Brexit. Brexit? – Part II

How then can the special relationship with the UK, the need to arrive at a fair, equitable and well-balanced solution which is neither a punishment, nor a reward, and the respect for the basic values, principles and interests of a European construction which will not stop with Brexit all be reconciled? How then can legitimate British interests be recognised at the same time as focusing upon our own future, that of the European Union of 27 nations?

Opinions vary and suggestions differ both for substance and form. Sharpening the rhetoric is not helpful but understandable, given the high degree of uncertainty and bafflement on all sides.

Among the diverse propositions, there is one paper that seems to be the best demonstration of how not to approach the above dilemmas and how to frustrate endeavours to achieve fair and well-balanced solutions in line with the basic principles of European integration. The paper, titled “Europe after Brexit: A proposal for a continental partnership”, known as the Bruegel paper¹ and prepared by five distinguished authors in their personal capacity, suggests the establishment of a “continental partnership”. This partnership is proposed to be based upon maintaining close economic cooperation which would allow “continued access to and participation in important parts of the single market” and at the same time would grant control over labour mobility to the UK. The paper submits that “from a purely economic viewpoint… … goods, services and capital can be freely exchanged in a deeply integrated market without free movement of workers” and the four freedoms of the European single market are “not inalienable for deep economic integration. Free movement of workers can be separated from the rest…” The paper then generously recognises that “some temporary labour mobility is needed” without specifying the extent to which this mobility would be tolerated and how control would be implemented.

The argument is wrong, even from a strictly economic perspective. Markets are either free or they are subject to control. In the latter case, any differentiation between the various factors of production leads to distortions and frustrates the purpose of the single market. More serious is, however, that the discrimination against free movement of persons would be a serious violation of the essential constitutional and political principles upon which the whole construction is built (as is implicitly acknowledged, even by the paper itself). It is to be underlined that the unity of the four freedoms is not an issue of national interest to individual member states, but an overarching principle that cannot be subject to narrow- minded bargaining. (After all, who are the ultimate winners and losers in the game of workers’ movement in the Union would be a never-ending argument.) A departure from the principles, the demolition of one of the pillars, might risk the destruction of the whole building.

The most startling argument of the paper for the acceptance of limits on free movement is that “under our proposal there is already a political ‘price’ to be paid by the UK as CP (continental partnership) entails significantly less political influence compared to EU membership”. Under this logic, it should be considered and recognised as a “concession” that a non-member of the EU, having taken a sovereign decision to leave the Union, has less political influence than a member of the Union. This argument verges on absurdity. How can one imagine that non-members, whoever they are, even if they have the closest possible association with the EU, can have the same political influence in the decision-making of the Union as its members? Isn’t this difference a natural consequence of a decision by the country in question and recognised as legitimate by the EU and its members? Do we have to pay a price by distorting the balance between the four freedoms, and by jeopardising the single market, one of the most significant achievements of the whole integration process?

At the same time, the paper contains a number of interesting ideas and valid propositions. Many of them are self-evident and do not need much argument. The EU needs Britain and Britain needs the EU at least as much, and this in itself makes a close partnership essential. Whether it is to be called a “continental partnership” is an open question: to give the name to a partnership between continental Europe and the British Isles may be somewhat misleading. The word “continental” might even be reminiscent of another continental system, the continental blockade which was not the brightest episode in the history of the relationship between the French (which then dominated the continent) and Great Britain. The best name, at least for the time being, seems to be “close partnership”.

This partnership will, indeed, have to go beyond even the most comprehensive free trade agreement and it should also include finance, energy, external economic policies and climate as well as foreign policy, security and defence. The idea that this partnership could then serve as a possible model for other non-EU members and become the building block for a future outer circle of European cooperation is premature and doubtful in view of the significant differences in the situation of has-been and – at least for the time being – would-be members.

All these suggestions do not alter the fact that the main line of the proposed solution for the eventual deal between the UK and the EU, i.e. to give away a fundamental political and economic principle, is entirely unacceptable.

It would be a fatal mistake to give up one of the fundamental freedoms created by the European integration process and thereby to put the others at risk as well. It would also be a very negative message to send to all member states and a bad signal for the future development of the Union. At stake are the basic freedoms, principles and values that are now tested by partial and perceived economic interests.

