Chequers agreement: medium Brexit?

The outcome of the Chequers summit has been to produce, really for the first time, the beginnings of a proposal that can at least be the basis of a serious negotiation. For this, it seems we must thank Olly Robbins in particular. Although the detail is to follow in a White Paper next week, the three-page summary published last night indicates a substantial softening of the hard Brexit approach that has held sway since the Lancaster House speech. It does not, as yet, represent a soft Brexit approach either: what we have is a proposal for what might be called ‘medium Brexit’. As such, for now, the cabinet have signed up to it, although hardcore Brexiters in the Tory Party don’t like it, and those outside the party, like Nigel Farage, loathe it.

As expected, a core part of the proposal is for Britain to stay in a goods-only single market but, significantly I think, it is not described in that way but as a UK-EU “free trade area for goods”. This wording is either a sop to the Brexiters or represents the continuation of what has long been one of their core misunderstandings, namely that a single market is the same a free trade area. This confusion, discussed in detail in my blog post of 20 February 2017 is, as I wrote there, evidenced by an interesting insider account of the referendum campaign, written by Daniel Korski, formerly Deputy Director of David Cameron’s Policy Unit. He records the frustration during the pre-referendum re-negotiation with the EU: 

“Nor would our counterparts in Europe acknowledge that the EU’s four freedoms are very much divisible. A country can reduce tariffs and remove trade barriers and still maintain restrictions on which foreigners are allowed to enter the country. This is what the United States has done since World War II, with NAFTA being the best example.”

Later in that post, I suggested that the government’s approach to Brexit at that time was to try to shoehorn together the two fundamentally different models of international trade, a single market and a free trade area. On the basis of the wording of the Chequers statement that is still the approach or, at least, Brexiters are being allowed to believe that it is. It also panders to the ‘country cousin’ of the single market/ free trade area confusion, namely the habitual canard that ‘when we joined, we were told it was just a trade area’.

However, in other respects, the Brexiters are being asked to swallow something which looks more like ‘Ukraine plus’ or ‘Switzerland plus’ i.e. a goods but not services single market; some kind of UK-EU institutional arrangement which might look rather similar to the EFTA Court, or to the kind of ECJ-backstopped arbitration system associated with the Ukraine DCFTA; and an as yet unspecified ‘mobility framework’ that would be more or less close to free movement of people as per Switzerland. In addition to all of this, and very much in addition to Swiss or Ukraine models, there is the proposal for a new ‘facilitated customs arrangement’.

Will the EU-27 agree to this? Ultimately, no, for the reasons set out in my previous post. But they will almost certainly take it seriously and negotiate seriously about it, if only because, as noted above, it is the first time Britain has produced a basis for such a serious negotiation. In the course of it, I would expect the court arrangement to land up pretty close to the EFTA court and the mobility framework to get pretty close to freedom of movement.

As for the customs arrangement proposal – this remains a mess and it is very hard to see how it can generate something workable and, if so, not any time soon. So that implies a much longer transition period than is presently envisaged. Perhaps more likely it morphs into a straightforward replication of the existing customs union. What is most significant here is that by committing to a single market for goods and a customs arrangement, the statement also commits to agreeing to the existing Northern Ireland backstop agreement from phase 1, if only by dint of the assumption that it will never be used. That, at least, removes what has been the biggest obstacle to progress since the publication of the draft Withdrawal Agreement text.

Clearly if this does become the direction of travel, and it is hard to see how May can not expect it to be, it may fracture the very fragile unity of the cabinet and might provoke rebellions within the Tory Party. The question is whether what happened yesterday was that the Brexiters crossed the Rubicon and will now swallow pretty much anything that comes, or not. One irony, which I noted as a possibility in my post on the recent Withdrawal Bill votes is that the Brexiters have engineered a situation whereby a ‘meaningful vote’ on Brexit terms will not happen. They may live to rue that.

If things develop in the way just outlined, it will become increasingly difficult to see what the case is for not remaining in the single market for services, of course. It certainly makes no sense in terms of British economic interests for reasons set out by Charlotte Moore in a recent incisive article on the politics.co.uk site. By implication, the government still expect mutual recognition agreements to do far more heavy lifting than can be asked of them. And there is very little mileage in having an independent trade policy for services given that free trade agreements rarely liberalise service trade to any depth (the implication to the contrary in the Chequers statement is wholly fanciful and, presumably, just a sop to Brexiters along with the reference to potentially joining TPP; for that matter, it’s hard to see how the Chequers proposals give much scope for free trade agreements in goods).

