The Pros and Cons of Brexit

Introduction

The United Kingdom will vote on June 23 in a yes-no referendum on whether to leave the European Union (Brexit). A case can be made for Brexit based on arguments about government, economics, law, and cultural identity. There are also many strong arguments for remaining in the EU, making this vote neither clear nor easy.  This backgrounder fleshes out the full array of arguments for the Leave (pro-Brexit) and Remain (anti-Brexit) campaigns as each side views them from its own perspective.  The paper concludes with a set of recommendations as to how the U.S. should view the debate in light of its own interests.

The EU in a nutshell

Discussing the pros and cons of Brexit is aided by a brief summary of the four institutions that determine EU policy.  The European Commission serves an executive function, is composed of unelected officials, and proposes most legislation and directives.  The Parliament is composed of directly-elected representatives from each member country.  The European Council is composed of the heads of the different EU member states.  The European Parliament and Council have the ability to amend and approve or reject legislation.  Finally, the European Court of Justice oversees the application and interpretation of EU law.

Arguments for Brexit

Government

  • The EU impinges on the UK’s democratic sovereignty. It does this by requiring member states like the UK to adopt Commission laws and directives, a provision originally agreed to by member states in the Treaty of Rome in 1957. That treaty established a common market and institutions to govern it; over time, however, subsequent treaties increased the role of the Commission to include agricultural, social and welfare provisions, and in the recent Lisbon Treaty, environmental legislation.
  • The UK has no ability to prevent the EU from implementing wide-ranging domestic policy at home.  Although the UK should be able to limit EU Commission legislation to the economic and labor policies laid out in the EU treaties, in reality it accepts legislation on justice, home affairs, and human rights.  These are areas of British public life over which the EU should have no jurisdiction.  For example, the EU has ruled that British workers are entitled to compensatory time off if they get sick over vacation.
  • The sheer quantity of legislation coming from the EU is evidence of its undemocratic nature. The impact of EU law on British law is difficult to quantify, although some claim that up to 80% of laws are “uploaded” from the EU.  There is also an invisible element to EU law beyond the quantity of legislation.  For example, EU legislation blocks national legislative initiatives that are not compatible with higher EU law.
  • The EU is an unaccountable, bloated bureaucracy and engages in rent-seeking by colluding with large European companies to cement its hold on power.  The EU adds an additional layer of government to the already complex bureaucracies of each EU member state—and thus another level of political inertia and opacity.  Few Britons claim to fully understand how the EU works.
  • The EU actively seeks to decrease member state sovereignty with a goal of “harmonization,” creating uniform legal regulations across member states.  Although this is justified as being favorable to trade, in practice it requires that all EU countries conform their laws to match those of the most regulated member state.  The UK is also forced to accept the laws of other member states under the principle of “mutual recognition.”
  • The UK is consistently outvoted by Eurozone members and the Council of Europe.  Since 1996, Britain has strongly opposed over fifty measures in the Council of Ministers.  It was outvoted in every occasion, and those measures are now UK law.
  • The UK sends $26.5 billion per year to the EU.  These funds could be spent on UK domestic initiatives, such as the National Health Service or scientific research.

Law

  • The legalistic nature of the EU gives the ECJ outsized influence and is eroding the UK’s judicial power.  Over time, the ECJ has morphed from a mechanism for individuals to challenge EU law in national courts to challenging national law in the subra-national courts.  EU court decisions are legally binding and take precedence over national law when the two are in conflict.
  • The number of “infringement proceedings”—as decisions by the ECJ are termed—is growing quickly and replacing the jurisdiction of British courts.  This is because EU citizens can appeal decisions in national courts by taking them to the ECJ.  To avoid the first step, national courts are sending cases directly to the ECJ.  Member states can also export their laws to the ECJ to make them European-wide rulings.  The “right to be forgotten” cyber law, adopted by the ECJ, was initially a ruling from a Spanish court.
  • The British judicial system is also hostage to the European Court of Human Rights (ECHR), whose role is to interpret the European Convention of Human Rights, and the Charter of Fundamental Rights in the Lisbon Treaty.  Judgments in these courts often conflate social-policy choices with human rights issues.  Examples include giving prisoners the right to vote—strictly prohibited by British national law.  Or how the UK may deal with terrorists.  Even though the Blair administration claimed to secure an opt-out of the Charter via the so-called Protocol 30, the ambiguity surrounding the opt-out versus the predominance of EU law over member state laws has led to implementation of Charter-driven laws in practice.  For example, when the UK recently wanted to deport an Afghan asylum seeker, the European Court of Justice in Luxembourg blocked it, citing the Charter.

