CER: Holding out hope for a half-way Brexit house

22 January 2018

The UK is considering 'managed divergence' from EU rules, which the 27 will reject. A better strategy would be to remain in the customs union and single market for goods, write John Springford and Sam Lowe.

[...] The EU is unlikely to countenance any model which undermines the single market’s political integrity. In that regard the 'managed divergence' proposal looks unlikely to stick. However, a model that may limit the damage and prove politically palatable to the EU-27 exists: the UK remains in a comprehensive customs union with the EU and the single market, but only for goods. Under such an agreement, there would be no process of managed divergence in different sectors over time.

One could call this ‘the Jersey option’ (because the Crown Dependencies enjoy a similar relationship with the EU). The agreement would need to include the following features:  

• Services access for UK firms would need to be roughly the same as that of any other third country. The UK, theoretically, could take to the world and try to sign services-only trade deals.
• The UK would need to agree to follow all of the rules of the customs union, single market rules for goods and the EU’s VAT regime. All industrial goods and agriculture would have to be covered. Anything less would create a situation where checks on origin and standards, among other things, would still be required at the border.
• The UK would have to agree to rules on state aid, industrial emissions and social and employment laws, to avoid the charge of environmental and social ‘dumping’. 
• The agreement would need a surveillance mechanism, to check that the UK is complying with EU rules, and a court to settle disputes between the EU and the UK. Any new court would have to take account of the case law of the European Court of Justice. 
• The EU would insist upon a financial contribution to the economic development of Central and Eastern Europe, among other things. The Swiss, for example, contribute around half the UK’s current payments per head. They have a similar level of access to the single market as the proposal outlined here.
• The biggest question is whether the EU would insist upon free movement of EU workers as it stands, or whether it might be possible for the UK to negotiate controls on free movement, in exchange for the obvious damage that this agreement would do to the City of London.

The Jersey option would also, unlike 'managed divergence', solve the Irish border issue: there would be no need for border checks of any sort, since all goods shipped across it would be produced according to EU rules, and no tariffs would be payable. But it would require Theresa May to soften many of her red lines, and her party would be likely to defenestrate her if she did so. Perhaps a Labour government would be capable of delivering such a plan, but it would have to force an election – and win it – first.

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