The framework of the future relationship should not only step out from the shackles of the existing “models” (while respecting, as underlined, values and principles both of the external and the internal structure), but also from the alternatives of “hard” or “soft” Brexit. These options or alternatives are now at the centre of the ongoing political debate and are largely considered as mutually exclusive paths to follow. This does not mean that decisions on some issues and on the main direction to follow are not needed. However, any premature, a priori categorisation enhances rather than alleviates political and psychological impediments. We only have to look at the history of European integration to realise that the hardest negotiations on the most important issues have always been settled by compromises. (Some say this is one of the root causes of the challenges.) After the deal is done, there will be ample time to categorise, classify, qualify and analyse. What can now be foreseen with some degree of likelihood is that the final deal will be harder than it would be according to reason and it will be softer that the present rhetoric would lead one to believe.

But what if, at the end of the day, no deal is made? For trade and much of the trade-related issues, the multilateral (in fact, universal) regulatory system of the WTO would apply, that is GATT, GATS and all the other instruments and agreements now existing in this institutional and legal framework.

Easy to say, harder to be implemented. Apart from the serious economic consequences for both sides, (affecting Britain far more heavily that the EU), the process of reanimating Britain’s WTO membership would not be a simple and rapid exercise. The UK was a founding member of GATT and is still a member in all the subsequent instruments, but since 1973 its rights and obligations have been exercised by the EC, within the framework of the common commercial policy. Since most of the entitlements and commitments are attached to the EU, they now have to be re-allocated so that the UK again becomes the individual beneficiary and obligee of the whole system, e. g. quotas, schedules etc. For the tariff schedules, the possible solution could be to take over – as a matter of fact, to uphold – the EU schedules and apply them vis-à-vis third countries. In the absence of or pending a final bilateral deal, the same tariffs would have to be introduced by both the EU and the UK at the time the UK ceases to be a member of the EU. The UK would also be free to apply lower tariffs, either on an erga omnes basis (suggestions have been made to follow the Macao or Hong Kong model), or selectively, based upon the free trade agreements it intends to negotiate and conclude as early as possible with any non-EU members. Since the EU tariff schedules contain commitments only as for the maximum level, nothing would prevent the UK from lowering or eliminating those tariffs altogether. It is to be underlined that a free trade agreement between the UK and the EU would not involve, in any way whatsoever, Britain becoming part of the customs union and it would not be bound by the common tariff or by other instruments of the common commercial policy, unless explicitly provided for in that agreement.

The legal and procedural challenge is not that Britain is prevented from free trading with the whole world, but to divide, re-allocate and renew all the obligations to which Britain has been committed through its EU membership. While the statement of WTO Director General Azevêdo, that the UK has to negotiate everything “from scratch”, seems to be somewhat exaggerated,² the mere fact that negotiations will have to be conducted with some 163 members makes it an extremely complex and burdensome operation.

As for the trade agreements the UK intends to negotiate and conclude with the “rest of the world”, it is both politically and technically inevitable that some sequencing is respected. Besides the fact that most of the important candidates for free trade agreements have already made political statements that negotiations can only be meaningfully advanced when basic issues around future UK–EU relations have been worked out, it would be legally and technically impossible to conduct any serious negotiations as long as the UK is a member of the Union and some thorny technical issues such as “country of origin” rules are not clarified. Nothing prevents Britain from proposing and even conducting exploratory conversations with any third party, but no country can enter into formal negotiations with an EU member without knowing the substantive elements of the relationship between Britain and the EU – by far its largest trading partner – once Britain ceases to be a member.

A further trade issue that will have to be tackled both in a WTO context and in the EU–UK bilateral relationship is to what extent and through what legal mechanism the free trade agreements now in force (or entering into force before the UK actually leaves) will be extended to or upheld by Britain. Hence comes the suggestion of making flanking agreements³ that are intended to tailor the contents of the given agreement to Britain and then include those separate international provisions in some way connected to the “basic” agreement. Whatever the legal solutions will be, these new international trade agreements also necessitate substantive negotiations, given that the third parties would be keen on keeping their benefits under the agreement without granting additional concessions to the exiting country.

The WTO option would be the hardest Brexit and would cause very serious damage to all parties and beyond. Everyone wants to avoid it and the reasonable expectation is that it will be prevented by the conclusion of a comprehensive free trade agreement that would be extended to a number of related areas. The new relationship would also cover – in the same or in another international treaty – other vital fields of cooperation, as referred to above.

