UK/EU Politics: Philip Hammond Discusses the Alternatives to Europe at Chatham House, 2 March 2016
It was a wet journey that I took this morning to St James’ Square in Mayfair and I arrived at Chatham House to see UK Foreign Secretary, Mr Philip Hammond, outline the alternatives for Britain if not in the European Union. The room was full of press and television cameras with the odd Chatham House member scattered around, myself included.
In 16 weeks time, on 23rd June 2016, there will be a UK referendum on whether we want to remain in Europe, in accordance with the newly stipulated reforms proposed by David Cameron in Brussels, or leave. It will be the first time since 1975 the the UK have had a say in Europe, when over 67% of voters backed the Labour government campaign to remain in the European Economic Community (EEC)/common market (these figures obtained from the BBC; see link below).
Hammond supports Cameron in his bid to remain in a reformed Europe, despite (as one Guardian columnist in the audience rather amusingly put it), his objections to being part of it for over 80% of his career in politics. Mr Hammond’s response to this remark was that whilst he had been sceptical in the past, he feels that the UK’s position in a reformed, two tier Europe, avoiding further and closer political union, would be one of benefit to us. Mr Hammond doesn’t look at Europe in the ideological sense in which it was founded, as many do (myself included); instead, he looks at things on a more practical level: if the benefits outweigh the costs, we remain. He disagreed with the Guardian columnist’s appraisal that we would have been better off remaining in Europe irrespective of the reform package recently negotiated in Brussels. Amusingly, Hammond paid tribute to the fact (whilst smiling) that it was the first time in his memory that the Guardian has stood side by side in agreeing with the Conservative government’s agenda. (There was a little laughter in the audience at this comment and Hammond, I thought, responded well to his political volte-face in this regard).
What would happen in the initial stages of a Brexit?
Whilst the Out Campaign have considered a number of alternatives, Hammond says that there are really only 3 realistic precedents to consider. On Monday this week, the government published a paper setting out the process of what would happen in the event of a vote to leave Europe and what that process would entail.
Today, the government has published an additional paper outlining the alternatives (this will be available on the Chatham House web site later on today). One member of the audience commented that this document has been criticised as a ‘dodgy dossier’ by one of Hammond’s Cabinet Colleagues: to which Hammond responded that they have done their best to comply with the mandate set by Parliament which requires them to produce written material addressing the issue. The document, he says, is intended to fill a gap amidst ongoing discussions. It looks at the existing agreements currently in place for those countries outside of Europe who wish to have access to the European Common Market.
If we vote to leave the EU on 23rd June, there will be two year window in which to conduct negotiations; whether talks go beyond that two year window (highly likely), will be subject to an approved extension from other EU member states. During that time, the government will not be able to offer British businesses or foreign investors any assurances on the outcome. Hammond’s concerns are that we would have nothing to say to Japan, China or the United States until things were finalised and in the interim, the rest of Europe would continue to forge ahead without any moral or legal obligation to consider the best interests of their former member state. Hammond made an amusing analogy to a divorce; one thinks at the beginning that things will happen amicably but this is never the case.
Our access to the common market wold cease and new negotiations would have to be entered into. Trade Agreements that we have had for more than 50 years, as a part of the EU, would cease to be relevant to us. Leaders of other member states already feel that they have gone that extra mile for us in recent Brussels talks and would no longer feel an obligation to help us in the creation of any new agreements; on the contrary, many would look to what would work best to serve their own national interests and would start looking at a future which would capitalise on Britain no longer being part of the EU. Good will would have evaporated as a result of our decision to leave and there would be less of an interest to help us thrive outside of the EU. Furthermore, there is also the possibility that a Brexit could be contagious; not unlikely given the rise of nationalism across Europe, largely as a result of obligations which have arisen in the wake of the migrant crisis. Countries such as Poland and Hungary already have reservations and it is likely that they could consider their own referendum.
Mr Hammond disagreed with those who tried to say Europe needed us more than we needed them. According to 2014 figures, 50% of goods exported by Britain went to the EU and only 7% were imported by us from the EU.
The Alternatives
There are 3 viable precedents, according to Hammond:
- A deal similar to the one Norway has with the EU: Norway is not a member state but still has access to the single market;
- A bilateral treaty akin to the one we have with Switzerland, Canada, South Korea and Turkey;
- World Trade Organisation (WTO) and General Agreement on Tariffs and Trade (GATT).
