Soft, Hard, Jobs, Open Brexit? A Reality Check

COMMENT

Soft, Hard, Jobs, Open Brexit? A Reality Check

Kirsty Hughes | 11 June 2017

European Parliament Visit to the Storting, Stortinget, CC-BY-NC-ND-2.0

As post-election political chaos deepens in the UK, many voices can be heard saying a soft Brexit is now in prospect. Jeremy Corbyn wants a jobs-first Brexit, a ‘good deal’ and says the Great Repeal Bill is history. Some Labour and Tory MPs want a Norway/single market option for the UK via a cross-party consensus. Scottish Tory leader Ruth Davidson wants an ‘open’ Brexit.

What much of this increasingly confused debate does not face up to is that there are, in fact, just a few limited options for the UK (should it be able to get any of those through Westminster). Nor does it stop for long to consider what the position of the EU27 is, nor to consider what can be achieved before the 30 March 2019 Article 50 deadline. So what does it look like from the EU27 point of view?

What is on offer from the EU27?

In Brussels, the UK’s deepening political confusion is watched with, in part, bemusement but also with considerable political alertness as to where the UK may end up and whether the EU can encourage it towards a soft Brexit or even to stay in the EU after all.

But even before the election outcome, there was concern in Brussels as to the UK’s readiness for talks, and planning is under way not just for the talks (if and when they begin) but also for how to handle a cliff-edge, no-deal outcome. How the UK is defining its interests and positions, beyond its main red lines, is unclear to key people in Brussels – making it hard to plan the talks. And Theresa May’s confrontational approach has also worried the EU27 side – for whom a deal has always been better than no deal.

Trade talks are always hard-headed, but for Brussels it is vital to find areas of common interest: a deal needs to work for both sides – a ‘win-lose’, antagonistic approach cannot work. For now, the UK, they fear, does not seem to understand this.

Whether a fresh, constructive UK approach is likely as the post-election chaos continues must be open to doubt. But in Brussels, just before the election, the message was clear. If the UK changes its tone, looks for a feasible, exit deal and is ready to be constructive on the budget, then the EU27 will do its best to smooth the path to 30 March 2019.

The budget deal will be very hard, and central, for both sides. The EU27 do not want to re-open their 2014-2021 budget (which will create major political rifts amongst them) and they want some cover for future liabilities and projects that the UK had committed to. Depending on the nature of the UK’s exit deal, transition arrangements and future trade deal, a decent offer from the UK on budget may well be met by EU27 with serious assistance in how the budget deal is presented: there are ways to make the headline figure look much lower than the €50-100 billion that has been talked about.

What future deal for EU27-UK?

For Brussels, the options are clear – and few in number.

The EEA option: If the UK wants to move into the European Economic Area (EEA), like Norway, and respect all four freedoms including free movement of people, then it can do that. The EEA also looks, for the EU27, like the only feasible transition route for the UK from leaving the EU to later agreeing a trade deal – there is not enough time in the next 21 months to negotiate a bespoke transition. But the EU27 do not want the UK to linger in the EEA as a transition if it’s not the final destination. They may offer this for just 2-3 years.

The Canada option: If the UK wants to have its own, tighter migration policy, it can look in the first instance to have a Canada-style trade deal – mainly tariff-free trade in goods, less access for services, procedures to ensure regulatory equivalence. Some in Brussels now think this could be agreed as early as 2021 or 2022.

The message in Brussels is clear: there are no other options for March 2019. The Swiss model, which anyway involves free movement though it does not have good services access, is not one the EU27 want to follow. It’s too complex, and involves too many sector-specific deals. So there is no ‘quite soft’ or ‘softer’ Brexit deal (whether it’s called jobs-first or open Brexit) that lies between a Norway or a Canada-style deal.

A Deeper partnership later? What there may be is a deeper and more comprehensive deal – once a Canada-style deal is in place – that will create access and rights in crucial sectors such as aviation. But while a Canada-style deal could perhaps be done even by 2021 or 2022, a deeper deal could take several more years after that, perhaps to the late 2020s.

Can an EU27 roadmap help the UK through its Brexit confusion?

Does the EU27 approach suggest a feasible roadmap for the UK? It would mean: agree an exit deal by end of 2018 (on budget, Northern Ireland borders, EU citizens); then spend three years in an EEA transition; then have a Canada-style trade deal which might by the late 2020s be transformed into a deeper, comprehensive relationship.

