The phony war between the EU and UK ended in October. Brussels made it clear that the Northern Ireland (NI) backstop – continuing adherence to EU customs union and single market requirements for goods sufficient to prevent the return of customs controls on the inter-Ireland border – meant precisely that: one indefinite in duration, spatially specific to NI, involving a regulatory border down the Irish Sea; at least, if and until UK-wide arrangements are agreed during the subsequent ‘future relationship’ negotiations.
Mrs May on her part re-affirmed that Westminster could never accept such a splitting of UK customs territory. She offered instead to extend the transition period, during which the UK would, in effect, continue to be part of the EU-wide Customs Union (CU) and Single Market (SM), beyond December 2020, while insisting that it should still be time-limited to end before 2022 – when the next election is due in accordance with the Fixed Term Parliament Act and rejecting any specific NI ‘backstop within the backstop’.
These respective red-lines are, of course, incompatible. They must give if a calamitous no deal exit is to be avoided. The UK parliament will not approve a WA that involves an Irish Sea regulatory border, which, in any case could itself infringe the 1998 Good Friday agreement, at least in spirit.
On the other hand, a time-limited backstop constitutes a contradiction in terms: it will not be infringed (or, put another way, be required, or be necessary) while trading arrangements that obviate the need for NI border infrastructure are either maintained or are committed to into the future by formal treaty within interruption; the problem is that the date when any such future agreement could be made is unknown.
Three key points need to be borne in mind. First, the WA is legally binding and needs a super-majority vote approval by the EU27 members; it then will be subject to a ‘meaningful’ vote in the UK Parliament. But the accompanying political declaration plotting the future economic and political relationship between the UK and EU, is not. It can therefore be vague and aspirational in a way that the WA as a precise legal document cannot. Second, any replacement Canada-style comprehensive trade agreement is likely to take years to put in place. It almost certainly will not be ready by 2022. And, third, of course, politics trumps economics in Brexit.
The first two explain why the EU feels that the backstop requires legal backing in the WA. Without it, the UK could without legal impediment unilaterally decide when and how its future proposed trading relationship would prevent the need for border infrastructure within the island of Ireland. Its existence – given the UK blood-red-line against an Irish Sea regulatory border and/or specially agreed arrangements for the Province – mean that the entire UK, as a minimum, will need to: (i) stay in an equivalent CU with the EU; and, (ii) cede continuing regulatory alignment with EU regulations concerning goods.
That is, at least until an alternative trade agreement and/or technological fixes or arrangements that are consistent with no hard inter-Island border are mutually agreed with the EU and put in place. But, as noted above, the timescale for that end-point looms beyond 2022. Nor is it even clear how a replacement Canada-style agreement could ever avoid the re-imposition of a hard border within Ireland. Reality finally has caught up with the wishful thinking and/or hubris: the aspirations of the hard-Brexiteers as reflected in Mrs May’s Lancaster House speech conflict with minimising economic damage to the UK, and arrangements that can maintain frictionless trade without border controls within the island of Ireland rendering unnecessary the NI backstop.
The third means that May will need to depend on Labour votes to secure parliamentary approval for any Chequers Mark 2 agreement that she shortly could and needs to make with Brussels. The formal Labour position is to vote against any agreement that does not meet its six tests that in effect require UK continuing participation in arrangements equivalent to the SM and CU. On her own benches, the hard-Brexiteers of the European Reform Group (ERG) forswore after Chequers that they would not accept any variant to it. If they stick to their guns that would mean, unless Labour shifted its position, that parliament would vote down any Chequers Mark 2 agreement presented to it.
But, as no parliamentary majority for a no deal exit exists, such a concerted ERG rebellion that led to the deal being voted down would risk either a second referendum or a general election. For that reason, But no parliamentary majority for a no deal exit exists. A concerted ERG rebellion that led to a Chequers Mark 2 deal being voted down would risk either a second referendum or a general election. For that reason, it is quite possible that many of its posited 80-odd members will not actually vote against the government to a point where the numbers that do could be offset by enough Labour MP’s willing to vote – even against their party – for an orderly exit lifting economically damaging uncertainty.
