While Theresa May’s Cabinet colleagues now seem supportive of her approach to Brexit, the same cannot be said of her European counterparts. Instead, their guidelines issued last week for the future partnership outline a trading relationship that would necessitate a special status for Northern Ireland, indicating that the parties are on a collision course. A further UK concession to commit to continuing alignment with EU rules for some goods sectors appears to be necessary to meet European demands and get the process on track.
The Prime Minister’s conciliatory speech in early March acknowledged there would be costs to leaving the Single Market and the Customs Union. As well as that reality check, the speech contained placatory detail. May said the UK, in order to maintain the “level-playing field” the union insists close partners respect, could make “binding commitments” to rules in areas like state aid and competition, and would not undercut the EU on fiscal, environmental and social policies. The government would accept the role of the Court of Justice in order to participate in EU regulatory systems, while a further soothing acknowledgement was that UK firms would lose “passporting” rights to sell financial services across the bloc. And of course, the government had already agreed to pay approximately 40 billion euros, and accepted a 21-month standstill transition, which means passively accepting all rules, including full freedom of movement rights for EU workers, until 2021.
Despite these concessions, May seems to have achieved Cabinet backing, with Eurosceptics apparently content that the divorce is on track. Yet if May pacified squabbling ministers, her approach was received tepidly in Brussels, portending serious difficulties in the coming months. The crux of the matter is that the EU is guiding the UK towards the type of trade deal enjoyed by close yet geographically distant partners like Canada. But the EU has also indicated that without a commitment to closer future regulatory alignment than promised by that sort of arrangement, the Irish border problem will be hard to resolve.
Crucially, the nature of the EU Single Market system constrains its response to UK ambitions. For example, on goods, May called for a “comprehensive system of mutual recognition”, saying the “default” would be that UK regulations could be recognised as achieving the same outcomes as the EU’s. Mutual recognition is an important concept as it lubricates commerce when nations have divergent rules. But May’s aim was an overreach, as the EU reserves this type of mutual recognition for Single Market members that are subject to shared crosscutting policies, market surveillance, enforcement mechanisms, and legal oversight. This framework allows a product to be sold across the EU even if there are no harmonised regulations governing it.
More promising was May’s suggestion that, to ensure that UK goods only need to undergo one regulatory approval to be placed on both markets, parliament might pass “identical” laws to the EU, as of course the UK has done as a member state. The EU already has an agreement of this sort for some pharmaceutical products with Israel and is planning them for industrial goods with Ukraine and others. As those parties agree to adopt relevant EU rules and practices, trading conditions in the covered sectors will be similar to between two member states, even when there is no specific harmonised regulation.
Another way to avoid border checks for compliance is through routine conformity assessment agreements, which the EU has with nations such as the US, Australia, Japan and Canada. This means that UK bodies would be authorised to check compliance, but the UK would not have to adopt EU rules. Meeting EU requirements will be eased by the likelihood that British organisations will remain part of the non-EU institutions that set the countless harmonised product standards underpinning European regulations. In a trickier area, May has mooted “associate membership” of EU chemicals and medicines agencies, presumably in the hope UK regulators can still license these tightly controlled products for the European market, but such authorisations can only be conducted by entities based within the European Economic Area.
A comprehensive deal on agriculture is necessary, as it is critical to the Irish economy and strictly monitored by the EU. Switzerland has managed to abolish veterinary border controls through mutual recognition agreements based largely on convergence with Brussels’ rulebook, although there is enough flexibility to import even controversial US products banned in the EU after rigorous testing. This could be an area where Northern Ireland diverges, because the island of Ireland is already an animal and plant health unit, so some exports from Great Britain to Northern Ireland are checked. But expanding that system might well raise DUP objections, meaning the UK as a whole may have to keep matching EU agrifood regulations.
Generally, such arrangements, along with zero tariffs, would take the UK into the territory of a Deep and Comprehensive Free Trade Area (DCFTA), which is how Ukraine’s deal is classified. However, the European Parliament said in a recent Brexit resolution that a DCFTA “requires a binding convergence mechanism towards” EU rules and a “binding role” for the Court of Justice in interpreting Union law. This fits with the Council’s stance that the partnership must be “based on a balance of rights and obligations”: unless the UK accepts an obligation to continued convergence, then it does not get the right to deep market access.
So, if the UK wants to satisfy the EU’s regulatory requirements regarding the Irish border, then it may have to commit to remaining harmonised in a swathe of sectors. An EU government negotiator said the UK has already begun discussions to this effect, although little is known yet about the depth and scope of any offer. Additionally, the more substantive the UK’s commitments are to the crosscutting “level-playing field” rules, the more cooperative the EU may be, especially if the UK responds generously to requests on fishing, and ambitious plans for a security partnership materialise.
Since shortly after the Referendum, Andrew Duff, the President of the pro-federalist Spinelli Group, has been an influential advocate for a DCFTA. Duff, who helped draft the Constitution for Europe, is treated suspiciously by Eurosceptics who think he is scheming to keep the UK in a holding pen until eventual readmission. But his vision is for the UK to sit in a differentially economically integrated outer tier, while the EU comprises federalising Eurozone states. The peripheral group could include Norway, Switzerland, Turkey, Ukraine, Balkan nations, and also possibly Poland if it continues on its current trajectory, Duff said. Another expert, Michael Emerson, termed a similar concept the Wider European Economic Area.
Duff thinks that Angela Merkel and Emmanuel Macron have so far been focused on maintaining EU unity, which has contributed to the frequent admonishments over British “cherry-picking.” But if the UK makes the necessary moves, then accommodating steps will be forthcoming, including on financial and other services and the Irish border, and a mutually acceptable treaty can emerge, he believes. Littered throughout Duff’s thinking has been a concern that the EU and UK must remain good neighbours, otherwise it will create more problems for a European project already beset by them. “They must appreciate that if they screw it up with the British then it’s going to have a knock-on impact with all the other neighbourly relations that they have,” he said about EU leaders.
Some ways to screw it up with the British might be forcing the UK to keep applying EU tariffs in a customs union, so derailing global trading aspirations, insisting the freedom of movement of workers continues, or trying to keep Northern Ireland within the EU’s regulatory and customs unions. Instructing the UK to keep adopting rules it will not vote on is also risky, but there will be opportunities for the UK to impact EU and international regulatory processes, and the possibility of greater autonomy may emerge over time as trust rebuilds. That will be small comfort to many Leave activists, who will be livid at a failure to fully take back control, but there are no obviously preferable alternatives given the current situation.