Leaving the Single Market and Customs Union in name only would be the worst of all worlds

Leaving the Single Market and Customs Union in name only would be the worst of all worlds

It now seems that we may be heading for a Soft Brexit, with the UK being nominally outside the European Union, the Single Market and the Customs Union but continuing to comply with nearly all EU requirements. Those who voted Remain may be satisfied with this state of affairs. What about the 52% who voted Leave?

Some of what would then be required must make sense to everyone, including all Leavers. With any deal, UK produced goods are going to have to comply with EU product standards if they are sold into the EU27 market. It is as much in the interest of the EU27 – or at least their consumers – to allow UK-origin services to be sold into the continental market as it for UK suppliers of services to provide them. Avoiding unnecessary discrimination in non-tariff barrier trade in services is thus in everyone’s interest. There are thus major advantages to both the UK and the EU27 in having free trade in goods and services across the channel. The key issue turns on how much more than the kind of compliance needed of any country trading with the EU27 is going to be required of the UK to enable us to trade with the EU27 on relatively frictionless tariff-free terms.

Are Single Market regulations going to be applied to everyone trading within the UK economy, as is the case now, or will they in future only cover companies which actually trade with the EU27? To what extent will compliance depend on outcomes being equivalent rather than all the processes involved in getting goods and services produced being the same? Will UK companies still have to comply with all EU regulations or will the UK have some discretion about which ones apply in the UK and which don’t? Almost no-one wants to see workplace and social protection being watered down or abandoned, but there may be legitimate differences of views about other laws and directives. Will the UK be allowed to diverge from the EU in areas such as these?

There are also going to be other difficult issues to resolve. A major UK concern has for a long time been the large net sum payable by UK tax-payers to the budgets of EU institutions every year. Are these going to continue at anything like their present level or will they be scaled down, if not eliminated? What is going to happen to free movement of people? Are any constrains going to be allowed? What is the role of the European Court of Justice going to be in dealing with trade disputes?

There are similar concerns round the Customs Union. If we are formally outside the Common External Tariff regime but still largely held to be substantially in compliance with the Single Market, are we going to be able to negotiate free trade deals with other countries? Are we going to be able to reduce tariffs on agricultural products, to reduce food prices? Are we going to be able to resume control of our fishing grounds?

We shall have to see how flexible the EU27 turn out to be but there is clearly a danger that we finish up in the worst of all worlds – subject to all the constraints and costs of both the Single Market and the Customs Union but no longer with any control over how either of them evolve. This would be worse than the Norway option – much derided by both Remain and Leave during the referendum campaign. More expensive, constraining and intrusive, with even less control.

Unfortunately it is an outcome along these lines which the very Soft Brexit now favoured by many people seems to be a likely prospect. The more MPs there are who are prepared for the UK to stay effectively in the Single Market and the Customs Union at almost any cost, the more likely it is that this is where we will finish up – substantially where we are now but having lost control of what happens to the EU’s future development. There is already pressure from within the EU to keep the UK making continuing cash payments to ease the EU’s budget problems and to make the terms for leaving sufficiently disadvantageous to discourage others from following the UK’s lead.

The only way for the UK to stand firm would be for Parliament to be prepared to walk away from a very poor deal and to be willing to trade with the EU27 on WTO terms, even if this was not our favoured option. Unfortunately the recent general election leaves this way ahead increasingly elusive unless the deal the EU27 offers us is even more punishing than the outcome outlined above. Unless there is a radical change of tack away from where we seem to be at the moment, the UK may formally leave the Single Market and the Customs Union but still, in practice, effectively remain in both of them.