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When setting constitutional rules, the future members of a federation think ahead about the consequences. If the members are heterogeneous, policy changes may be adopted after the formation of the union that cause some members to stop benefiting. At that point such members may wish to leave the union. Anticipating this, they may require a constitutional exit right in order to join the union. This is because without a constitutional exit right, unilateral exit may generate substantial reputational costs on top of potential military expenses. In this sense, the costs of unilateral exit depend crucially on the legitimacy of secession, which in turn depends on the circumstances. For instance, regions with oppressed ethnic minorities will generally incur low reputational costs from a so-called remedial secession, and tend to be quickly welcomed by the international community (Buchanan, 1997; Sorens, 2016).
In most types of international treaties, so-called withdrawal clauses that regulate exit are relatively prevalent (Koremenos, 2016). In contrast, most federal countries or systems lack exit clauses. Two current counterexamples identified in the literature are the withdrawal clause in Article 50 of the Treaty on European Union (Athanassiou, 2009) and the secession clause in the constitution of Saint Kitts and Nevis (Weinstock, 2001).
The state-of-the-art formal model in the literature on exit clauses in federations was developed by Bordignon & Brusco (2001). They find that constitutions may optimally avoid exit clauses if the benefits of the union depend on its perceived long-term stability. A theoretical limitation of this model is that the members are assumed to be ex-ante identical. An empirical limitation is that most (con)federal systems lack exit clauses, but the European Union (EU) has a free exit right. In order for the model of Bordignon & Brusco to hold, this would imply the tenuous conclusion that the benefits of the EU (and the embedded Eurozone) depend significantly less on its perceived long-term stability than other (con)federal systems.
The game-theoretical models presented in this article consist of a constitutional phase and a legislative phase. In the first phase, members negotiate whether to include an exit clause or not. If they cannot agree, the union is not formed and all members receive their status quo payoffs. If they do agree, the union is formed and an initial set of policies is adopted. In the second phase, new policies may be adopted according to the legislative rules of the federation.
Two novel findings emerge from the formal models developed in this article. First, even with significant heterogeneity members of the union will not require an exit clause at the constitutional stage if they will enjoy a policy veto in the legislative phase. Second, in the absence of a legislative veto members who constitute a minority of preference outliers will require an exit right in order to be willing to join the union.
The second part of the paper is empirical and presents two in-depth case studies of the EU and Saint Kitts and Nevis. The EU adopted an exit right during the 2002-2003 Convention on the Future of Europe, which developed a draft Constitution for the EU. The draft Constitution was ultimately not ratified, but through the 2007 Treaty of Lisbon the withdrawal clause containing the free exit right was adopted as Article 50 of the Treaty on European Union. In Saint Kitts and Nevis, Nevis’ right to secede was adopted during the 1982-1983 constitutional conference in London aimed at establishing a constitution for an independent Saint Kitts and Nevis.
The models developed in this article imply that prospective members of a federation will only require an exit right if (a) they are strongly heterogeneous from a core majority and (b) they will lack a legislative veto. For the EU, both conditions are shown to only apply clearly to the countries that acceded in 2004, and not to those that acceded before. At the time of the 2002-2003 Convention on the Future of Europe 10 Candidate States were expected to join the EU, among which 8 Eastern European post-communist countries that were very different from the existing 15 EU Member States. In terms of lacking a legislative veto, these countries were the first to join after the EU had largely shifted from unanimous decision-making to Qualified Majority Voting (QMV).
Similarly, the islands of Saint Kitts and Nevis are very different from one another economically and sociologically (Veenendaal, 1995). Yet in order to achieve independence from the United Kingdom, representatives from the two islands had to agree on a post-independence constitution. Anticipating that Nevisian representatives would constitute a minority without veto in prospective federal governments, the Nevisian negotiators at the London constitutional conference successfully demanded a constitutional right to secede for Nevis (Midgett, 2011).