Culture

  • Britain has never considered itself to be European, as famously articulated by Timothy Garton-Ash in his 2001 essay, “Is Britain European?”[1]

Trade

  • Departing the EU’s free-trade union doesn’t mean an end to trade between the UK and its European neighbors.  Although a departure may bring back tariffs on UK goods and services, the economic losses predicted by the Remain campaign in the case of a Brexit are based on a static assumption.  The UK could, and is likely to, take steps to mitigate the loss of EU preferential trade access.  Moreover, it would be free to reap economic benefits that it was hitherto denied by the EU Commission.
  • Outside the EU, the UK could scrap the EU’s mandated social and employments regulations, unleashing economic growth.  The EU has wide leverage to export unnecessary social and unemployment laws and environmental policies to the UK.  The highly controversial Common Agricultural Policy (CAP) increases the price of food for all EU consumers by mandated tariffs and subsidies. Through Brexit, the UK could reduce these subsidies and lower the price of food. 
  • Second, the UK would be free to conclude Free Trade Agreements (FTAs) with major foreign traders, such as the U.S., China, India and others. The UK does not have this freedom within the EU Commission, which conducts FTAs on behalf of all member states.  Many Britons seek to emulate other commonwealth countries that excel at free trade, such as Canada and New Zealand.
  • Finally, the UK could represent itself at the World Trade Organization (WTO) and other multilateral bodies, rather than have the EU represent it indirectly.

Arguments against Brexit

Trade

  • Of all the Remain coalition’s arguments, those pertaining to trade and the UK’s economy are the strongest. Many in the Remain camp acknowledge the problems of the EU—including its inscrutable bureaucracy—but recognize that a departure would present a far worse set of consequences for UK economic growth.  The EU is the UK’s single most important trading partner.  More than half of UK imports in 2014 came from the EU.
  • In light of the importance of trade, the EU’s legislative bodies play an important role by establishing common regulations and standards for goods and services.  It is often the difference in standards for products between countries that account for extra costs to trade and thus limits the volume of trade that companies can support.
  • If the UK were to lose access to preferential EU trade status, GDP is projected to fall by approximately 2.2%[2]
  • Even in an optimistic scenario, the UK is unlikely to be better off economically.  If the UK concluded an FTA with the EU and was free of the EU’s social and labor regulation, GDP would still not recover due to the additional border and administration costs associated with foreign content.  The Leave camp also assumes that deregulation will be possible.  More likely, the UK will face significant political backlash when facing competition from countries with low-cost manufacturing.
  • Particular sectors within the UK would suffer more than others, including its most important sector, financial services, which would likely face heightened regulation from the EU if the UK were to leave. The UK has always helped to curb Brussels’ worst tendencies on regulations.

Government

  • The EU doesn’t infringe on British democracy as much as Leave claims.  Brexit advocates overstate the percentage of national laws that are imported from the EU.  While estimates vary, some non-partisan estimates put the number around 30%.  Furthermore, laws in Brussels are crafted with the participation of elected British officials both in the Council and in the Parliament.
  • Membership in the EU guarantees the UK the ability to influence and shape the bloc, which it necessarily loses outside of it.  Even if it left the EU, the UK would still work closely with its nearest neighbors on issues of trade, law enforcement, science, and airspace monitoring.  If the UK left—say out of concerns for democratic sovereignty—the rest of the bloc might go in a direction inimical to the UK’s interests, thus making it harder to cooperate on mutual security and economic issues.
  • Harmonized regulation across EU member states may limit sovereignty in a technical sense, but the gains are worth the cost.  Common regulation increases the efficiency and effectiveness of policies while lowering the cost by removing red tape between countries; for example, criminals are better apprehended across the EU if there are harmonized rules for criminal characterization.  As recently made clear in TTIP negotiations, the greatest barriers to free trade were not from tariffs but regulatory incongruities between cooperative nations.
  • The amount of EU regulation isn’t felt equally across the UK. The effect of EU legislation is dependent on sector; the most regulated, for example, is agricultural. So the high percentage of EU legislation that is uploaded to the UK is in fact targeted in specific areas rather than being widespread.
  • UK Prime Minister David Cameron achieved some success at renegotiating the UK’s relationship with the EU. But even where his success was limited, the issues at stake aren’t worth departing the EU.  Most controversial was his attempt to limit the in-work benefits for EU migrants and for the children of migrants not living in the UK, a group on which Britain spends only 0.07% of the budget.

