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In a new report, Open Europe presents a potential framework for the future UK-EU trading relationship. Our analysis shows that the UK should seek a highly integrated relationship with the EU in goods, but should obtain the flexibility to diverge in services. This sensible compromise model respects the EU's legal autonomy, suits the UK economy, and recognises that giving up a little sovereignty can deliver good economic benefits, but that there are diminishing returns in asking for more.
4 June 2018
Open Europe today published a new report, “Striking a Balance: A blueprint for the future UK-EU economic partnership.”
In this paper, Open Europe sets out a model for the UK and EU’s future economic relationship, which we believe offers a pragmatic way through the Brexit deadlock. Open Europe’s model lies between the so-called Canada and Norway arrangements framing the UK political debate.
Our proposal is that the UK should seek to remain close to the EU in terms of goods regulations. After all, as a member the UK was a key supporter of the Single Market, which replaced the European Common Market, in the late 1980s. In return for the UK keeping broad alignment with the EU’s rules, it would be reasonable for goods to continue to be freely traded with Europe. The UK should commit to maintaining the existing ‘acquis’ of rules over goods regulation, and will need a process to determine how to apply future regulation, which must not be simply automatic. Switzerland’s experience of alignment with EU goods rules illustrates that this does not necessarily mean full harmonistion with detailed EU rules in all goods sectors, only those that are already highly regulated. There is scope for flexibility for many products and, as a “third country”, the UK would be open to decide not to apply a new EU regulation, but this could prompt retaliation from the EU and might have an effect on market access.
When it comes to services, given this is where the UK’s comparative advantage lies, we do not believe the UK can be a long-term rule taker from the EU. Although, it should be possible to seek a more secure relationship than the existing equivalence regime for financial services, overall it will be for both sides to manage mutual divergence in services regulation.
Seeking a deeper deal would likely mean accepting wide-ranging level playing field rules. We believe that the UK must be able to regulate its wider economy, and that so-called level playing field requirements must be minimised as they would limit the Government’s ability to regulate areas including employment, taxation and the environment. It would not be sustainable for the EU to have control over such policy areas after Brexit.
Giving up some control – or sovereignty – over goods regulation, is a price worth paying for strong market access. Manufacturers in highly regulated industries often follow EU rules anyway, in some cases even in the United States. But seeking to replicate the patchy Single Market in services would require the UK to give away too much control over its economy, for too little gain.
If you cannot see the PDF viewer below, please click here for the full report.