Britain's Future Relationship with the EU

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The October EU summit in Brussels should have marked the moment of agreement between the UK and EU on how to organise an orderly departure for the UK, including some broad guidelines as to the shape future relations will take. The Conservative government’s red lines regarding ending the free movement of people, jurisdiction of the European Court of Justice and the freedom to negotiate future trade agreements independently of the EU, have ruled out remaining in the single market and in the EU’s custom union.

The former would have ensured continued business and trade in services and goods (although some border controls for goods would appear), whilst the later would have allowed for continued trade in goods without additional border checks, a particular concern around the Northern Ireland border. Under these constraints the future relationship will have to be governed by a comprehensive trade agreement (the so-called CETA plus option), which both sides consider feasible.

The fundamental problem, as highlighted prior to the October summit, is that under a trade agreement arrangement the need for custom checks at the Northern Irish border is not eliminated. A scenario could be envisaged where technology, checks at alternative locations and simplified procedures (as proposed in the Chequers plan) minimise the physical impact and intrusiveness of controls on the Northern Irish border, but the need for checks would not be eliminated. However, the extent to which this would work remains unclear, and there are also question marks as to how long this would take to implement and how it would be backed up.

Moreover, regulations today play a crucial role in trade. The Chequers plan recognised this by suggesting an element of regulatory alignment with the EU. However, the suggested eventual deviation from EU rules, or allowing intermediary products from third parties under rules that do not comply with EU rules that then end up in UK products exported to the EU, would introduce the need for some form of control and checks (at the border or elsewhere), meaning that trade will of necessity no longer be ‘frictionless’. It was with these concerns in mind that the European Commission suggested the Irish border backstop, which would prevent the need for a border in Northern Ireland, should an alternative not be operational in time. The backstop is, however, unacceptable to the UK, not just politically due to DUP support of the Government, but because checks between the different constituent parts of the UK run counter to the UK Customs Bill.

At the Brussels summit both the European Commission and Prime Minister May have floated the idea of extending the so-called implementation period, where the UK is outside the EU, but EU trade and business rules are still applicable, beyond December 2020 to provide negotiators with time to flesh out a future trade deal. This pragmatic step reflects the high cost of ending the relationship in a disorderly manner.

Additional time would enable the parties to mitigate these costs through a trade agreement. This is a desirable outcome for both sides, but its challenges should not be underestimated. The EU has concluded trade agreements with fifty countries. Some of these include MFN (most favoured nation clauses) meaning that if the EU subsequently grants another state a better tariff, or better access to its services market, that level of access will also apply. Whilst the EU may well be willing to offer the UK far more generous market access than it has in any trade agreement to date, it may not be willing to extend that to others, thus limiting its offer to the UK.

From an economic and social perspective, a pragmatic extension negotiations to assure a more orderly departure and giving businesses clarity and time to prepare is absolutely necessary. Politically, however, the suggestion has sparked the ire of the staunchest Brexiteers, perpetuating the intractable battle over Brexit.

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