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

UK political elite used poverty & immigration fears to secure leave vote

The bulk of UK Leave voters come from disadvantaged areas, and perceive immigration as a threat. But significant exceptions to this trend in England and most importantly in Scotland make it hard to draw a simple causal link between wealth, immigration, and voting patterns.

By: Emmanuel Mourlon-Druol Topic: European Macroeconomics & Governance Date: June 29, 2016
Read article More on this topic More by this author

Blog Post

Guntram B. Wolff

Markets and broken promises in the UK referendum

After four days of violent market reactions to the prospects of Brexit, markets have paused and gained in strength slightly. Why has that happened?

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: June 29, 2016
Read article More on this topic More by this author

Blog Post

Schoenmaker pic

Losing “EU passport” would damage City of London

If the UK cannot secure a “Norway” deal and stay within the internal market, the UK will lose the passporting rights which make London attractive as a financial centre. The macroeconomic fall-out from Brexit has also damaged the performance of banks and insurers.

By: Dirk Schoenmaker Topic: Finance & Financial Regulation Date: June 28, 2016
Read article More on this topic More by this author

Blog Post

Scott Marcus

Mobile roaming, Brexit, and unintended consequences

The intermediate and long-term consequences of the UK “Brexit” referendum of 23 June 2016 are numerous and far-reaching. There has been much discussion of the impact on financial services, but very little to date on the likely implications for telecommunications regulation.

By: J. Scott Marcus Topic: Innovation & Competition Policy Date: June 28, 2016
Read article More on this topic More by this author

Blog Post

MariaDemertzis1 bw

Bank shares take a hard hit following Brexit

In the past five days a number of banks have seen their stock value decline by large amounts.

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: June 28, 2016
Read article More on this topic More by this author

Blog Post

Guntram B. Wolff

Six lessons about “real” people, Brexit, and the EU

The result of the UK referendum on 23 June has been portrayed as a victory for "real people". But what consequences will the result have, and how should the UK and EU now react?

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: June 27, 2016
Read article More on this topic More by this author

Blog Post

Nataraj_Geethanjali_Profile-Picture1

Can the EU-India Free Trade Agreement be revived?

India and the EU must adopt a flexible approach, and iron out differences on crucial issues, to ensure that the India-EU FTA becomes a reality.

By: Geethanjali Nataraj Topic: Global Economics & Governance Date: June 27, 2016
Read about event More on this topic

Past Event

Past Event

Britain and the EU after the referendum

The UK's referendum on its EU membership was a critical moment for Britain and Europe. The days after the leave victory brought confusion and political chaos. But there was also an opportunity to reflect on what has happened, what has changed, and how all parties might move forward.

Speakers: Maria Demertzis, André Sapir, Bernadette Ségol, Philipp Steinberg, Glenn Vaughan, James Watson and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 27, 2016
Read article More on this topic More by this author

Blog Post

Nicolas Véron

The UK / EU separation: how fast does it happen?

Up until the British rebuff on 23 June 2016, the European Union had always been in expansion mode, also known in EU parlance as enlargement. The UK vote to leave the EU marks the first-ever case of this process being reversed.

By: Nicolas Véron Topic: European Macroeconomics & Governance Date: June 25, 2016
Read article More on this topic More by this author

Blog Post

MariaDemertzis1 bw

Initial market reactions to Brexit

Initial market reactions to Brexit

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: June 24, 2016
Read article More on this topic More by this author

Podcast

Podcast

Brexit: what happens next

On 23 June, the UK voted to leave the European Union. What will the UK’s new relationship with the EU look like?

By: Bruegel Topic: European Macroeconomics & Governance Date: June 24, 2016
Read article More on this topic More by this author

Blog Post

Uuriintuya Batsaikhan

The day after Brexit: what do we know?

With the UK referendum on EU membership on 23 June, Europe is contemplating the practical consequences of a vote to leave.

By: Uuriintuya Batsaikhan Topic: European Macroeconomics & Governance Date: June 22, 2016
Load more posts