Opinion

The UK’s sovereignty myth

Those who argue that Brexit would let the UK “take back sovereignty” overlook the impact of trade on domestic law-making.

By: and Date: March 17, 2016 European Macroeconomics & Governance Tags & Topics

This op-ed has been published in KathimeriniPúblicoDie ZeitFinans, Nikkei Veritas, Nikkei  Asian Review. L’OpinionHospodarkse Noviny and Il Sole 24 Ore, Dienas Bizness and El Economista.

Kathemerini

Publico

Die_Zeit-Logo-Bremen.svg

Finans (Denmark)

nikkei

nikkei

HOSPODARSKE_NOVINY_logo

Il Sole logo

el economista logo

Dienas Bizness logo

 

Even if the UK leaves the EU, it will continue to be subject to EU regulations as long as it trades with European countries, as the products or services it exports would have to meet EU rules.

It would still belong to geographical Europe, and remain highly connected with the continent. Cutting trade ties altogether is not an option.

Trade with the European single market is crucial to the UK’s economic prosperity. 52% of the UK’s trade in goods is with other European single market countries, and 42% of trade in services. Even 30% of trade in financial services is with the EU.

This means that if there is a Brexit, the UK will still need to trade with the remainder of the European single market, which is currently made up of the 28 EU countries and four members of the European Free Trade Association (EFTA).

The benefits of the single market go well beyond standard trade agreements, which focus on reducing tariffs. At its core, the European single market project is about non-tariff barriers to trade, relating to standards and the application and interpretation of rules. These standards apply not only to products, but regulation on workers’ rights and health and safety.

Countries like Norway, Switzerland, Iceland and Liechtenstein, which are not in the EU but are part of the European Free Trade Association, find it crucial for their economic prosperity to belong to the same market, as over 50 percent of their total trade is with the EU. They agree to apply EU rules and usually accept the jurisdiction of the European Court of Justice.

Membership of the European single market offers economic benefits, but it comes with a cost for the four EFTA countries: the rules of the single market are decided by EU members alone. The EU shares its single market with these countries, but the decision about rules requires approval by the European Council of Ministers and the European Parliament.

Non-EU countries have no say in that process. True, there is a difference between Norway, Iceland and Liechtenstein on the one hand and Switzerland on the other. The former accept all the EU Single Market rules, whereas Switzerland only accepts EU rules in some domains and negotiates bilateral agreements with the EU in others.

But the fact remains that the four EFTA countries are highly dependent on the EU single market because of geography. In reality, staying outside the EU gives them little or no autonomy in shaping its rules.

The UK is, of course, a bigger and more influential country and would likely have greater leverage in negotiations than the EFTA four. The question is whether that influence would be bigger inside or outside the EU.

At the moment, being an EU member, the United Kingdom is a full participant in drafting EU single market rules that apply to the entire single market.

It is not just one among 28 participants: with the EU Commissioner for financial services, the UK holds a key position in the decision-making process in an area of vital interest. More generally, the UK is second only to Germany in terms of top-ranking positions in Brussels.

And while UK influence in the European Parliament has somewhat declined, especially since the withdrawal of the Conservative party from the European People’s Party (EPP), the UK still has significant clout.

Leaving the EU also would mean that the UK would have to negotiate bilateral trade deals with all the EU’s preferential partners (perhaps soon including Japan and the United States) if it wants to keep the same market access to these countries as it currently enjoys.

Negotiating such trade agreements is a long affair. Since the turn of the millennium, the average time taken to conclude a trade agreement was 3.5 years in the U.S., 5.6 years in Canada and almost 7 years for the EU. Certainly, trade would suffer in that period.

In short, being a member of the EU gives the UK strong influence and the ability to exercise sovereignty at EU level. If it left the EU, the UK would face a choice between negotiating with the EU and the rest of the world about the terms of the trade agreements, or turning towards isolation.

Isolation might mean “sovereignty” in some sense, but it would come at a high cost for a traditionally open economy like the UK. Continuing to trade with countries in Europe and elsewhere would require lengthy negotiations. Compromises in terms of regulation and product standards would be inevitable. Some would view this again as a loss of sovereignty.

Ultimately, pooling sovereignty by being a member of the EU is the best way to shape trade, inside and outside Europe, according to UK interests. It is simply a myth that leaving the EU would give back sovereignty in a meaningful way.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read article More on this topic More by this author

Blog Post

Emmanuel Mourlon-Druol

Brexit debate ignores UK's privileged position in Europe

The UK enjoys opt-outs from many EU policies, without its influence in the EU being diminished. But the UK’s privileged position in the EU has been neglected in the referendum debate, which has been caught up in statistics about the material costs and benefits of the EU.

