The Confederation of British Industry (CBI) through its director-general has indicated that it considers that long-term continuing membership of the customs union (CU) is in accord with UK economic interests, even though continuing CU membership would appear to preclude the UK from negotiating bespoke trade deals with third party countries outside the EU.
It is indeed doubtful that future gains actually realisable from any such future deals would offset the economic costs of the UK losing the advantages of SM membership, given the concentration of trade that the UK has with its european neighbours.
Certainly it is difficult to see how a hard border between Eire and N.Ireland could be avoided – a key plank of the brexit stage 1 agreement between the UK and EU – if the UK exits the CU.
But is it really possible for the UK to continue in the CU indefinitely, while in parallel disengaging from the the obligations and processes of the single market(SM)?
Cutting a complex and uncertain reality to its essentials, post-brexit UK regulatory autonomy appears inconsistent with it maintaining regulatory alignment with the EU.
In the absence of such alignment, it highly doubtful that ‘frictionless’ trading of both goods and services can be maintained even if the UK retains some sort of de facto CU membership.
The UK could offer to continue to ensure such regulatory compliance through domestic regulations and processes. But there would need to some assurance assurance and compliance system that would satisfy EU SM requirements, that would appear, inevitably, to involve continuing ECJ oversight or something comparable, at least well into the medium term.
Yet both the May government the Labour leadership appear still appear to seek bespoke bilateral arrangements where the UK could continue to secure the advantages of SM membership, while jettisoning perceived accompanying unwelcome requirements, including free movement, ECJ jurisdiction, and in the case of Corbyn, restrictions on state aid.
But the French President, Macron, has recently made it clear again that continuing UK access to the single market, including its financial services, requires the UK to continue to contribute to the EU budget and to acknowledge European jurisdiction, as well as honour free freedom of movement of labour and capital, if it wishes to continue to benefit from the free and frictionless movement of goods and services.
He also did hint that that some bespoke tweaks relating to UK adherence to SM requirements could be interpreted or portrayed could possibly be pursued (one example could be on how EU oversight of UK regulatory compliance would be defined), while reiterating that no fundamental breach to the institutional SM architecture would be entertained.
The UK tactical bet seems to be that the attractions and importance of the UK as a trading partner will trump the determination of the EU
to conserve the complete integrity of the SM and its rules during this year’s negotiations. That appears wishful thinking.
Such a misguided approach detracts from a UK negotiating position that is best capable of maximising UK benefit from a least economically damaging settlement.