This blog post is the first in an on-going series of blogs and articles by Dashboard Insights on the implications to the automotive industry of the June 23, 2016 referendum decision in the United Kingdom (“UK”) to exit the European Union (“EU”). This first blog will reprise briefly developments leading to the Brexit vote, the process that now appears likely to unfold and the implications as the UK changes its relationship with the EU. Suffice to say, there has long been growing political, social, cultural and economic restiveness in the UK about EU policies, rules and membership obligations culminating in the vote to “leave” (despite a more than 20 year battle leading to the UK’s joining the EU in 1973).
While the majority vote to leave was very, very narrow and while many voters explained their vote to “exit” as simply “sending a message” of their generalized dissatisfaction with the status quo, the message has been received with significant and widely-reported fall out. The consequences are already being felt across the board exemplified by the plunging value of the UK pound, the uncertain future of non-UK EU nationals working in Britain or through the decisions (whether fundamental, incremental, explicit or unknowing) being made as each day since the Brexit vote passes by business to change strategies and priorities. All these consequences will have costs, whether for better or worse.
Assuming that the UK does not suddenly wake up from what has becomingly widely viewed as a very bad dream, the near term problem/challenge in the UK and in the EU as a whole is uncertainty. The UK and the EU must, like it or not, negotiate the UK’s terms of exit and of its future relationship with the EU pursuant to the increasingly famous Article 50 of the 2009 Treaty of Lisbon. Until the “exit,” the UK will remain a member and, theoretically, benefit from and be subject to all of the elements of its current EU member status. However, for example, even if regulatory structures (e.g., direct application of EU law in the UK, competition policy, tariffs/trade and free movement of goods), social policies (e.g. free movement of people) and frameworks in negotiation (e.g., the unitary patent system) remain in place for the present there will be, at a minimum, increasing divergence as people, enterprises and countries adjust their respective strategies to the new reality. Whatever the outcome of the exit negotiations and what form the new relationship between the EU and the UK may take (e.g., the so-called Norway or European Economic Area (“EEA”) model in which some (but not all) of existing benefits/obligations would remain the same, there are likely to be many changes in the relationship, some with consequences that the UK will have to endure for its newly-gained “independence.”
This exit negotiation will not be short and sweet.
It will likely be characterized by increased bitterness, frustration, cynicism and self-interest. If not “death by a thousand cuts,” the outcome for the EU, for the UK and for their international partners will almost surely be less stable, less efficient, more costly and less secure in overall political, economic and security terms.
The Historical Context: “Four Freedoms,” Shared Destinies and Increased Integration
Before assessing what lies ahead, it is useful to step back and remember a few basic principles. The EU evolved directly from the ashes of two great wars in the 20th century in which millions of combatants were killed and literally tens of millions of people were liquidated. These two wars had roots in countless centuries of war, conflict, suspicion, prejudice and isolation (political, economic and cultural).
Starting in 1951, a treaty known as the European Coal and Steel Treaty was signed by 6 previously warring countries (France, Germany, Italy, Belgium, the Netherlands and Luxembourg). The preamble to the treaty made clear that the signatory nations that resolved:
Following from that beginning based on those shared aspirations, there followed the European Atomic Energy Treaty in 1957, the European Economic Treaty in the same year (the “Rome Treaty”), the Single European Act in 1986, the Treaty on European Union in 1993, the Treaty of Amsterdam, the Treaty of Nice and the Treaty of Lisbon most recently in 2009.
The Rome Treaty sought to assign some tasks to the emerging community. Article 2 of the Rome Treaty states that, by establishing a common market and progressively approximating the economic policies of the members states, the Community will promote: 1) harmonious development of economic activities; 2) a continuous and balanced membership expansion; 3) an increase in stability; 4) an accelerated raising of the standard of living; and 5) closer relations between member states.
To achieve these goals, Article 3 of the Treaty directs that the activities of the community shall include:
That process of integration enshrined four so-called essential “freedoms:” the free movement of people, goods, services and capital. These “four freedoms” produced a community of almost 500 million people who have now lived for over 75 years in peace with their neighbors and who have witnessed the development of one of the world’s most vibrant economies that sprang from the ashes of bombed and decimated communities. It is against this historic background that the June 23 Brexit decision must be judged.
It should be evident that the majority of UK voters favoring Brexit rejected, at least implicitly, many of the founding principles on which the EU was based – harmonization of laws across an ever-increasingly level economic playing field, freedom of business and people to move across national boundaries and, most profoundly, the notion that Europeans shared a common destiny.
While it may seem that competition policy is not necessarily the most important priority in focusing on Brexit, common competition policy was at the core of the impetus for the creation of the European Community and ultimately the European Union. It does as well highlight some added layers of complexity, uncertainty and cost that lie ahead as the UK exits the EU. Depending on the outcome of the Brexit negotiations, there are a number of issues to consider:
Our future posts will provide updated reports on the status of the exit negotiations and the ramifications in important areas such as international trade, export controls, intellectual property, data privacy and government contracts. Stay tuned…