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Open Europe's new report outlines a proposal for the future bilateral trading relationship where the UK remain highly integrated with the EU in goods, but obtains the flexibility to diverge in services.
4 June 2018
Open Europe today publish a major new report, “Striking a Balance: A blueprint for the UK-EU future economic relationship.” Our approach is based on an analysis of the structure of the UK economy and its trade patterns, a close examination of the different deals that the EU has already done from the CETA deal with Canada, via its agreements with the Ukraine and Switzerland, to the European Economic Area. We believe that this proposal should be acceptable to both remainers and leavers, and also to the EU. But nobody will get exactly what they want.
The debate at the moment is polarised between hardline leavers who refuse to accept giving up any sovereignty whatever the economic costs, and extreme remainers who want to either reverse the referendum result or at least recreate the entire structures of the EU from the outside. This is not where business or the public are. A sensible compromise recognises that giving up a little sovereignty can deliver good economic benefits, but there are diminishing returns in asking for more.
The UK economy is strongly services dominated (around 80% of our economy) – we cannot simply be a rule-taker in key industries such as financial services. The approach on services therefore should be about managing divergence. While we should aim for more than the current equivalence regime, we are unlikely to get the full mutual recognition sought by the Government. Asking for more comes with its own costs, as the EU will demand wide-ranging “level-playing field” controls over our wider domestic economy including taxation, labour law, and environmental standards. The majority of our services trade is with the world beyond the EU, and even in some areas where the Single Market in services is most developed – for example financial services – only 36% of our exports are to the EU. There is also an increasing uncertainty cost of pursuing a deal which is unlikely to be negotiable.
On goods we take a different approach. The Single Market in goods is far more developed than services and was a significant achievement of British EU membership. We believe it makes sense broadly to maintain alignment with its rules. The EU is our most important goods’ market and the most highly-regulated sectors – electrical, automobiles, and chemicals – are the areas which we trade most with the EU and are growing the fastest. Although there might be some benefit from regulatory divergence, we judge that the Government should commit to maintaining the acquis on goods. There should be an assumption that future goods regulations are followed by the UK, but this process would not be automatic. It would be open to the UK, as a third country, to decide not to follow a particular new regulation, knowing that this could affect market access and ultimately potentially the broader agreement.
With significant Brexit events on the horizon, including parliamentary votes on key Brexit legislation, an eagerly awaited government paper, and the crunch-point meeting of EU27 leaders at the end of this month, it is crucial to find a way through deadlocked negotiations. This proposal provides a pragmatic option that can appeal to moderate Leavers and Remainers, as well as the EU.
If you cannot see the PDF viewer below, please click here for the full report.