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PM wrong to hint we’ll quit single market and customs union

by Michael Emerson | 09.01.2017

Theresa May says we won’t keep “bits” of our EU membership post-Brexit. If that somewhat Delphic remark means we’ll quit both the single market and the customs union, she is making a big mistake.

In her interview with Sky News on Sunday, the prime minister denied the former EU ambassador Ivan Rogers’ charge that the government was guilty of “muddled thinking”. She also said she wanted an ambitious deal that involved control of immigration and the best possible trading relationship with the EU. If she means this, she should be trying to stay in both the single market and customs union.

The most damaging outcomes have come increasingly into focus, notably with the prospect that the two-year Article 50 deadline would not be met if the UK goes for a complex bespoke deal. In the absence of agreement to the contrary, the default outcome would be the guillotine of a simple third country relationship subject just to WTO rules for trade. The UK may try to win time with a transitional arrangement and continued negotiations, but it will have lost all legal bargaining power over the process.

The content of the least damaging outcome is however clear: accede to the European Economic Area as a non-EU member state and stay in the customs union. Both could be seamlessly implemented with nothing to negotiate except on budget contributions and the free movement of people.

The trickiest point would be to get some acceptable deal over free movement. But here the context has developed and may be further developing in two important respects. After the polemics of anti-immigration tabloid stuff before the referendum there has since emerged an impressive string of sectors pointing out that they need European immigrants crucially, from low tech farms, to the NHS, construction, the universities and research sector, the creative service sectors and the City.

On the other hand, the likelihood of a spontaneous drop in new net immigration must have risen, give the UK has put out a big “not welcome” sign, with deplorable public manifestations of xenophobic behaviour (from the Pole in the pub facing remarks like “well you can ‘leave’ now”, to a number of acts of physical violence). And the pound has depreciated their earnings. Statistics for the second half of 2016 are not yet available, but it may turn out that the polemics surrounding the referendum will have put off enough actual or prospective immigrants to make for a new situation in which the perceived problem solves itself. In this case, a safeguard clause of the type that the EU agreed with Switzerland in 1999 might be acceptable as part of the package for staying in the single market. At least this could be a holding position for 2017, to see whether the facts do indeed change.

There remains the debate whether freedom to negotiate free trade with countries that do not have this already with the EU could outweigh the loss of EU market access in the EU customs union. Concretely this concerns just a few big players: the US, Japan, India and China. None of these look sure bets to say the least. Trump is protectionist, will soon have to decide whether to scrap the proposed TTIP deal with the EU, and if he does so will he plausibly go chasing after free trade with the UK? Japan is negotiating with the EU and will surely not negotiate with the UK before finishing with the EU. India is also negotiating with the EU; meanwhile tentative bilateral discussions with the UK stalled after India asked for easier migration. As for China, does the UK really want to be the only major economy in the world to be subject to such devastating competition, with no real chance to negotiate dissolution of China’s notorious non-tariff barriers? Any cool analysis says that the rest of the world is not going to make up for loss of EU market access.  

Finally, there are the Scottish and Irish questions. Scotland has published its strong preference for saying in the single market and customs union. All of Ireland wants to avoid recreating the border through the UK quitting the customs union. Those who value the continuation and stability of the UK itself, and those worried by the prospect of nightmare negotiations over a complex “bespoke model” can see the advantages of the EEA+customs union formula.

Michael Emerson is Associate Senior Research Fellow at the Centre for European Policy Studies

Edited by Hugo Dixon

One Response to “PM wrong to hint we’ll quit single market and customs union”

  • A minor point, perhaps, but it makes no sense for any country to be both in the single market and in the custom union, except if it is in the EU. There is a good reason why Norway and Iceland, who are in the single market, have never joined the custom union: being outside the EU means they have no access to the EU trade agreements. If they were in the custom union, they could not make their own trade agreements (or would be severely limited in it). It would be a disastrous position for a country to be in.

    This UK has to chose between staying in the single market or staying in the custom union. Speaking politically and practically, staying in the single market is not feasible initially: it would require a sudden border in Ireland and it would mean that the UK would start trading under its own WTO schedule in stead of the EU’s. But the UK does not have a WTO schedule and will have to negotiate it, together with changes in the schedules of many other WTO members. Those negotiations could easily take years. So a direct transition from EU member to an EEA-like state is virtually impossible.

    That is why the initial state of the UK after Brexit has to be a custom agreement with the EU, which allows the UK to trade under the EU schedule and allows the border in Ireland to remain light. In the following years, negotiations with the WTO members and with Ireland can be concluded and the UK can leave the custom union. Then it can start making trade deals.