Possible consequences of the vote to leave
Wednesday, 29th June 2016
The British people voted to leave the European Union on 23 June 2016. While the result of the referendum is clear, its consequences are uncertain. This article outlines some possible outcomes of the vote to leave.
The process of withdrawal
The process by which a member state may leave the EU is set out in article 50 of the Treaty on European Union. This includes the following provisions:
- Any member state may decide to withdraw from the EU in accordance with its own constitutional requirements.
- A member state which decides to withdraw should notify the European Council of its intention.
- The EU will then negotiate an agreement with the withdrawing state, which will be concluded by the European Council, acting by a qualified majority, with the consent of the European Parliament.
- The agreement will set out the arrangements for withdrawal, taking account of the state’s future relationship with the EU.
- The European Treaties will cease to apply to the state from the date when the withdrawal agreement comes into force or, failing that, two years after notification to withdraw was given, unless an extension is agreed unanimously by the European Council.
It is not yet known when any notification under article 50 would be given. George Osborne has said that the UK should only give notification ‘when there is a clear view about what new arrangements we are seeking with our European neighbours’.
Possible future relationships with the EU
We explained some possible arrangements in our earlier article. They include the following, with examples of countries having such an arrangement with the EU:
- Remaining part of the European Economic Area and single market (Norway).
- Rejoining the European Free Trade Association with access to the single market for most sectors (Switzerland).
- Remaining in a customs union with the EU without being part of the single market (Turkey).
- Negotiating a bilateral trade agreement with the EU (Canada – agreement not yet in force).
- Trading with the EU under World Trade Organisation rules (Australia).
What arrangements are sought will depend on the approach taken by the UK government, as well as that of the remaining member states of the EU.
Under the Norwegian model, the UK would remain part of the single market with its four freedoms (free movement of goods, services, capital and people). Norway accepts much, but not all, EU law and makes a substantial contribution to the EU budget.
Switzerland has access to the single market for most sectors (though not for all services) under a series of agreements with the EU. It has also accepted free movement of people, although the Swiss people have since voted in favour of restricting the number of workers allowed to come from the EU. It is unclear whether the EU would accept a Swiss-style arrangement for the UK without freedom of movement.
The Turkish model would maintain free trade in goods, but not services. The requirement to maintain common external EU tariffs prevents Turkey from negotiating independent trade agreements with other countries.
The government may prefer to negotiate a bilateral trade agreement with the EU. Whether such an agreement could be concluded within two years remains to be seen; the EU’s agreement with Canada took five years to settle (and is not yet ratified). If an agreement is not concluded, the UK would after two years automatically cease to be part of the single market, unless the European Council agrees an extension.
An uncertain future
It is not yet clear what approach the government will favour. Those wanting to maintain close ties with the EU will favour a Norwegian or Swiss solution; those wanting a more arm’s-length relationship will prefer a trade agreement. The government may seek to negotiate a bespoke arrangement, perhaps prioritising access to the European market for the UK’s financial services sector. If it proves impossible to negotiate tariff-free access to the single market without accepting free movement of people, the UK may have to choose between those priorities, or agree some sort of compromise.
It is likely that the UK will also seek to negotiate bilateral trade agreements with countries outside the EU, both to replace current EU trade agreements (such as with Mexico) and to facilitate trade with countries such as Australia that do not currently have an agreement with the EU.
The Scottish government’s desire to remain in the EU will also be significant. There may be a second referendum on Scottish independence, or calls for further devolution to enable Scotland to remain in the single market if the rest of the UK withdraws. It is unknown whether such a settlement would be feasible; a possible analogy is the Kingdom of Denmark, which includes both Denmark proper (which is part of the EU) and Greenland (which is not).
Whatever approach to the EU is taken, European law will remain in force in the UK during the negotiation period and perhaps beyond. The process of reviewing the thousands of statutes and statutory instruments that implement European Directives will be a lengthy one, involving the devolved administrations of Scotland, Wales and Northern Ireland as well as the civil service at Westminster. The future of European-derived legislation will depend on government policy in the areas in question as well as the requirements of any settlement reached with the EU.
While people of the UK have made a significant decision, there will be many further decisions to be taken over the months and years to come.