Option 1
Let us look at the first option. Norway, Iceland and Liechtenstein are a member of the European Economic Area (EEA) but not member of the European Union.
The rights they have in terms of trade are similar to those accorded to European Union member states but they are outside the Customs Union, which means they face tariffs. Norway still pay a price to benefit from trade associations with Europe but not being a member state, they have no say when it comes to taking part in EU talks. They pay roughly the same per person to have an association with Europe that those in the UK do, without having a parallel voice. They still have to take in migrants and those migrants still have the same access to benefits that they have across Europe. Hammond cited figures that showed Norway as having a greater number of migrants than the UK and we are a member state. If we as a country want to exit Europe in order to have greater sovereignty and more say, Hammond believes that Norway, who have no say, is not the model for us.
Option 2
A Bilateral Agreement. Hammond cites the Swiss model. They have over 100 agreements which took two decades to formulate. They experience barriers for agriculture and services. Despite not being an EU member state, they are still bound by the EU regulations for the free movement of people.
Turkey expressed an interest in joining Europe in 1995. Whilst, through a Bilateral Agreement, they have full access to our markets in terms of industrial and processed agricultural goods, there is no access for raw agricultural products or services. In the agreement facilitating their access to the European Common Market, it is Turkey who has to adhere to European regulations; not the other way around. Hammond pointed out that historically, the larger party has always come out on top in trade agreements. Additionally, Turkey doesn’t participate in policing and criminal justice matters or issues of security and as a non member state, they presently have no say in the decision making process.
The EU and Canada have been working on a Trade Agreement for 7 years. This Agreement has now reached completion but has still not been passed by the Canadian Parliament. Canada do have market access without having to pay into the EU budget and adhere to the free movement of people but they are geographically isolated from Europe, so it is not really relevant to them. There is still a global moral responsibility to help refugees. Under this new Agreement, Canada, like Turkey, will only have tariff free access if they adhere to EU regulations. Financial services wouldn’t be able to be supplied by Canada directly; they would have to set up subsidiaries within the country concerned. According to the government web site, the UK is Canada’s second biggest world trading partner after the US. (See link below).
Hammond doesn’t believe that any of these scenarios are as good for the UK as the ones that we have now, in a reformed Europe. The process of trade agreements and regeneration would take many years and during that period, many UK businesses would be squeezed out of the market as a result of the prevailing uncertainty during the process of the negotiations.
The UK already has Agreements with many of the former Commonwealth countries and none of those countries, Canada or America for example, want us to leave Europe. The only country that does support a UK exit/Brexit is Russia and that, undoubtedly, is for its own personal gain and has nothing to do with our own best interests.
Option 3
A World Trade Agreement. We could sell into the single global market but at a price. There would be tariffs. Hammond cites the following figures as an example: 10% on cars, 30% confectionary and 36% on dairy. Exports would cost the UK more as a result of these tariffs and it would make us less competitive in the global arena. Jobs would be lost as a result. Furthermore, imports would cost the UK more and prices would rise in the retail sector. With a World Trade Agreement, the UK would be unable to differentiate in favour of individual countries, i.e. Ireland, for example. If more favourable terms were to be offered to Ireland to encourage trade, those same terms would have to be offered to the other 160 countries of the World Trade Organisation. The UK services sector would become a smaller fish in a bigger sea. There would be more people bidding for service contracts within the UK at more competitive rates, thereby resulting in an even greater number of lobs lost.
Thoughts on the Above
Hammond doesn’t see any of the above options as ones that are any better than the option we have now; to remain in a reformed Europe. He considers we have a deal in which we have the best of both worlds: all the benefits of tariff free trade without having to adopt the euro, become part of Schengen and become even more ‘politically unified’. As a result of the recent negotiations, the United Kingdom has negotiated a special status within Europe.
Norway is subject to European regulations and they still have to contribute financially to Europe. They are also obliged to observe the principles of freedom of movement in Europe in order to gain access to the common market and yet, they have no say. To Hammond this position outside Europe seems like one that has less sovereignty, not more. A member of the audience referred to Norwegian model as more of a ‘Norwegian Dilemma’; in that many of their politicians would like to be part of Europe but the electorate do not.
