Without a big change in direction on Brexit from Theresa May, the UK is heading for a damaging, free trade agreement with the EU.
A Canada-style trade deal – plus agreements on police and judicial cooperation, and foreign and security policy – has been on the cards for over a year now. But the EU’s draft guidelines spell out in black and white that the single market is not for cherry-picking, that there will be very limited services access, and that frictionless borders between the UK and EU are a fantasy.
The EU27 will finalise and agree these draft guidelines by the end of March but, without a big shift from May, no one is expecting big changes.
Estimates of what impact a Canada-style free trade deal could have on UK-EU trade suggest a 35% drop in goods trade and a massive 61% drop in services trade – adding up to a 45% drop in trade overall.
A Canada-style free trade deal also means that the only way the Irish border could be frictionless would be along the lines proposed by the European Commission last week – Northern Ireland being part of the EU customs union and following EU regulations. That means a border down the Irish Sea.
And without progress on agreeing the legal draft on last December’s agreement on ‘phase one’ Brexit issues, including Northern Ireland, the EU won’t even agree an outline trade framework with the UK at all.
Businesses – from Airbus wing manufactures to car producers to financial services – have been crying out for clarity. But the clarity offered by the EU is that there will be plenty of non-tariff barriers, even if a tariff-free deal in goods, agriculture and fisheries is agreed. That means just-in-time production across the UK-EU border is a thing of the past and cross-border supply chains will be a lot more costly and perhaps not profitable.
Businesses who have been calling for a customs union will now face making investment and production decisions on the basis of a likely Canada-style deal. That’s not good news for UK investment, jobs or growth. Rather it looks very damaging indeed.
The draft guidelines are a major, albeit unsurprising, rebuff to Theresa May’s big speech last week. They are short and sharp: the UK cannot be in some sectors of the EU’s single market and not others; outside the EU’s single market, the UK cannot be in some of the EU’s regulatory agencies. May wanted aviation, medicines and chemicals at least. There are no flexible deals on mutual recognition of regulations, no avoidance of rules of origin checks at borders, given the UK’s wish for an independent trade policy.
Beyond that, the EU is clear there must be a solid, level-playing field. They have heard mention of a ‘Singapore option’ for the UK, and have no intention of agreeing a Canada-style deal to end up with deregulation from the UK. The EU is open to mutual recognition of professional qualifications – which they did with Canada too – and want ‘ambitious provisions on movement of natural persons’. But that doesn’t add up to a deep or special deal on services or anything else.
The EU is clear it wants to keep planes flying between the UK and EU, but it will be on its terms. There will be no replication of existing rights to fly between other EU countries on the basis of these guidelines.
The EU wants this deal to cover agriculture and fisheries too, in terms of tariff-free trade. Agriculture is a vital component of ensuring no hard border on the island of Ireland. And on fisheries, Brussels has been clear for some time that there is no UK access to markets without it getting access to waters. It opens with an ambitious bid: ‘existing reciprocal access to fishing waters and resources should be maintained’ declares the draft.
These guidelines should be a huge wake-up call. But Theresa May’s government looks capable neither of delivering a ‘soft’ Brexit nor a halt to Brexit – and that leaves a hard, Canada-style Brexit or a crashing out, ‘no deal’ Brexit. The UK faces a very tough time under a Canada-style outcome. But that is the logic of May’s position. And only she or Westminster can change that.