So perhaps the model then shifts towards ‘Norway plus’ (i.e. Norway plus customs arrangement). If so, another irony emerges: since most Brexiters have, since the Referendum, insisted that this would not be Brexit at all they would really have no convincing argument against simply abandoning Brexit altogether although (as always) the route and timing to that outcome remains unclear. In any case, to the extent that Chequers makes a soft Brexit more likely it may also reduce pressure to abandon Brexit in the face of a possible ‘no deal’ crash exit which, by contrast, is now less likely.

We’re not, of course, at anything like the point of knowing anything for sure yet. It is still perfectly possible that the Tory Party will implode into civil war over the Chequers position, or that for fear of that the government refuse to make the accommodations which might, conceivably, make something like this position fly in the negotiations with the EU.

The whole situation remains absurd, needless to say. None of this is remotely worth doing, and if it was worth doing it would have been better to have arrived at this proposal before embarking on Article 50. Still, yesterday was, by Brexit standards, slightly less absurd than usual.

 

Note: I’m aware that people who have signed up for email notifications of new posts are not receiving them. I’m afraid I have no idea why this is, or what if anything I can do about it.

Even as we leave it, Britain doesn't understand what the single market is

Both before the referendum and since there has been a persistent confusion about what the European single market is, and this confusion also informs the way in which the government plans to leave the single market.

The confusion is to think of the single market as being the same as a free trade area and, associatedly, to equate this with ‘tariff-free trade’. In brief (see here for more detail), a single market is not just about tariff-free trade and the removal of quotas; it is also about the removal of non-tariff barriers to trade and it is from this that most EU regulatory harmonization flows. Non-tariffs are the most technically complex and significant barriers to trade and are most especially pertinent to services. This is particularly important to the UK as it is a predominantly service-based economy.

Similarly, single market membership entails free movement of people not as a kind of a bolt-on which, for some ideological reason, the EU insists on but as a core part of the definition of what a single market is: a complete unification of the production and consumption of goods and services (including, also, free movement of capital). You can no more be a member of the EU single market without free movement of labour than you could have a functioning UK single market that restricted movement of people between different counties. To do so would by definition create separate markets in labour (and, for that matter, housing). In a sense, the absence of free movement can be seen as a species of non-tariff barrier in preventing a single market from fully existing (albeit that, as this helpful explainer shows, free movement of people is not the free-for-all that it is sometimes thought to be).

That this has not been properly understood is evidenced by an interesting insider account of the referendum campaign, written by Daniel Korski, formerly Deputy Director of David Cameron’s Policy Unit, in Politico. He records the frustration during the pre-referendum re-negotiation with the EU:  

“Nor would our counterparts in Europe acknowledge that the EU’s four freedoms are very much divisible. A country can reduce tariffs and remove trade barriers and still maintain restrictions on which foreigners are allowed to enter the country. This is what the United States has done since World War II, with NAFTA being the best example.”

These sentences absolutely expose the core misunderstanding: NAFTA is not a single market, it is a free trade area. They are fundamentally different things. The four freedoms are indivisible not because the EU won’t ‘acknowledge’ it but as a matter of definition. In this sense the EU’s expression that it will not allow ‘cherry-picking’ is a misleading one: the cherries cannot be picked because they are inseparable from the tree. It is a rich irony that the development of an EU single market was championed most enthusiastically by successive British governments since the 1980s, and yet they seem not to have understood what they were championing. Nor can it be said often enough that before the Referendum many in the Leave campaign explicitly said that leaving the EU did not mean leaving the single market.

The present government’s decision to cease to be a member of the single market is apparently based on a realization that membership isn’t going to be unbundled from free movement, but still seems to see this as just an intransigent negotiating position on the part of the EU and not a definitional issue of what the single market means. Hence what seems to be envisaged in the White Paper is to recreate just about every feature of the single market for the UK (even, on my reading, a form of ECJ jurisdiction, albeit via the back door of a dispute resolution system) except for free movement of people. Thus paragraph 8.1 states the intention that:

“Our new relationship should aim for the freest possible trade in goods and services between the UK and the EU. It should give UK companies the maximum freedom to trade with and operate within European markets and let European businesses do the same in the UK."

These words (along with several other indications in the white paper) suggest strongly all of the regulatory harmonization and non-tariff barrier avoidance that the single market entails, save for that relating to free movement of people. If it does not mean that, then it cannot mean the freest possible trade – just some form and degree of market access.

So the government’s aim is to ‘get round’ freedom of movement of people by creating between the UK and the EU something akin to the free trade area that Daniel Korski (and, by implication, David Cameron) believed the single market was, or should be. The idea is to shoehorn together two fundamentally different models of international trade.

It obviously remains to be seen whether such an arrangement will be created but my view is that it will not be possible – and, the crucial point, not because of a failure of negotiation but because it is a logical impossibility. You might as well say you are going to negotiate to sail your boat up the M1 as to say you are going to have ‘maximum freedom to operate within’ a single market without free movement of people.