By: Emmanuel Mourlon-Druol Topic: European Macroeconomics & Governance Date: May 31, 2016
Read article More on this topic More by this author

Blog Post

Guntram B. Wolff

The three dangers of Brexit

Guntram Wolff looks at the economic and geopolitical consequences if the "leave" vote wins the Brexit referendum on 23 June.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: May 30, 2016
Read article More on this topic

Blog Post

Uuriintuya Batsaikhan
Pia Hüttl

The benefits and drawbacks of TTIP

What’s at stake: Since the recent leak of documents on TTIP (Transatlantic Trade and Investment Partnership) negotiations, there has been renewed interest in the trade deal. This blog review looks at studies on the estimated impacts of TTIP on growth, labour markets and social conditions. We also summarise its impact on countries outside the deal, and look at the debates surrounding its counterpart, the TPP (Trans-Pacific Partnership).

By: Uuriintuya Batsaikhan and Pia Hüttl Topic: Global Economics & Governance Date: May 23, 2016
Read about event More on this topic

Upcoming Event

Jun
27
08:30

Britain and the EU after the referendum

No matter the result, the UK's referendum on EU membership will be an important moment for Britain and Europe. The days after the result will offer an opportunity to reflect on what has happened, and what has changed.

Speakers: Sylvie Goulard, André Sapir, Philipp Steinberg and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic

Blog Post

Pia Hüttl
jaume

Northern Ireland and EU funds

EU funding for the UK has risen considerably since 2000, but funding predominantly goes to rural and less developed areas, meaning that Northern Ireland, Scotland and Wales receive more funding relative to their GDP than England.

By: Pia Hüttl and Jaume Martí Romero Topic: European Macroeconomics & Governance Date: May 3, 2016
Read about event More on this topic

Past Event

Past Event

Will China's slowdown bring headwinds or opportunities for Europe and Central Asia?

After years of rapid growth, China's GDP is expanding more slowly. There are fears about the global impact, but could there also be opportunities for Europe and Central Asia?

Speakers: Maurizio Bussolo, André Sapir and Jianwei Xu Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 29, 2016
Read article More on this topic More by this author

Blog Post

Jérémie Cohen-Setton

Understanding HM Treasury’s Brexit analysis

What’s at stake: The UK will hold a referendum on its membership of the EU on June 23rd 2016. Her Majesty’s Treasury released an assessment of the impact of Brexit finding that the economy would be between 3 and 7% smaller in 2030 if the UK left the EU than it would be if it stayed in.

By: Jérémie Cohen-Setton Topic: European Macroeconomics & Governance Date: April 25, 2016
Read article More on this topic More by this author

Blog Post

Jérémie Cohen-Setton

Trade deficits and jobs at the ZLB

What’s at stake: In the populist narrative against globalization, trade deficits are seen as costing jobs. While this mercantilist view of the world is hard to square in normal times, a number of authors have suggested that the intellectual basis for that view is stronger in a liquidity trap.

By: Jérémie Cohen-Setton Topic: Global Economics & Governance Date: April 4, 2016
Read article More on this topic More by this author

Blog Post

Marek Dabrowski

EU Association Agreement could help Ukraine to reform

Ukraine’s closer ties with the EU have been controversial. The Association Agreement is now facing a referendum in the Netherlands. But what exactly is in the agreement, and what could it mean in practice?

By: Marek Dabrowski Topic: European Macroeconomics & Governance Date: March 16, 2016
Read article More on this topic

Blog Post

Pia Hüttl
Silvia Merler

Brexit endangers London’s status as a financial hub

The UK’s competitive edge in financial services is substantial and would be difficult to dislodge. But Brexit could damage London’s attractiveness as the centre of European banking, as an entry point to the EU and as a global financial hub. FDI is also at risk.

By: Pia Hüttl and Silvia Merler Topic: Finance & Financial Regulation Date: March 10, 2016
Read article More on this topic More by this author

Blog Post

Marek Dabrowski

Brexit and the EU-UK deal: consequences for the EU

The debate on Brexit focuses on the economic and political consequences for the United Kingdom, but ignores the impact of the new EU-UK agreement on the EU. Regardless of the referendum result, the agreement will have serious consequences and will negatively affect prospects for European integration.

By: Marek Dabrowski Topic: European Macroeconomics & Governance Date: March 9, 2016
Read article Download PDF

Policy Contribution

The United States dominates global investment banking: does it matter for Europe?

The United States dominates global investment banking: does it matter for Europe?

Europe’s banks are in retreat from playing a global investment banking role, and this trend is likely to continue in the future. What will be the consequences and what should be the policy response?

By: Charles Goodhart and Dirk Schoenmaker Topic: Finance & Financial Regulation, Global Economics & Governance Date: March 7, 2016
Load more posts