Law

  • The UK agreed to the role the EU plays nationally by ratifying the different EU treaties. Thus it also has the ability to limit the role the EU may play in domestic legislation.  The UK passed the European Union Act of 2011, a so-called “sovereignty clause,” as a way to make any changes to the major European treaties contingent upon British statutory law or a public referendum.
  • The UK has also been successful at negotiating its own relationship to the EU through a series of opt-outs, including opt-outs from Schengen, the Eurozone, the Charter of Fundamental Rights, and the areas of Freedom, Security and Justice.  The UK does not need to leave in order to determine the type of relationship it wants with the EU.
  • The process for leaving the EU is highly unfavorable to the departing country and therefore a reason not to do it.  The Lisbon Treaty presents an option for exit from the EU through Article 50.  Article 50 makes it difficult for the leaving country by denying it any freedom to determine the terms or timetable of its departure, or to change its mind and come back in.  The withdrawal agreement must be drawn up by the Commission and then approved by EU leaders in the European Council, the European Parliament, and all non-departing 27 member state parliaments.  It is unlikely that they will all agree to terms of exit that are favorable to the UK because some states will inevitably have conflicting interests.

Culture

  • The British public may believe in the policy goals of the EU, particularly trade, and not the European project itself.  For a small island country, the UK’s trade relationships have always been of fundamental importance.  Even Margaret Thatcher supported the UK’s participation in the Single European Act of 1986.
  • A European identity is not necessary for EU membership. The EU is a means to an end.

Recommendations

JHI’s Europe working group has had a robust debate on the pros and cons of Brexit and remains divided.  As this paper illustrates, the issue of Brexit is complex and divisive.  JHI supports the view that U.S. foreign policy is driven by both values and interests, and the two often work in tandem.  From a values perspective, it’s clear that the EU’s many institutions and complex set of laws erode British national sovereignty and democratic accountability. The United States would never accept that a large minority of its laws come from an organization other than Congress, especially one that reflects the interests of 27 nation states and scores of unelected officials.  Second, Cameron’s weak bid to renegotiate the UK’s EU membership—compared to previous promises—underscores more than anything else the inability of the UK government to affect the organization as a whole to fully realize its own interests.  British justice is regularly overridden by activist European courts.  And finally, a majority of British citizens claim not to identify as European.

The economics question is less clear, but, as with many things, the devil lies in the details. The EU is the U.S.’s largest trading partner. The UK’s departure from the bloc may leave the EU more heavily regulated, and therefore more difficult for U.S. exporters. Harmonization, the EU’s justification for exporting laws and regulations so as to better facilitate trade, means in practice that all countries must absorb the regulations of the EU country’s most regulated state.  Rather than promoting free trade among members, the EU actually has forced all countries to become one heavily regulated monolith.  Together with the rise of the BRICs, the UK’s percentage of exports to the EU has declined significantly in the last 10 years.

The UK is banking on concluding a separate FTA with the U.S., but as President Obama made clear on his last trip to the UK, the U.S. is less amenable to this idea.  The anti-trade attitude present in the U.S. political debate will make an FTA with the UK even more unlikely. Thus Britain must work hard to make up for the loss of income from European trade through other international FTAs and intensive domestic deregulation. This will be a massive challenge and one that is required in order for Brexit to be a success.

Finally, the U.S. cannot view the issue outside of its own strategic interests.  Like NATO, the U.S has traditionally supported the EU as a way to keep the European countries oriented toward the West.  While this has come at the cost of bureaucratic dysfunction and a more regulated economy for these countries, it has been a geostrategic net benefit, particularly in the case of Eastern Europe.  It is of note that Putin supports Brexit.  The U.S. wants as many allies in Europe as possible, and the UK exerts a positive influence over the others, pulling them closer to the United States and orienting them toward liberal, free-market policies.  The UK’s presence at EU summits has resulted in outcomes that are more beneficial to the U.S. than they would have been otherwise, such as keeping up sanctions on Russia. That said, NATO plays a more important role than the EU in balancing the West against Russia—and the Brexit camp is not proposing to leave NATO.

Ultimately, the EU is not going away, and the same issues will endure after June 23. Britons will have to make their choice, but more important for American observers will be the separate but related decisions surrounding the UK’s relationship to the EU: how the UK will face a resurgent Russia, regulate its borders, mitigate the global migrant crisis, counter Middle East instability, prevent homegrown terrorism, and deregulate its economy.

 

[1] Timothy Garton-Ash, “Is Britain European?” Prospect Magazine, February 2001.

[2] Stephen Booth, Christopher Howarth, Mats Persson, Raoul Ruparel and Pawel Swidlicki, “What if? The Consequences, Challenges, and opportunities facing Britain outside the EU,” Open Europe, March 3, 2015.