Some possible Brexit deals

Theresa May will have her work cut out. Reaching a deal where the UK averts economic recession but satisfies Brexit voters looks very problematic, if not impossible. A guest article from the European Political Economy takes a look at four possible Brexit deals

Predicting the content of any potential Brexit deal is trickier than normal predictive exercises. No member state has ever left the EU and the legal framework that governs any exit, only created in 2009, has never been used. With the scant guidance provided by article 50 politics will be left to fill the void, meaning the European Commission and the EU’s big powers will stake their positions and interpret the process as they see fit. Amidst this uncertainty however there are two areas of clarity. First, the issue of European law governing free movement of persons is clearly the big sticking point. With this, grounds exist for a second referendum to be offered if free movement becomes part of any deal. Theresa May will have serious job trying to reconcile the demands of her party, of big business and other institutional interests (i.e. UK universities) and the positions of European partners. Four outlines of a Brexit deal are provided here with one – the Full Brexit ‘WTO only’ option – looking the likely outcome. It is however important for many to better understand the spectre of European free movement rules that constitute the single market first, as these have been misunderstood by many during the referendum campaign and since.

The Single European Market overwhelmingly represents what the EU does in day-to-day, operational terms but it also has huge symbolic importance to the European integration project as whole. The single market (a.k.a. the internal market) is based on the ‘four economic freedoms’ providing for the free movement of goods, services, capital and persons with the adjunct freedom of establishment provisions that pad out the four freedoms law governing services and persons. Many on the Vote Leave side (IDS and Gove principally) saw the four freedoms as something quite distinct from the single market with trade being able to take place without these. This was plain wrong, as it creates a distinction where there is not one. Recent attempts to understand potential Brexit deals, from Vox.com and the BBC, have also unhelpfully misunderstood things. In the BBC’s case by conflating the broader phrase ‘free movement’ that applies to all the four freedoms with the specific free movement of persons provisions. Or in the case of Vox.com, simply getting things wrong (EEA deal includes all four freedoms, not three minus free movement of persons as suggested).

These misunderstandings will need to be laid to rest leading up to Brexit negotiations. The single market and each of its four freedoms have powerful and symbolic place in the European project and the EU’s big powers will not accept them being undermined. Plus, if the EU allows Britain to access the single market minus free movement of persons, this would invite other EU members with their own emerging anti-immigrant politics to contemplate their own exit (‘This is the reward? Seriously? Great!’), or at least start demanding things they shouldn’t.

There are four potential Brexit deal scenarios here (but are not presented in any order of viability or probability). Three of these are already well known, one not. We start with the one not yet offered.

1. ‘The Inverted Swiss’ option

The deal Switzerland agreed with the EU demands the Swiss adhere to EU governing free movement of goods, capital and persons – but not services. This option could see an inversion of this where Britain would remain part of a Single European Market in services only. This would constitute a very minimalist and slimmed down version of economic cooperation between the UK and the EU. Of the Single Market’s four freedoms, it is free movement of services that is more important to a British economy that is heavily based around service sectors. This does have implications in regards to free movement of persons however. Service based products, unlike goods, are usually consumed where they are bought, meaning a buyer or seller often needs to be in the same location for the exchange to take place. This implies some necessary mobility for the buyer or seller. This presents concerns as to whether freedom of establishment provisions in EU law can also apply. Without this very human aspect of service markets it is hard to see how this could be drafted in the form of an agreement. Brexiteers will trump the ‘Digital Services Economy’ benefits of this deal where these issues are less of a factor, but won’t explain away the problems in non-digital, web-based services. Any accession to free movement of services also means EU public procurement law will apply to British law.

Establishing a focused services-only Brexit deal maybe simply too cumbersome to craft and regulate given the relationships between these different realms of economic activity. Services are nonetheless the one aspect of the single market the Conservatives know they must keep, but it is hard to see why the EU would allow Britain to access the one aspect of the Single Market that benefits the latter the most.

Take the best, forget the rest? Not likely.

2. Goods-plus-Customs Union (‘alla Turkey’)

The ‘Ankara Agreement’ between Turkey and the EU has a similar appearance to the one above given Turkey in 1995 acceded to only one of the four freedoms (goods). Even this is however is a heavily circumscribed version of free movement given that agricultural products are excluded. The Customs Union means tariffs are barred in both directions and Turkey must apply the EU’s common tariff to third countries. This deal also involves Turkey’s limited accession to European Common Commercial Policy that gives the EU’s its power to negotiate trade deals on behalf of the Union. This is defined by 11 different EU regulations governing various goods like textiles (important to Turkey). A deal such as this owes much to Turkey’s specific circumstance and its relationship with Europe. One might ask why Britain couldn’t get a similar deal on services (‘the inverted Swiss’ above)? Again, the EU would not want to be seen to be rewarding a member state for leaving the EU by getting an economic cooperation deal that suits its economic interests. It is worth noting that such  a deal is unlikely to be beneficial for the UK.

3. The ‘EEA-Norway’ Option

A deal of this sort can rightly be termed, the ‘Hang on a minute? Compact’ This would entail Britain acceding to all of the single market’s four freedoms including EU law governing free movement of persons (not three minus free movement of persons, as Vox.com claim). Politically this would present a serious problem for Conservative Brexiteers who placed cutting EU migration at the centre of their leave campaign. UKIP and the Tory right would throw a fit if this deal was agreed or something akin to David Cameron’s piecemeal February deal was offered. Again, the EU are very unlikely to allow Britain to retain access the single market without a free movement of persons commitment. 

4. Full Brexit: WTO only relationship

If no deal is reached then the economic relationship between the EU and Britain would rest on WTO rules. Such an arrangement would open the door to numerous tariffs being raised on British imported goods to the EU, although we do not yet know. This would not be an advantageous arrangement for an already small, ailing and shrinking UK goods export sector. Services are becoming increasingly important area of WTO negotiations although is not as advanced the EU’s single market in services, much like with goods. Access to the single market is still too important to banks, goods trade and services markets. Other financial institutions (hedge funds) are not (they funnelled millions in the Leave campaign), but might find themselves out-manoeuvred. (See an interesting feature published by the Wall Street Journal here).

These deals could see a number of ancillary deals attached to them. This could include Britain retaining membership to the EU’s science network (protecting UK Universities’ access to vitally important European research funding streams). An attempt would be made by Britain to retain access to the European Health Insurance Card (EHIC system), but given the implications of free movement of persons law that lace this, it is highly unlikely that EU member states will sanction cooperation here. The number of tied-on deals could be quite numerous under some of these deals and could also include EU environmental legislation. Expect Labour party governments (I’m just saying, you know, hypothetically) to offer manifesto commitments to adhere to certain areas of EU law like the environmental regulation and the Social Chapter.

The questions should be asked why would a country seek to leave the EU but seek access to the single market given the centrality of the single market to the European project? Some of these deals clearly provide limited access to trading across the English Channel, their economic advantages, for Britain, are likely to be limited.

This is an article reproduced from the European Political Economy Blog hosted by Andy Morton, researcher of EU policy and CHARTIST’s web editor.