After Brexit, How to Protect British Trade and Jobs

This article first appeared on the Chatham House site.

The referendum outcome has presented the most formidable challenge to the U.K.'s place in the world since the end of the Second World War.

The priority now must be to set out a clear roadmap for the U.K.'s future relationship with the EU.

The best way to safeguard its economic and political future on the world stage is to signal to the EU's member states, and to Britain's allies and partners outside Europe, that there is a sensible plan for a stable transition process from being a full EU member to a new relationship.

The least disruptive option now for the U.K. is to seek to agree a European Economic Area (EEA) relationship with the EU, prior to invoking Article 50. The EEA presents the best prospective short- and medium-term solution, providing Britain with a path away from full EU membership to a new status for a non-member that is tried and tested.

It would also ease the UK's crushing political and diplomatic burden of simultaneously seeking to renegotiate its trade relationship with the EU and all its other trade partners.

It is by no means a perfect solution. Commentators will argue that EEA membership represents a second-class relationship with Europe—particularly given that the U.K. has now moved from being a rule-maker to a rule-taker. But the result of the public vote sees both the U.K.'s and the EU's needs radically altered.

Setting this agenda is a formidable undertaking in what is now a period of domestic political turmoil and potential economic crisis. The U.K. is in a moment of political self-absorption with a caretaker prime minister, a Conservative Party embarking on a leadership contest, the Labour Party going through its own post-vote reckoning, the threat of a second Scottish independence referendum, political tensions in Northern Ireland and a confusing and contradictory public mood.

In the current political climate it is unlikely that the U.K. can develop a clear view of what it wants from a future relationship with the EU.

The EU's other member states and leaders of the EU's institutions will require cool heads to prevail over a temptation to punish the U.K. for the actions of its political class and a plurality of its citizens.

The U.K. will need the understanding, but above all the patience, of Europe's political leadership to move the U.K.−EU relationship from political crisis to a firm footing for resolution.

Once a new prime minister is in office, the U.K. and the EU should reach a political agreement on the new basis for the U.K.−EU relationship before invoking Article 50 of the Treaty on European Union. This would then allow the two-year period envisaged for negotiating the exit of a member state to focus on the transition arrangements from full membership to EEA status.

Providing clarity on the timescale and intended outcome of the U.K.−EU negotiations is crucial for U.K. and EU citizens, business and trade and investment partners and third countries. It will also give the U.K. time to seek membership of the European Free Trade Association (EFTA) from Switzerland, Norway, Iceland and Liechtenstein.

EEA membership would preserve the parts of EU law and regulations (the acquis communautaire) relevant to the EU's four freedoms (free movement of goods, persons, services and capital) which would give business on both sides of the Channel the certainty that they will crave.

EEA membership means accepting the so-called flanking policies (which cover areas such as transport, competition, social policy, consumer protection, environment, statistics and company law). It would, therefore, preserve the current level of economic integration, common competition rules, rules for state aid and government procurement.

As the EEA does not cover agriculture and fisheries the U.K. could determine its own policies in these areas and seek separate agreements, alongside other EFTA states, with the EU.

As a member of the EEA, outside the EU, the U.K. would preserve its current non-membership of the Schengen area and be outside the EU's Economic and Monetary Union and single currency. The U.K. would also be removed from its current role in the EU's Common Foreign and Security Policy and Common Security and Defence Policy.

U.K. nationals would cease to be EU citizens and lose the rights that they have acquired with that status.

As an EEA member, the U.K. would no longer be bound by the EU's trade policy relationships with third countries. As an EFTA member the U.K. would join its EFTA partners in their existing framework of free-trade agreements, covering 37 countries at present. Trade relationships with other states would default to the terms of most favored nation under the World Trade Organization.

In seeking an EEA relationship for the U.K. there is the politically charged question of free movement of labor to be addressed. The U.K. referendum result has been interpreted as a vote on immigration.

As a priority the U.K.'s politicians now need to lead a national debate on how to reconcile an immigration policy that meets the needs of the economy while simultaneously addressing public concerns on the volume of inward migration to Britain.

Clearly this is a much bigger question than the U.K.'s relationship with the EU but the issue of immigration is the sine qua non of determining whether an EEA relationship is a viable proposition.

One irony of EEA membership is that the U.K. would no longer be able to veto Turkey's membership of the EU, but would still be accepting free movement of labor (an illustration of the loss of influence that comes from being in the EEA). Given the way the Leave side whipped up fears of imminent Turkish accession during the campaign, this could prove a sticking point down the line.

If an EEA status is deemed politically unviable then the U.K.−EU relationship will lapse into a prolonged negotiation in which the final outcome will remain uncertain. And continued uncertainty is the very worst outcome, both for the U.K. and the EU.

Richard G. Whitman is a visiting senior fellow of the Europe Programme at Chatham House, the Royal Institute of International Affairs. He is also director of the Global Europe Centre and professor of Politics and International Relations at the University of Kent.