The UK would be out in the cold if it left the EU

January 2013 | MARKET OUTLOOK 2013

Financier Worldwide Magazine

A leading UK Member of the European Parliament, Andrew Duff, stated in November 2012 that “those who toy with leaving should say where they want us to go”. There are only two places to go: out as in completely out, or the half-way houses of either being a country like Norway (a member of the European Economic Area (EEA), which is a Treaty relationship with the EU) or like Switzerland (a member of the European Free Trade Agreement, also a Treaty relationship with the EU). If the UK did exit the EU it might not have the choice of either of the half-way houses and so would be out, with no prospect of benefitting from future progress, such as the possible EU/US Free Trade Agreement.

For the UK to leave the EU and become a new member of the EEA is a negative for the UK. On its surface the EEA looks attractive because the UK could have all the benefits of access to the EU’s market without the hassle of the politics of the EU and no need to contribute to EU funding. However, members of the EEA arguably pay a high price for such benefits. Currently, if the UK doesn’t like an EU proposal it can and does make its view known and that view counts in influencing the debate. As an EEA member, the UK would have no meaningful voice and no vote.

For the UK to leave the EU and become a European Free Trade Association (EFTA) member is attractive, given the origin and purpose of the EFTA which was set up in 1960 as a trade bloc alternative for the ‘outer seven’ European states – one of which was the UK – who were either unable or unwilling to join the then EEC. However, the EFTA has a very limited scope and arguably the development of bilateral Free Trade Agreements, particularly in the last few years with the failure of the WTO’s Doha Round, means that the EFTA would not be a useful vehicle for the UK to obtain good free trade relations with the EU.

The trade aspect of the EU has always been a fundamental element for the UK. Almost 60 percent of all exports from the UK go to the rest of the EU, a number that has been stable for the last few years. If the UK were out of the EU it would be treated by the EU like any other member of the WTO, so on non-discriminatory terms, but no favours.

More worryingly, going forward, the EU and the US are now taking their discussions to the next stage in the possible creation of a comprehensive transatlantic trade and investment agreement. The US and the EU account for about half the world’s economic output and nearly a third of world trade. Whatever the benefits that would come out of the proposed agreement, they will not accrue to the UK if it is out of the EU. This underlines that being out of the EU can only mean being out in the cold.

Kiran Desai

Partner

Mayer Brown Europe-Brussels LLP

T: + 32 (0) 2 551 5959

E: kdesai@mayerbrown.com

www.mayerbrown.com/brussels

Kiran Desai

Mayer Brown Europe-Brussels LLP