British Fudge: Where Now for the Future UK-EU Framework?

Anton Muscatelli | 2 July 2018

© 2017 European Union

According to the Oxford English Dictionary, ‘fudge’ is an early 17th century word, which originally meant ‘turn out as expected’ or ‘merge together’, and later in the 17th century took on a different meaning: to ‘fit together in a clumsy or underhand manner’.

This is a good analogy for what is happening at present. We were told that the June European Council meeting was an important staging post for the Brexit negotiations. Instead, irreconcilable divisions within the UK cabinet, and the EU’s unwillingness to ‘fudge’ the basic principles and structures of the European Single Market (ESM) has mean things have not turned out as expected. There is certainly no coming together in the negotiations, with only a few weeks left before the final October deadline.

The Chequers summit next week will, it is hoped, lead to a White Paper which will set out the UK Government’s position on the future framework. That depends on the Prime Minister being able to reconcile the irreconcilable positions in her Cabinet. There are two possibilities: the first is that she is able to achieve cabinet consensus on a particular position, which will then either result in a political crisis within her own party and or to an acceptance by the cabinet, in the interests of self-preservation. We turn to the implications of that for the negotiations in a moment.

The second possibility is that we will get more ‘fudge’, and this will lead to more unproductive negotiations with Brussels on the future framework. In this case the risk will either be ‘no deal’ and a cliff-edge Brexit, with the disastrous consequences which many commentators have outlined. Or that, provided that there is agreement at least on the Irish border backstop, the UK leaves the EU with only the withdrawal and transition agreements, and a vague ‘heads of terms’ agreement to continue to negotiate on a future framework. It will then be negotiating a trade deal as a third country (whilst of course in the standstill transition, which hopefully will have in its legal text the possibility for an extension if the continuing talks lead nowhere).

But we are not out of the woods on the withdrawal and transition agreement. As the brief and pointed conclusions of the European Council of the 28-29 June highlight, the EU27 feel that the lack of progress on negotiating the backstop on Ireland is a real concern. So a cliff-edge Brexit is still not out of the question.

Let’s now turn to where the UK Cabinet might land in the White Paper. As I’ve argued before the UK desperately wants to explore the space between the Canada and the Norway models, both as a way of safeguarding manufacturing and other sectors whose value chains are integrated into the EU/EEA single market, and as a way of avoiding a ‘hard border’ in Ireland. In other words, the UK wants a partial integration into the European Single Market somewhere between Switzerland and Norway. This ‘cherry-picking’ has already been ruled out by the Commission through the ‘Barnier Staircase’ which highlights that a frictionless border between the EU and the EU27 requires adherence to the single market (including the ‘four freedoms’) and the customs union.

A number of UK sources hinted in the last few weeks that the UK (if the PM could persuade her government’s Brexiteer wing at Chequers) might suggest the UK’s adherence to the ESM only for goods, and a ‘custom union’. This would address, with cover for agriculture and food, the Irish border issue, and the problems with border friction faced by UK manufacturing. This is, in a sense, a version of the approach originally suggested by the UK which has already been shot down by the EU, but promising much closer alignment. Under this Swiss plus/Norway minus plan there would only be divergence in regulations as far as services are concerned.

Unfortunately for the UK, this plan also seems to be unacceptable to the EU27. The problem for the UK is that the EU has already set out its position that the single market in goods and services cannot be picked apart. Indeed, it’s interesting that the European Services Forum recently wrote to both Michel Barnier and David Davis stressing that services are embedded in goods trade and require a detailed agreement given the importance to both the UK and the EU. The EU made it very clear from the start that they will ensure that a future framework maintains a level playing field in trade with the UK. There would be massive concern in the EU if the UK could deregulate in services whilst staying within the ESM for goods because of the competitive advantage it would give the UK.

So the big question for the Prime Minister at the Chequers summit is whether to firmly nail her colours to this particular mast, taking on the extreme Brexiteers, only to then be rebuffed by the EU. This could be politically difficult. If this seems likely it’s less risky for the PM to serve up another portion of British ‘fudge’, and she will hope that by pushing the negotiations to the wire into the autumn, some concessions could be found which will allow a partial ESM integration model. But as noted, she may instead end up with no deal, or with a Brexit with no promises on the future framework as we enter the transition.

It’s a very high risk strategy which could have been avoided by taking on the Brexiteers earlier on a full ESM and customs union model to gain some concessions on freedom of movement and a form of ECJ indirect jurisdiction in an EFTA-type model. We should be ready for some more brinkmanship in the coming weeks.

Anton MuscatelliAnton Muscatelli | Twitter

University of Glasgow

Prof Sir Anton Muscatelli is Principal and Vice Chancellor of the University of Glasgow. He is Chair of the First Minister of Scotland’s Standing Council on Europe and Advisory Board member of the Scottish Centre on European Relations.