But what happens if the parties cannot come to an agreement, neither within the two years, nor in the extended period?

As the negotiations on the withdrawal agreement and on the future relationship are legally separate from each other and cannot be conducted in the same time-frame, it is practically impossible to exclude a significant time gap between the termination of UK membership (whether or not the two years period from the notification is extended) and the entry into force of the new international treaty between the EU, its member states and the United Kingdom after it has been signed and ratified by all parliaments.

As such, there is a need to design the appropriate legal device to avoid the legal vacuum between the two dates and at least to mitigate the economic damage and political risk stemming from it. Several options may be considered. The membership of the UK could be further extended by unanimous vote, despite the fact that the withdrawal agreement has been agreed upon and negotiations have been concluded. One could simply delay or postpone the application of the withdrawal agreement until the time the treaty/ies on the new relationship enter(s) into force. This would likely entail the extension of UK membership for several years, with all manner of possible and unpredictable developments in the meantime. No one knows what would be the political reaction to those, perhaps fundamental, changes of circumstances in the various parliaments or beyond. (It is not only Wallonia or Scotland; it could very well be London or Brussels/ Strasbourg.) Another solution could be – despite the fact that the UK ceases to be a member under Article 50 – the establishment of a temporary regime with a practically identical result, namely the de facto application of the membership’s rights and obligations until the new treaty regime enters into force. The gap would be bridged in both cases, but the legal situation would not be perfect (not for the first time in the EU’s history) and the temporary or transitional might turn out to be very, very long (“ce n’est que le provisoire, qui dure”).

Even in the event of a highly unlikely smooth scenario, where the treaty on the future relationship enters into force at the same time as the UK ceases to be a member, some transitional arrangements will be inevitable. These will involve a certain degree of scheduling regarding the termination of rights and obligations accruing from membership. Some of these entitlements and liabilities will have to survive the membership itself and need to be phased out progressively, subsequent to the date of exit. The dismantling of some instruments may need additional time and, again, transitional arrangements for the application of new ones will be necessary. All these transitional arrangements or instruments forecast some degree of transitional or temporary regime for the complete dismantling of all elements of membership.⁴ These arrangements will primarily have to be included in the withdrawal arrangement itself.

Such transitional or temporary instruments may also be included in the treaty on the future relationship. It needs careful study as to where these transitional provisions are to be placed. Interestingly, the purpose of these transitional instruments is precisely the opposite of the purpose of such arrangements in an association agreement or in an accession treaty. In the case of the latter, something is being built up (construction), while with Brexit the purpose is to dismantle the construction (deconstruction). Indeed, this is a “reversed transition”, which inversely mirrors the scheduling instruments of association agreements or accession treaties.

Another possibility for eliminating the legal vacuum and bridging the gap between the date of exit and the date of entry into force of the new treaty could be the partial anticipation of the new regime by resorting to applying provisionally at least some parts of the treaty, pending the completion of all the ratification procedures.

At this point in time, the only certainty about the upcoming “divorce”, and especially what comes after, is the uncertainty. This applies to the procedure and the substantive outcome alike. New and unforeseen issues of a legal, economic and political nature will emerge in addition to the many that have been and are fervently discussed, without having a clear answer to them. Negotiators and decision-makers are facing a daunting task and the challenges for their legal experts are equally formidable.

What can be, in a situation characterised by conflicting political objectives, economic interests and divergent legal approaches and, on top of this, fraught with high-running emotions, the role of legal scholarship?

The same as usual. Identifying the issues, difficulties and pitfalls; clarifying possible consequences, analysing all relevant present and future factors (in other words, trying to predict the unpredictable) and making all possible efforts to find new inventive solutions, both for the foreseeable and for unforeseeable situations. And, first and foremost, calming down the excited minds, cutting through the negative emotional spiral and taking an objective, reasonable and well-balanced approach in order to find the most appropriate technical devices serving, after all, the fundamental common interests of all parties concerned. That is, establishing a fair and successful partnership, one that is as close as possible.

However, even if the closest ever partnership in the history of the European Communities’/Union’s external relations can be successfully brought into being, the UK will be a partner and not a member. This sounds as flat as the “Brexit is Brexit” statement, but the message is important: “the first important political consequence of Brexit has been the birth of EU 27”.⁵ In other words, all the above discussion ultimately belongs to the external relations of the Union. How these relations will have to be shaped and differentiated in the future is a question of paramount importance, but it is an external issue.

