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Brexit: the effects of withdrawal

2020-06-21 08:41:53

It is now part of urban history that David Cameron, when he set up the 2016 referendum refused to allow the civil service to carry out any formal contingency planning in the event of a Brexit vote, on the basis that the government's official position had been to remain in the EU.

However, what the civil service may or may not have realised is that the government had been there before, in the previous referendum. On the 14 March 1975, just short of three months before the June referendum, then Foreign Secretary, Jim Callaghan, submitted a confidential document to the Cabinet, detailing the results of a lengthy "stocktaking" his department had carried out on the EEC renegotiations that Wilson's government had just concluded.

But attached to the appraisal was a densely-typed Annex which set out the "Consequences and Implications of Withdrawal from the Community" which has just come to light, written in the name of the Foreign Secretary, presumably by one or more anonymous civil servants.

Written in the first person, Callaghan (or his civil servants) sketches out a case which is remarkably prescient and could just as easily, 40 years later, have served as a template for a report on leaving the EU after the 2016 Referendum. Cameron's civil servants could have dusted it off, and with only a few changes, resubmitted it as a fresh evaluation of the consequences of leaving.

The author (let's go with the fiction that it was Callaghan) starts off by saying that, "I cannot disguise my view that the impact of withdrawal would be much greater than if we had originally taken a decision not to enter and the consequences to the political morale of Western Europe would be extremely grave". He then goes on to sketch out the immediate effects.

Bearing in mind that this was before the Lisbon Treaty and Article 50, the stages he sets out are remarkably similar to what we have been going through and have still to come.

Following a referendum decision against membership, he writes, we should be faced with the need to: negotiate our withdrawal from the Community and the terms of our future relationship with the Community; frame new policies over a wide range of international and domestic matters; and thereafter enact legislation, both to repeal the European Communities Act and to substitute domestic legislation to give effect to the new policies, especially on such matters as agricultural support arrangements.

He then goes on to say: "All this would take time. However much contingency planning was done, there would be a protracted period of uncertainty about our future course at home and in the world". How true that has turned out to be.

As to the withdrawal negotiations (yes, there would be some), Callaghan writes that "a considerable number of complex issues would have to be settled". He adds: "The scale and difficulty of the operation could not be assessed until we could discuss the problems with the Community", noting that, "Some time would elapse before the withdrawal was completed, but we could hardly take a full part in normal Community business during that period".

With almost uncanny foresight, he then suggests that: " The Community might be reluctant to negotiate before our formal withdrawal, about permanent post-withdrawal arrangements, for example on tariffs".

"The Community's main concern", he says, would be with its own continued cohesion. There would be bound to be bitterness about our withdrawal. The withdrawal negotiation could not avoid taking on the character of a confrontation between the Community and ourselves, on different sides of the table".

One must also recall that this was written before the "completion" of the Single Market, but Callaghan notes that, "The crucial subject for the withdrawal negotiations would be the future trading relationship with the Community".

"We would badly want a free trade area", he avers, "but the necessary unanimity for this in the Community may not be forthcoming; as an industrial competitor we are in a different class from such countries as Norway".

"If the Community were to contemplate a free trade arrangement", he says. "they would probably insist on major transitional exceptions and on rules enforceable by the Community to ensure proper competition". The prudent working assumption, he suggests, "should be that agreement will not be reached on a free trade arrangement. The pre-1973 tariffs on both sides would then be restored".

"The decision to withdraw and the uncertain prospects for the future", he warns, "would give a major shock to the system". He adds:
It is a matter of judgement as to how long these effects would continue, but there is little doubt that because the business community believes that membership is greatly to our economic advantage, and because of the poor prospects for a free trade arrangement, the referendum decision would itself lead to a sharp fall in business and financial confidence. This effect would continue during the period of confusion and uncertainty about our future relationships and policies.
There could, he then suggests, "be serious short term effects on investment, depending on how long it took us to renegotiate new arrangements". Confidence effects "would also tend to depress the sterling exchange rate and make it harder to finance the UK deficit by attracting funds from abroad".

Again with some prescience, Callaghan reviews the "general consequences" of leaving, noting:
We should cease to be bound by the Treaties and by Community Secondary Legislation. Directly applicable community law would cease to have effect in this country and with the repeal of Section 2 of the European Communities Act 1972 the "Sovereignty" problem of Parliamentary control of community decisions would disappear. We should be free of the special Community arrangements, involving the Commission and the Court, for supervising and enforcing Treaty obligations.
But he says, "Our practical freedom of action would still be limited by political, military and economic realities as well as by numerous international obligations under GATT, etc affecting many areas of domestic, trade and foreign policy". And that was written more than 40 years ago. What applied then applies now in spades.

Our absence from the EEC discussions (read EU), Callaghan suggests, "could lead to a hardening of EEC positions". We should clearly not take part in political consultation among the Nine (read 27).

Our withdrawal would be regretted by the USA and by the Commonwealth, and there is no means of knowing whether we could develop our economic and political relations with either in a way which would compensate for the consequences of withdrawal. The Community (with the Germans and French in the lead) would increasingly be treated by the US and others as the spokesman for Western Europe.

Pointing directly at the pretension of the Johnson administration, he acknowledges that, "We should be free to offer preferential trade and aid, links to the Commonwealth and could seek to revitalise the political link".

But, he adds, "there is no prospect of returning to our earlier trading arrangements with the Commonwealth. Commonwealth countries, including those of the Indian sub-continent, would regret the loss of their indirect influence over Community policy which would result and the benefits to them which we have been securing. They would continue to attach major importance to the Community as a source of aid and trade benefits.

With a list of specific consequences, dealing with the Community Budget and similar matters, which could also apply today, he deals with the effects on different sectors. His take on agriculture is interesting as he observes that the consequences of withdrawal would be "particularly difficult to assess". A return to cheap world food is unlikely, he says, and if we withdrew, we should introduce our own support and import regimes.

Ironically, about the only unequivocal benefit he isolates is fishing. "It is uncertain whether we shall secure modifications of the common fisheries policy", he says, "which would compare satisfactorily with the exclusive control over home waters which we could exercise outside the Community". Plus ša change.

Overall, this remarkably prescient document should have been aired earlier. It could at least formed the basis of discussion and introduced some reality into the current debate. But, as we are finding, if we ignore our history, we are doomed to relive it.