What a British divorce from the EU would look like

How any break-up is carried out will affect Britain for generations
© Jonathan McHugh

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Just like the end of a long and fraught marriage, before the divorce comes the tricky separation.

After Britain’s vote to leave the EU, the closing scenes of the 40-year partnership could probably see the UK prime minister sitting in an office, waiting for answers in the dead of night.

Along the corridor of Brussels’ European Council building, the remaining 27 EU leaders would be deliberating and voting on the UK’s exit deal, a pact touching on almost every aspect of modern British life, from the price of milk to the freedom to work elsewhere in Europe. While leaving the EU is Britain’s choice, the UK cannot dictate the exit terms.

“You become very lonely at that point, once you’re out of the decision making,” said Michel Petite, former head of the European Commission legal service. “Voting is the hard core of EU membership, the red line. You are leaving the club.”

How this complex divorce is negotiated and carried out will have a decisive impact on Britain’s economy and its place in the world for generations. It could lead to an orderly transition or a much more unpredictable process, buffeted by political pressure, volatile markets and the clash of national interests.

What future relationship will the UK seek? How will the EU react? And when exactly will the exit terms become clear? 

The mechanics of divorce will determine whether breaking up with the union proves disruptive, risky or rewarding.

The break-up

Leaving the EU is a daunting challenge with no clear precedent. Brexit would unwind economic relations of “incomparable complexity and depth”, according to Stephen Weatherill, professor of law at Oxford university. He argues it would be more legally complicated than decolonisation or the break-up of sovereign countries in the past.

The negotiation would not just concern divorce, the technical parting of ways and the settling of old bills. It would also have to re-engineer the world’s biggest single market, setting new terms of access and legislating to “renationalise” volumes of law rooted in the EU. 

Soon after Britain joined the EU in the 1973, the late English judge Alfred Denning compared the legal consequences to “an incoming tide” that “flows into the estuaries and up the rivers”. 

Four decades on, House of Commons research has estimated that EU-related law makes up at least a sixth of the UK statute book. That excludes 12,295 EU regulations with direct effect — hundreds of thousands of pages of law, on everything from bank and consumer rules to food standards, which cease to apply the moment Britain leaves.

Britain will also have to renegotiate or reconfirm a web of EU-negotiated free trade deals with dozens of countries that anchor the UK in world commerce but are not automatically inherited if it leaves.

Such a mammoth exercise has advantages: a cleansing of bad law, a better tailoring of trade to UK interests. Yet as an administrative venture it would be “absolutely all-consuming”, said Andrew Turnbull, the former head of the UK civil service. “The job is vast.”

Volatility

David Cameron has announced his resignation as UK prime minister after his shattering referendum defeat and would-be successors such as Boris Johnson, the former mayor of London, are already positioning to replace him by October. The pound has fallen to its lowest level against the dollar in over 30 years.

Drawn-out divorce talks could be interrupted by elections, or even a second independence referendum for Scotland, whose first minister, Nicola Sturgeon, has made clear her desire to remain in the bloc. All the time, the EU would be coping with the biggest political upheaval since its inception.

“I worry most not about the technicalities but about the destructive forces that this could unleash, not just in the UK but across the continent,” said John Bruton, the former Irish premier, earlier this year. “It is the potential undoing of 70 years of statesmanship.”

To prevent the bloc from unravelling, EU countries may seek to punish Britain, so others dare not follow its exit path. “They would try to make it as painful as possible, be it financially painful or politically painful,” said Gordon Bajnai, a former Hungarian prime minister. “The UK would face a hostile Europe.”

Pro-leave politicians liken such predictions of doom to past warnings over Britain’s rejection of the euro, which did not pan out. Immediately after the referendum, Britain’s rights and obligations remain the same, as does the rule book for business. Champions of Brexit say all sides — from London to Brussels to Berlin — would have the incentive to agree a smooth transition.

“We are not revolutionaries wanting to overnight rip up every directive. We want more trade, not less trade,” said John Redwood, the veteran Tory MP and Eurosceptic. “We are Britain, the fifth-largest economy in the world. I’m more positive about our partners. Most of them will be perfectly sensible and reasonable.”

The rule book

Lawyers are divided on the ground rules for the divorce. There is a so-called “exit clause” in the EU treaties — Article 50 — but it has gaps and is unclear. Brussels insiders joke it was “designed never to be used”.

It sets arrangements for withdrawal, rather than a future trade relationship. That is a distinction that will matter a great deal.

Article 50 sets departing countries a two-year deadline to agree terms with a weighted majority of remaining EU states. But a comprehensive EU-UK trade deal would require unanimity and national ratification — giving parliaments a veto all the way down to the assembly for the 76,000 strong German-speaking community of Belgium.

Nor is that the only way Britain could fall foul of national vetoes. Extending talks beyond two years requires unanimity. Lawyers say that factor could encourage Britain to hold informal negotiations — for instance to agree broad goals with the EU — before formally triggering Article 50.

