area that forms the Single Market, made up
of the EU 28, plus three of the EFTA mem-
bers – Norway, Iceland and Liechtenstein.
Switzerland is a member of EFTA, but has a
separate set of bilateral agreements for man-
aging EU trade and participation in co-oper-
ative ventures.
This pragmatic acceptance of an 'off-the-
shelf' solution with respect to trade would
protect jobs and investment while also ful-
filling on the referendum outcome of taking
Britain out of the political and judicial
arrangements of the supranational EU.
That would mean no immediate change to
freedom of movement – the free movement
of goods, services, capital and people being
central to the Single Market – to the chagrin
of some ‘leave’ campaigners. However, as
Roland Smith of the Adam Smith Institute
argues, it is useful to conceive of Brexit as
an “evolutionary process” rather than as a
“one-time event”.
“In contrast to other exit plans that seek
varying degrees of cut-off from the EU,” he
remarks, in a report titled ‘Revolution Not
Evolution: The Case For the EEA Option’.
“The EEA option starts from a very liberal,
co-operative agenda that is practical and
realistic, and evolves the UK away from EU
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22 | EUROASIA INDUSTRY
membership. This will be the first step of an
ongoing evolutionary process that ultimately
promises the start of a reinvigoration and re-
maturing of Britain’s wilting democracy that
is increasingly and worryingly held in con-
tempt by many voters. And all the while,
maintaining the very open trade and free
exchange we have with our nearest neigh-
bours and friends.”
An international model
To appreciate the potential upside of EU exit
in terms of trade, it is first of all important to
understand that trade is an exclusive EU
competency. EU Member States do not have
the power to make independent trade agree-
ments and are obliged to adopt the EU's
‘common position’ on global bodies such as
the World Trade Organisation (WTO). The sig-
nificance of this is revealed when one rolls
back the curtain on the hundreds of stan-
dard-setting bodies operating at the global
level. Organisations such as the United
Nations Economic Commission for Europe
(UNECE) and the Codex Alimentarius
Commission, where participating member
states agree food hygiene and safety stan-
dards, are in the process of transforming the
EU from a law-maker into a law-taker.
In days gone by, it was legitimate to think
of EU membership as giving the UK a seat
at the 'top table' when it came to making
rules for the Single Market. Today, that is no
longer the case. Indeed, one of the biggest
misconceptions associated with the EEA
option is that it would mean complying with
EU legislation with ‘no say’ over the rules.
In fact, more than 80 per cent of the leg-
islative categories defined in the Single
Market or EEA acquis (body of law) – as dis-
tinct from the EU acquis – fall within the
scope of international organisations.
This apparently minor administrative
detail is extremely significant in the context
of Article 2.4 of the WTO Agreement on
Technical Barriers to Trade, which says that,
“Where technical regulations are required
and relevant international standards exist or
their completion is imminent, Members
shall use them, or the relevant parts of
them, as a basis for their technical regula-
tions”. That little word “shall” transforms
the relationship between global bodies and
the EU, placing independent nation-states
at the forefront of the regulatory agenda. In
other words, the EU, if it ever was, is no
longer the regulatory ‘top table’.
In the area of vehicle regulation, for
instance, the standards to which equip-
ment manufacturers work are defined not
by the EU but by the World Forum for
Harmonization of Vehicle Regulations
(WP.29) – a working party of the Inland
Transport Division of UNECE. There are
currently 57 signatories, including the EU.
Non-EU countries include major vehicle
manufacturing countries such as Japan
and South Korea. Outside of the EU, the
UK government would have full self-repre-
sentation and the freedom to deal direct at
the global level.
UNECE, which was established in 1947,
prior to the foundation of even the European
Coal and Steel Community, which evolved
into the present day EU, is also at the cutting
edge of developing an ‘International Model’
of regulation, through its WP.6 (Working
Party on Regulatory Co-operation and
Standardisation Policies). The ‘model’ pro-
vides a set of voluntary principles and proce-
dures for countries wishing to harmonise
technical regulations, bringing interested
countries together to discuss and agree new
regulatory frameworks that are then turned
into Common Regulatory Objectives (CROs).
Notable successes include CROs for
PC peripherals, legacy Public Switched
Telephone Network (PSTN) terminals;
Bluetooth, Wireless Local Area Network
(WLAN); Global Standard for Mobile
Telecommunication (GSM); and
International Mobile Telecommunications
(IMT-2000 or 3G). That is in addition to
CROs for earth-moving machinery and
equipment for explosive environments.
The process is nascent but extant,
offering a viable model for a liberal, global-
minded, free-trading country like the UK to
reinvigorate the multilateral trading system,
working to reduce technical barriers to trade
under the aegis of the UNECE and WTO.
A viable role for an independent Britain?
Returning to the politics, the ‘national
debate’ as conducted among the publicly-
funded campaigns is regrettably – although
perhaps not unexpectedly – short on facts
and perspective. There are viable alternatives
to EU membership. However, the UK would
have to accept a compromise – especially in
the initial phase. The remaining EU Member
States would not offer the UK a ‘better deal’.
As John Springford and Simon Tilford of
the Centre for European Reform, writing
in The Daily Telegraph, affirm: “Germany
and France will say: ‘it’s all or nothing’.
Join the European Economic Area, or no
deal.” Experts for the ‘leave’ side agree.
However, the advantages to be derived
from driving the regulatory agenda at a
global level, championing the multilateral
trading system and intergovernmental co-
operation, would provide a viable role
for an independent Britain. o
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