Hammond’s belief is that we will be stronger, safer and better off remaining in Europe (the reformed Europe that is). Whilst the UK is in Europe, we form part of the largest trading block in the world; if we were to exit, Europe would then become second to the USA. At present, the European Common Market represents 25% of the world’s GDP. Hammond feels that we would be stronger, in terms of our defences against organised crime and terrorism and finally, he feels that we would be better off having continued access to the market of 500 million consumers within the European Union.
The position that we are now in, after recent negotiations, is that we will remain outside the euro but inside the European Union and we will remain outside Schengen. We will also have opt outs in accordance with Home Office and Justice affairs. We have managed to make changes to child benefits exported from the UK and have index linked them to the country in question: this means that if Polish worker, for example, were working in the UK and paying tax and national insurance, he/she would be entitled to the same benefits as a UK national. However, with the recent changes, if the family of the said worker were living in Poland, let us say, and not the UK; then the amount of benefits paid out to the family living outside the UK would fall into line with the economy of that country and would not be exported at UK rates. Finally, we have an opt out for an ever closer ‘political union’ within the EU, thereby forming part of a peripheral Europe, so to speak, or an outer circle. What is a ‘political union’ you might ask? Hammond refers to this as a number of countries within Europe that are prepared to give up their national sovereignty in an effort to foster closer political ties within Europe. It is not, he believes, in our interests to do this. Rather, he points out, if we vote to remain, he would like to see us use the opportunity to express our views more than we have in the last 20 years. He would like Britain to express their views on things that matter: jobs, growth and standards of living. Hammond would like to see a greater number of high level British civil servants operating in Brussels, shaping debates and protecting our national interests. Being in Europe does not necessarily mean being subservient to them; on the contrary, remaining inside allows us greater contribution.
With respect to adhering to the sovereignty of the decisions made by the European Court of Justice, Mr Hammond has no problem with this; in fact, he stated, the UK has won the majority of cases it has brought before the ECJ.
As the second biggest economy in the EU, Mr Hammond is hopeful that we can increase our voice and be more engaged without having to seek closer political union. If we remain, we can shape the agreements; if we leave, like Norway, we cannot. Of course the United Kingdom is a bigger country than Norway and there are those who would suggest that as a result, we would have greater clout in exit negotiations. However, this is unprecedented and having extricated ourselves from the Union, particularly at a time of such global turmoil, the remaining member states would be highly likely to be void of amicable good will. These 27 remaining countries would, understandably, be more interested in looking at the advantages that a UK exit could bring to them and would look to capitalise on this rather than make things easier for us.
One question that arose, not from a journalist but from a Chatham House member, was the issue of migration. He had concerns that once a migrant was settled in Germany and once they had been given a German passport, this would mean they had access to the UK and would add to the UK’s present intake of migrants in the long term. Hammond’s response to this was that German passports take a long time to obtain and the process is a difficult one. Just over 2%, he said, of the foreign nationals that have come into Germany have obtained passports. (I did not get the timescale for these figures).
When it comes to the question of the nationals of other European member states residing in the UK, Hammond pointed out that there are 2 million British citizens residing in the EU, (the largest percentage of which are in Spain). Whilst we consider those who come to us, we should not forget our own nationals who have sought the sunnier climes of Europe. What then would happen to them?
When the current polls were put to Hammond as roughly half and half for those in favour of leaving and those not, Hammond said that he was not worried. Most people, he said, would become engaged and make their decision nearer to the time and there was still 4 months to go. The first phase, as far as Hammond is concerned, is to feed the thirst for information; it is for the public to interpret that information one way or another.
I am sitting in the library at Chatham House around a round, wonky table writing this. There are four others present; the oldest and most distinguished of whom is reading French economist Thomas Piketty’s ‘Capital in the 21st Century’, (I always look at what a person is reading if I can). The table, he says, is a ‘symbol of an unstable world’. And so it is.
A video link to Hammond’s talk this morning and accompanying transcript can be found on the Chatham House web site on the following link:
https://www.chathamhouse.org/event/what-do-alternatives-eu-membership-look
Sources:
1975 EEC Referendum in the UK:
http://news.bbc.co.uk/onthisday/hi/dates/stories/june/6/newsid_2499000/2499297.stm
Government web site listing a variety of Bilateral Trade Agreements, including one with the UK and Canada that has taken 7 years to complete:
https://www.gov.uk/guidance/uk-bilateral-trade-relations-business-opportunities
