16 July 2018

The government last week released its White Paper on the future UK-EU partnership. Broadly, it proposes that the UK should remain highly integrated in goods by agreeing to “ongoing harmonisation” with EU rules, but secure greater “regulatory flexibility” in services. It also puts forward a plan for a “Facilitated Customs Arrangement” that it claims would allow the UK to secure an independent trade policy while maintaining “frictionless” trade with the EU.

Open Europe has today published its response to the government’s proposal, arguing that while it may not be an ideal plan – and goes further than the plan Open Europe put forward – it offers a compromise approach for negotiations.

We argue that it makes sense for the UK to agree to align with EU goods regulations. It is highly likely that UK manufacturers will choose to continue applying these rules after Brexit. For trade in highly regulated goods, UK businesses will need to comply with EU regulations to sell into the European market. What’s more, regulatory harmonisation in goods across the EU has meant UK manufacturers have become highly integrated in regional supply chains – divergence would undermine their competitiveness within these crucial supply streams.

We point out that the government’s proposal of a “common rulebook” can by its very nature only apply to areas where the EU has established common rules. It is not true that all goods sectors are governed by EU technical rules and regulations. In some specific industries, the EU requires all members to apply identical technical specifications (automotive, chemicals). However, in the majority of sectors, the EU only sets formal common rules for essential health, safety and environmental requirements. In still other areas, the EU has established no centralised rules at all. Given that all EU and EFTA members broadly follow EU rules in harmonised sectors, these can be considered the basis for common EU rules.

Given reports that the White Paper would restrict the UK’s ability to sign new trade deals, we note that alignment on rules would narrow the scope of trade deals, but it would certainly not preclude them. Non-EU countries such as Norway and Switzerland, which agree to follow EU rules on goods and SPS agrifood requirements, are able to sign their own trade deals – in some cases they have concluded agreements ahead of the EU, or pursued deals with different partners.

It will not be possible for the UK to align with all international regulatory regimes after Brexit – if the UK decided shift towards the American regulatory model to ease market access to the US, it would necessarily raise technical barriers to its trade with the EU. It makes sense for Britain to prioritise removing regulatory barriers to trade with its most important goods market – the EU – even if this reduces the possibility of lowering costs to trade with other countries.

The UK’s proposal for “parliamentary scrutiny” over the implementation of future EU regulation makes sense, although it is notable that the White Paper does not refer to what ministers have called a “parliamentary lock.” No third country that agrees to align with EU regulations accepts automatically to implement new EU laws – neither Norway nor Switzerland do this. Switzerland has even managed to ‘push back’ on certain EU regulations, as Open Europe outlined in our ‘Striking a Balance’ report. However, the UK’s practical ability to say no to any future domestically harmful regulations will depend on the political and economic costs of doing so.

Significant questions remain, including over the overall governance arrangement for the relationship, the penalty for future non-compliance, and the UK’s future immigration system for EU nationals. These are likely to be significant areas for negotiation with the EU. It is also not clear that the EU is open to a customs system based on the government’s Customs Partnership model.

The Chequers plan has experienced a very rough landing domestically, facing concern and criticism from both Remain and Leave sides. Writing in the Financial Times this weekend, former Brexit Secretary David Davis argued, “It goes against our economic and democratic interests that we would have to harmonise to single market rules.” On the other side of the debate, former Education Secretary Justine Greening wrote in The Times today, “Having read the detail, this deal is a fudge I can’t support. It’s the worst of both worlds…We’ll be dragging Remain voters out of the EU for a deal that means still complying with many EU rules, but now with no say on shaping them.”

It is true that the White Paper sets forward a compromise deal: it is unlikely to represent an ideal scenario for many on the UK and EU side. The plan goes further than the compromise proposal Open Europe had advocated, not least by including agrifood in the proposed alignment with the EU. However, it comes amid an absence of other seriously politically viable proposals for this stage in negotiations.

The EU has presented the UK with a choice between a Canada-style FTA, with the caveat that Northern Ireland would remain in the EU’s customs and regulatory territory; and a Norway-plus scenario where the UK remains in the full single market and a customs union with no decision-making powers. The first would see Northern Ireland separated from the UK on trade and key economic regulation, and the second would fail to respond to the referendum result – most notably by retaining the free movement of people.

The government’s proposal is a step forward. It has taken over two years for Whitehall to develop a clear plan – it is now for the EU to engage seriously with these ideas, recognising that the UK has very limited political space to offer further concessions.

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