But even this would leave some tough issues to negotiate before end of March 2019 beyond the budget, EU citizens and Northern Ireland. In the EEA model, agriculture and fisheries are excluded, as is justice and home affairs (so security cooperation will need to be agreed). Access to UK fishing waters is a big issue for a number of EU member states – it will be very hard to strike a deal on that. There will need to be a deal on agricultural trade too. But when will the UK have a post-Brexit agriculture or fisheries policy – can the minority government get it through the House of Commons or agree it with the devolved administrations? That looks quite hard amidst the current political disarray.

In the EEA, the UK would be outside the EU customs union. So it would need customs bureaucracy and checks in place to apply ‘rules of origin’ so that third countries like China don’t exploit lower tariffs into the UK as a backdoor into the EU27. Does the UK know what sort of trade policy it wants with such third countries – can it get that through the House of Commons and have the customs bureaucracy in place for March 2019?

And even with the EEA, the UK will have to repatriate legislation to the UK, including various justice and home affairs measures, as well as decide which of the EU regulatory agencies it will still be part of and which not – and how to set up its own new regulatory structures (again with Westminster’s agreement). It would require some substantial rethinking of the Great Repeal Bill. But Jeremy Corbyn’s idea that he could negotiate a tariff-free trade deal first and only then think about repatriating laws is not serious given the Article 50 timetable. It speaks more to Labour’s intended opposition to a minority Tory government than to an actual Labour Brexit strategy.

EEA and customs union as a soft way out?

Could the softest of Brexits – being in both the EEA and EU customs union – provide a way out? It would certainly reduce some of the challenges ahead to agree an exit deal and transition by March 2019. But it is not straightforward – no third country has ever been a full member of the EU customs union (Turkey is in it just for goods, not agriculture or services). Would the EU27 even agree to the UK being in both? – it’s not clear.

Furthermore, EEA members are in the European Free Trade Association (EFTA) – so they have their own trade deals with the rest of the world. The UK would need some sort of special dispensation – in the EEA but not EFTA to be in the customs union. Then it would be obliged to apply EU tariffs that the EU27 agree with other countries round the world. The UK would have given up the possibility of having its own independent trade policy. And would the UK really want to be in the full customs union – covering agriculture and fisheries too? That would presumably mean then following EU agriculture and fisheries policies. It would be close to not leaving the EU – just giving up any influence, vote and clout.

All these models, EEA, EEA/customs union, Canada-style trade deal – and of course the WTO cliff/no deal model – have substantial economic costs. A range of economic studies have estimated falls in GDP and exports even under a Norway model, with the impact much greater if the UK goes for a Canada deal and worst of all in a WTO outcome.

But the EEA and EEA/customs union options come with major democratic challenges too. In a major Norwegian study of its 20 years in the EEA in 2012, the author concluded that Norway faced a major democratic deficit as a result of having to implement EU rules while having little say on them and no vote. An EEA option may look less damaging than a Canada or WTO model but it remains politically and economically worse than staying in the EU.

Ways out of the UK’s crisis?

Some Labour and Tory politicians are calling for a cross-party consensus on the UK’s Brexit approach. If they want an EEA or EEA/customs union cross-party approach, they need to explain why this is better than staying in the EU. If they want a medium-soft bespoke Brexit – between EEA and Canada-style trade deal – they have to realise it’s not on offer. And if they want a Canada-style deal, then that is a hard Brexit with all the economic costs it will entail. The Remain voters who migrated back to Labour in the election – including younger voters – surely did not vote for that.

As the UK’s political chaos deepens, a rational political debate about either staying in the EU or setting out the different political and economic costs of being in the EEA, a Canada-style trade deal or a WTO outcome seems a long way off. But the Article 50 deadline – 30 March 2019 – is getting closer every day.

The EU27 have little reason to extend that deadline. But if they can see a way – at the right moment – to offer the UK a helping hand to the EEA or to no Brexit after all, they might just do it. For now, they can only stand back and watch chaotic Brexit take shape.

Kirsty HughesKirsty Hughes | Twitter

Scottish Centre on European Relations

Dr Kirsty Hughes is Director of the Scottish Centre on European Relations. She is a researcher, writer and commentator on European politics and policy, and she previously worked for a number of leading European think tanks.