Sovereignty and Brexit

As the European Union grew, the unanimity in decision-making increasingly gave way to qualified majority voting.  This development took away an important weapon the UK deployed to pursue its national interest.  It use often to frustrate the collectivist decision-making in Brussels and exert its will for a broad union that preserved national sovereignty.

National sovereignty is at the crux of the matter now.  This is the bedrock upon which those who want the UK to leave the EU are basing their case.   The EU rules that encroach upon nearly every aspect of business.  It threatens to become a super-state.

Even if one believes that Prime Minister Cameron identified the right reforms to safeguard the UK's interest, which not everyone does, no agreement would have or could have appeased those seeking greater independence.   Those advocating a UK exit have been making a forceful case, and the European Commission's bungling of the immigration issue provides timely fodder.

Those that favor the UK remaining in the EU could not vigorously make their case during Cameron's negotiations.   Only now will this case be articulated.    The Labour Party is a strong advocate of remaining in the EU, illustrated by Corbyn's essay in the Guardian over the weekend.   Large businesses and financial institutions also support continued EU membership.    Key traditional media outlets can also be expected to support the Prime Minister.

News that the current London Mayor Johnson will campaign for Brexit is not very surprising though Cameron made a special personal appeal.   Sterling appeared to have lost a cent against the dollar on the news.  Johnson is thought to be a potential rival to Chancellor of the Exchequer Osborne as Cameron's successor.   Before the referendum will be held, Johnson will no longer be Mayor (May 5 election in which he is not running), but a Tory backbencher.

The point of analysis is not to recapitulate one side or the other of this partisan debate, but to think through some the issues.  Here we are interested in the impact of Brexit on trade and sovereignty.  While volumes can be written about both issues, two important points often seem to be overlooked.

First, the individual members of the EU are also members of the WTO.  It is the WTO that is authoritative body on trade.  It covers primarily merchandise trade.  The UK's sizeable goods deficit is offset to a large extent by its service surplus.

EU countries will continue to enjoy access to the UK goods market under the WTO regardless of the outcome of the referendum.  On other hand, the UK's access to EU services is more suspect. Much of service trade is outside the WTO's purview, partly as a function of the failure of the Doha Round.

Second, it follows from this first point that the UK would seek to negotiate a new trade agreement with the EU.     Switzerland and Norway agreements provide precedent and those thinking that the UK outside of the EU would enjoy greater sovereignty than inside the EU may be unpleasantly surprised.

In exchange for trade concessions, Switzerland and Norway have committed to adhering to all EU single-market standards and regulation without helping to shape them.  Switzerland and Norway agree to adopt all EU laws into domestic law without consulting voters.   Both countries also contribute to the EU budget and must accept unlimited immigration from the EU.  Switzerland and Norway have a higher share of immigrant population than the UK.

A vote to leave the EU risks a political crisis in the UK.  There would likely to be a snap election as defeat of the government's position in a public referendum would appear to be tantamount to a public vote of no confidence.   Brexit would also provide the catalyst for another Scottish referendum.

Some officials, including European Council President Tusk, have warned that other countries might follow the UK strategy, precipitating a larger crisis in Europe.  The timing could not be worse.   The refugee crisis is a corrosive influence on the EU, and Merkel's leadership has been sapped.  At the same time, a Central European bloc (Poland, Hungary, Czech, and Slovakia) has emerged that is tugging in a different direction.  

A destabilized Europe adversely impacts the UK within or without the EU.   The UK is tied to Europe in ways that leaving the EU will not sever. Ironically, the UK may find it has less sovereignty if it leaves the EU than within it.  

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