Theresa May’s big Brexit speech today contained lots of detail, but relatively little that was new — most of the detail was what automatically flowed from what she had said before. She did, however, somewhat clarify her current vision of the future economic partnership with the EU, and we can give it a name: cherry-picked managed divergence.
What she wants is for the UK to be able to pick, by sector and subsector of the economy, whether we want to leave the EU’s framework and structures immediately or at a moment of our later choosing. Furthermore, whilst we are still essentially inside the EU’s structures, she wants that to take the form of our achieving an equivalent or super-equivalent outcome to the EU’s requirements, but doing so in our own way rather than through direct application of EU rules.
Let’s illustrate this picture with a toy economy. Suppose we had an economy made up of cars, saws, and radios, and we began as EU members with all our rules set through the EU. And let’s suppose we decided we wanted to be entirely out of the EU’s framework for saws straight away but stay inside for cars and radios. Then for saws there would be free trade, with no tariffs or quotas, but the rules and regulations would be set by the UK for the UK and EU for the EU, and if the EU disapproved of the UK’s rules and regs in some way, perhaps it might say UK saws could only be sold in the EU after an extensive inspection process taking three weeks.
In the case of cars and radios, under May’s scheme, the UK would set UK rules and regulations and would commit to maintaining standards just as high as the EU’s in exchange for there being no restrictions of any kind on the exporting of UK cars and radios to the EU, with a joint oversight body checking that we (and the EU) did indeed comply. But that commitment would last only as long as the UK felt like maintaining those standards. So, if, after say five years, the UK decided it wanted to carry on with entirely unrestricted exporting of cars but preferred to go its own way on radios, we could change our radios laws immediately (without any special new treaty with the EU) and our ability to export radios to the EU would become more restricted, but we would carry on with unrestricted exporting of cars.
In the case of some parts of this concept it wouldn’t simply be that we would stick by the rules. We might also have an associate membership of the relevant EU agency. We would also have some backdrop general rules that we would make a commitment to keep in place indefinitely — such as restrictions on state aid or competition rules that were just as strict as the EU’s.
One matter here Theresa May did not explore was whether we would make any commitments regarding imports we would accept. After all, the EU might feel it was not enough that UK radios abided by regulatory standards just as strict as those in the EU if the UK also allowed in US radios that had lower standards. Probably the concept is that anything permitted for sale in the UK would have to abide by the EU standards in the relevant area. In practice that might mean we would shift our standards at precisely the moment any trade deal we fancied entering into came into force — so we would maintain standards equivalent or super-equivalent to the EU’s for radios until a trade deal with the US covering radios came into force, after which we would diverge and access for our exports to the EU would become more restricted.
Personally I find it very hard to see the EU agreeing to this. It seems like precisely the sort of cherry-picking the EU has feared all along. The UK would decide which sectors and subsectors it wanted to stay in a de facto single market for, without free movement of persons, and even for the cherry-picked parts it decided to stay in, the UK would meet the rules in its own way (without submitted to harmonisation but only via mutual recognition) and could cherry-pick the moment it wanted to leave them, on a case-by-case basis.
Mrs May tried to insist that all free trade agreements have bespoke clauses and can thus be described as “cherry-picking”. In that sense she is right, but the bespoke clauses in most FTAs do not take anything like this form — securing access equivalent to single market access, without free movement, without harmonisation of rules, and choosing unilaterally when to withdraw from them on a case-by-case basis.
I’m all for seeking an ambitious trade deal, and we might as well seek for it to be even more comprehensive than Canada-EU trade deal. Why not? After all, we start fully aligned almost across the board. And it’s reasonable enough to start trade talks with a more ambitious position than you end up in. But Theresa May’s concept seems to go way beyond that, well into the realm of cherry-picking. Why would another EU member not think “Well, if Britain can have single market-equivalent access, via mutual recognition, in precisely those sectors it wants but not others, without free movement, and with the right to withdraw on a sub-sector-by-sub-sector basis any time it likes, why shouldn’t we?”
There might be some aspects of May’s concept I would dislike from the UK perspective as well, but overall if one could get it, there would be a lot of upsides to go with the downsides. It isn’t obviously unattractive to the EU, if the EU would give us such a deal. But why would it?
In my opinion, we’re massively over-complicating this. We should be saying we will agree a quick deal (ie, with the core elements agreed by October 2018) that establishes a free trade agreement in goods, with perhaps a bit more coverage for some services than the Canada deal, though certainly well within that general ball-park, but if the EU wants to propose something more intimate than that in certain respects (eg, more financial services coverage) we’d be more than happy to talk. Furthermore, we should also say that whilst a deal of that sort might be all that’s feasible in the time available, if the EU wants to come back later to propose a more intimate deal in other areas to be implemented in future years, again we’d be all ears.
May’s scheme, by contrast, just seems unreasonable. When the EU has accused the UK of wanting to cherry-pick, I’ve usually shouted at my TV or radio or newspaper “We’re not cherry-picking!” Well, today Theresa May has made me a liar, because cherry-picking, of a sort liable to unravel the Single Market, has now become exactly what the UK government is proposing.