“People talk about the EU as if it were a monolith,” said Mr Weatherill. “In fact the UK will be negotiating with the commission, with 27 member states, with the European Parliament, national parliaments, with their electorates. There are a lot of veto players here. They’ll be herding cats to get these actors to agree.”

Karel De Gucht, the former EU trade commissioner, predicted this year that the process would be “dangerous and difficult”. While he considered it feasible for negotiations to be completed in two years, others are much less sure.

The two-year deadline also raises the small but potentially ruinous risk of disorderly, overnight withdrawal, which is a particular concern for business. “How do we tell our chief executive to ignore that while planning?” said one regulatory chief at a top European bank.

Trade and immigration

Britain still needs to appraise its priorities in the wake of the referendum’s vote to leave to work out what the result actually meant.

This is be no easy task. There are various models offering options for countries outside the EU, from Switzerland’s à-la-carte approach to Canada’s draft free trade deal. But senior officials in London and Brussels see them as imperfect guides for a unique British situation.

One of the first questions will be about customs. Will Britain maintain its single tariff-free area with the EU? Or would it want more power to set trade terms with Europe and the world? 

David Edward, a former EU judge, said: “It comes down to this: will we erect customs and border posts on the Irish border?” It is a choice with potentially serious implications for Northern Ireland’s fragile peace.

The next layer of questions relates to the rules co-ordinating market access for business and labour. The deeper the ties, the more the EU would expect Britain to abide by the four basic principles of the single market: the free flow of people, capital, services and goods. 

Finally there is the sensitive matter of sovereignty, the bugbear of British Eurosceptics for decades. Whose courts are supreme, and whose institutions act as policemen to ensure common rules are enforced?

Pro-leave politicians such Michael Gove, the UK justice secretary, suggest it would be bizarre for the EU to damage trade with Britain, its biggest export partner. But the EU has also increasingly demanded subservience and conformity from smaller external partners, such as Norway or Switzerland.

“The basic deal is this: you have access in return for swallowing the acquis, and swallowing it when it changes in the future,” said Mr Petite, in reference to the EU’s accumulated body of laws. “If you don’t, you’re either out or face sanctions putting access to the market in doubt.”

Even after a trade deal, a long transition may follow. Senior EU and British officials expect a divorce could take a decade in total. Few expect the negotiations to be calm, or untroubled.

“How do you basically cut off the continent? You can’t do it overnight,” said Alex Stubb, Finland’s former finance minister. “It will take a long time, a lot of instability, market mayhem, legal interpretation, a lot of court cases.”

This piece, originally published in February, was updated after the result of Britain’s EU referendum

Options for the UK

Norwegian model
As a European Economic Area country, Norway is part of the EU single market, pays budget contributions and accepts free movement rules. It has independence over fisheries and farming policy but is otherwise closely aligned with EU regulations. Norway adopts EU single-market laws without much power to influence them. It can negotiate its own trade deals, subject to restrictions on what can be sold on to the EU. It accepts rulings of an EEA court which often follows decisions by the European Court of Justice. 

Swiss model
Switzerland negotiates access to the single market, sector by sector. Instead of following Norway’s EEA model, Switzerland agreed a thicket of bilateral trade accords with the EU over the past 30 years. While it accepts free movement and pays some fees towards the EU, its courts are largely not bound by EU rulings. But the model is in trouble and the EU would be loath to offer a similar framework to the UK. The bloc threatened to cut off market access after Switzerland prepared to cap EU immigration and it is pressing the Swiss to accept the supremacy of EU courts.

Turkish model
Turkey is part of the EU’s customs union. Its external tariff is set by the EU and Turkish exports to the EU are tariff free, giving Ankara access to the bloc’s single market for goods. But the deal excludes areas such as services, agriculture and public procurement. Under such an accord, Britain would also lose trade sovereignty. It would not influence or directly benefit from free trade deals between the bloc and countries such as South Korea — but it would have to accept South Korean access to its market nonetheless.

Canadian model
The EU’s trade deal with Canada is its most ambitious. Its attempt to reduce regulatory barriers could serve as a model for an even more comprehensive accord with the UK. But the adoption of the draft deal is mired in politics. The agreement gradually eliminates tariffs on all industrial and most agricultural products. It smooths out regulatory barriers, but financial services are excluded. A free trade deal with Britain would be deeper, but for that reason the EU would probably demand more oversight (through courts or enforcement bodies) and co-ordination (which could make the UK subject to future changes).

WTO option
If the UK were unable to negotiate a free-trade agreement with the EU, it could do business with the bloc on the basis of the world’s international trade regime, as do countries such as New Zealand. Such a deal would protect goods from punitive rates and cover the vast majority of exports by value. Tariffs are low in most sectors but there are exceptions, such as car parts, one of the UK’s leading manufacture exports, and agriculture. Pro-leave campaigners say the overall cost would be lower than Britain’s EU membership fees. Other remaining barriers to trade would be more damaging, including regulatory barriers on financial services.

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