From the point of view of the future of the 27 however, it is not the external, but the internal issues that are even more important. It is the challenge of internal differentiation that has to be tackled in the years to come.

Internal differentiation has been on the table for a long time, various ideas have been proposed and discussed, and some important constitutional changes have been accepted and introduced in the treaties. (One of these specifically was the special status of the UK, recognised by a series of permanent opt-outs, starting in Maastricht, and then expanded in each treaty revision. As referred to above, the last opt-out would have been the result of the agreement with David Cameron at the February meeting of the European Council, which was eventually frustrated by the referendum.)

The UK will go, but the impact of the British exit remains and will likely enhance the demands for further differentiation. What used to be called a “two-speed Europe” (in fact, wrongly, as the permanent opt-outs went beyond the notion of “speed”) is now referred to a two- or multitier Europe with a hard core and an outer circle divided by institutionalised barriers. If these barriers became permanent, the result would be the institutional and legal fragmentation of the structure. This would be the harbinger of the demolition of the overall structure with all the economic and political consequences.

While internal differentiation is a logical and inevitable reflection of the realities, it can only be recognised within some limits and under some clear conditions. First, there must not be “Chinese walls” between the tiers; communication and circulation must be open and nothing must prevent a member state from the outer circle from stepping over (up) to the inner one. Even more important is that the various tiers should differ in the various fields of integration policies. It should be a variable geometry, with a variety of member states belonging to each tier, according to the policy area. This would in itself prevent the creation of permanent institutional structures for the different tiers, notably for the “hard core”.

Differentiation, eventual fragmentation and a multitier structure with variable geometry reflect only one of the otherwise closely interconnected aspects of Brexit’s impact upon the future of a European Union of 27 member states.

At present, the main lines of the views and propositions regarding the direction to take diametrically oppose one another. Some suggest that “the future of Europe will not be secure without big constitutional developments of a federal type”,⁶ and Brexit offers now the best opportunity – after getting rid of the British “outriders” and “drag anchors” – to go firmly along the “even closer Union“ concept. Some suggest going in a similar direction, but first to restrict this federal structure to those who are willing and able to join it, leaving aside those who cannot or do not want to follow the same path. (Some of these were hastily accepted to become members without due preparation, anyway…)⁷ Some, on the other side, suggest a complete overhaul, a fundamental re-foundation, by substantially reducing the competences conferred upon the Union to the benefit of the member states, together with a substantial revision of and amendments to the treaties. (Interestingly, both the federalist and the sovereigntists refer to the original founding principles of European integration; rightly so, as both opposing ideas have been present right from the beginning and all through the 70-year history of European integration.)

Some – like this author as well – contrary to all the other above suggestions, propose a pause, a time for reflection, while at the same time continuing to work by facing and tackling the growing risks and challenges.⁸ It is not wise to act when clouded by fear and panic, in particular when reactions to the series of overlapping crises conflict so fundamentally with one another. Compromises will be, again, inevitable but, during the pause for reflection, some basic principles could be roughly agreed upon, such as more flexibility, more selectivity (as to the direction to be taken regarding various common policies), genuine subsidiarity, respect for the treaties, restoring a fair balance between the institutions themselves, respect for national identities, full respect for equal treatment, less institutional assertiveness and less political bias, just to mention a few of those suggested principles.

The overall impact of Brexit on the European integration process, both internally and externally, goes far beyond the subject of this paper. Apart from the structural-institutional consequences, there will be significant changes in the internal economic and geopolitical landscape. It is simple to sum up these changes: a shift eastwards, materialising primarily in a growing German interest in and reliance on Central Europe. This means that the economic and geopolitical weight of Central Europe will be on the rise, which will entail a greater political role as well as more responsibility. (A geopolitical upgrading of the region started well before the referendum, due to the new security risks created by Russia.)

This might be good news for the region, but many feel that there is at least as much to be regretted. Central European countries lost an ally in various fields. Non-euro member countries will not have the strongest voice when it comes to defending the interests and rights of the non-euro area, with special regard to the initiatives to use the euro-area as the faultline for an institutional split between the hard core and those outside it. With the departure of the UK, the strongest and most committed free trade nation will no longer be there. Again, Central Europe loses an important ally in its endeavours to develop economic cooperation, trade and investments with the whole world, since its countries depend heavily on foreign trade, as is best testified by the very high ratio of exports in their GDP. While the existing UK is preparing for the role of Global Britain, champion of free trade, eliminating trade barriers with as many countries as possible, in continental Europe an ideologically diverse and strange mixture of movements, represented by unelected but very vocal NGOs are successfully working on public opinion to oppose to what they perceive as the promotion of globalisation. Free trade and the promotion of growth and employment are apparently the first targets and victims of these movements and political forces of the most diverse colours are instrumentalising the widespread frustration and anti-capitalist, anti-free market sentiments.

The UK was also a natural ally of Central Europe in defending subsidiarity and national competences against the creeping extension of common competences of some of the EU institutions. A rebalancing between member states and EU institutions, as well as between the institutions themselves, will have to be achieved in the absence of an influential, albeit sometimes excessively self- propelled member state.

The impact of Brexit upon the external relations of the EU would, of course, need a special study, with particular regard not only to the economic aspects, but also all the others, such as foreign policy, security and defence; in short, the global role of the EU. Much depends upon the development of the transatlantic relationship, the future of trade; i.e. the nature, the substance and the form of a possible instrument that may eventually take shape as the final outcome of the ongoing negotiations on what is now called the Transatlantic Trade and Investment Partnership or its substitution by a less ambitious agreement. Much depends also on the place and role of NATO in the complex geopolitical equation, where there are a number of unknown factors. Also relevant, moreover, will be how the EU reacts to the entirely changing global environment, how it can renew, at least mentally and culturally, and re-found itself by rediscovering and protecting its cultural heritage, distinct identity, special mission and the responsibilities falling upon Europe.

Brexit is Brexit, in the sense that it will certainly happen. When, how, under what conditions and circumstances, with what consequences and what impact it will have upon all of us are all uncertain. Uncertainty is bad for business, but it may generate innovative thinking and creativity. Whether this will offset the negative impact of Brexit remains to be seen.

Will others follow? Highly unlikely, but not entirely excluded. There is one group of countries, however, where leaving is, indeed, out of the question. These are precisely the “new member states”, the Central Europeans (widely called “Eastern Europeans” which is still much better than calling them “ex-Communist countries”). They are the countries which now seem to have a stronger attachment to Europe than most other member states of the Union. Despite some voices coming both from the inside and from the outside, countries such as Poland or Hungary will never leave the European Union. Contrary to what many try to suggest, the main reason is not money. There are, of course, economic, geopolitical and security policy considerations, but they are still not the most important factors. The root causes are much deeper: “it is culture that matters”. In other words, Central European nations attach much more importance to their cultural legacy, their values and way of life; in short to their collective identity. Without Christianity, many of these nations might have disappeared a little more than 1,000 years ago. Without their European identity based upon the Judeo-Christian cultural heritage, upon antiquity and its Renaissance, on Roman law and the rule of law that was built upon it, on the Enlightenment and on all the values and principles entailed by it, many of the Central European nations could not have preserved their national identity. One of the differences between “Eastern” and “Western” Europe is that while the West had internal conflicts and wars, once for 100 years and once for only 30, the East had to defend itself against attacks from the outside. Hungary, for instance, lost two thirds of its population in the 13th century because of the Tatar invasion, and had a constant war of defence against the Ottoman Empire for about 200 years. Had these Eastern Europeans definitely lost these wars, and had they had to succumb to the foreign invaders, they would have lost their European identity, and if they had lost their belonging to Europe, they would have lost their national identity as well. This is why being European and keeping this attachment has been an existential question for most of the nations of the region that we persistently try to call Central Europe – not without reasons that go beyond geography.

To sum it up, whatever will be the impact of the UK’s leaving the European Union on the United Kingdom (including Scotland, Northern Ireland, Wales and London), on the European Union and its future, on economic and political developments of the global world, Central Europe shall remain in the European Union, that is in the Centre of Europe. Its historical, geographic, economic, geopolitical and security situation is fundamentally different from that of the British Isles. We cannot afford becoming “out-riders”, and we cannot develop or accept any kind of isolation wherever, whenever and by whoever such ideas may be raised. It is the legacy of our grandparents and parents. It is about our 1000 years of history, it is about who we are.

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