One proposed possible way to avoid such a disorderly exit is for the UK to park itself into the European Economic Area (EEA), at least on an interim temporary basis until future long-term arrangements can be agreed. Nick Boles MP, close to Michael Gove – a possible leading Leaver contender for prime minister in the event of the ouster of May – has most recently put forward the case for Norway for Now.
The UK would scrap the planned transition period starting in March 2019. It instead would rejoin the EEA for three years, alongside a ‘temporary’ customs union with the EU: making it, in effect, Norway-Plus for Now. Boles claims that this model offers an escape from a no deal exit that is supported by a broad swathe of MP’s, including prominent Conservative Remainers, such as Nicky Morgan. Back in February, the Labour Campaign for the Single Market , supported by prominent Labour Remainer MP’s unreconciled to the Corbyn project, such as Chuka Umunna, Chris Bryant, and Ruth Cadbury, demanded that – as a minimum – the UK should remain part of the European Economic Area (EEA) allowing it to stay on a permanent basis in the single market for both goods and services. When push comes to shove some could be expected to support support interim EEA membership, plus UK continuing CU participation, as a second-best alternative.
But Norway-Plus for Now appears to offer a red herring for three main reasons. First and foremost, the EEA is not designed to be a temporary holding pen for an exiting EU (and EEA) member wanting to put into place a comprehensive replacement bilateral free trade agreement with the EU, it had just left. At the end of October, Norway’s prime minister, Erna Solberg, highlighted that -albeit rather delicately and diplomatically – as ‘a difficulty’, no doubt fearing the entanglement of her country into UK Brexit politics and the possible disruption that it could cause both domestically and across EEA-linked institutions, and the European Free Trade Association (EFTA) in particular. Indeed, the UK economy in size dwarfs that of the three extant EFTA/EEA members – Norway, Iceland and Liechtenstein – combined. But, even if they were prepared to welcome the UK into their club on such a basis with open arms, the EU has shown no indication that it would be prepared to fast-track the UK to re-join EEA through an application to the European Free Trade Association (EFTA) in such circumstances.
The EFTA/EEA route from the onset of the negotiations was offered by Brussels as a counterpoint alternative model to a Canadian-style trade agreement for the UK to pursue. The May government chose the latter. That the EU would now pull out all of the stops to allow the UK to join as a temporary expedient in the compressed timescale now available before a March 2019 exit, while at the same time ditching its red line that the NI backstop cannot be temporary or be time-limited, is, frankly, inconceivable.
Second, the mechanism for the UK to join the EEA by becoming a member of EFTA, on the face of it, appears incompatible, or at least inconsistent, with the UK remaining in a CU with the EU. An ex-Director-General of the EU Legal Service, pointed out in https://twitter.com/piris_jc/status/1056860779427913728 that such membership appears inconsistent with Article 56 (3): Any State acceding to this Convention shall apply to become a party to the free trade agreements between the (EFTA) Member States on the one hand and third states, unions of states or international organisations on the other: the accession to EFTA of a new Member State (UK) aiming at a custom union with the EU appears inconsistent with it entering into existing EFTA free trade treaties.
It is perhaps possible that on a needs-must basis, special arrangements for the UK could be sought and engineered. But not for a temporary and time-limited period of membership that both the EU and EFTA members are uncomfortable with. The UK could not make an application to join EFTA until it had left the EU in any case.
Third, all relevant Internal Market legislation is integrated into the EEA Agreement so that it applies throughout the whole of the EEA. All EU members are contracting parties to the EEA, along with Norway, Iceland and Liechtenstein. The four freedoms of the free movement of goods, capital, services and persons lies at its heart. In addition, the EEA Agreement covers horizontal areas, such as social policy, consumer protection, environment, company law and statistics; to ensure equal conditions of competition throughout the EEA, it mirrors the competition and state aid rules of the EU Treaties, while also providing for participation in EU programmes, in return for agreed budgetary contributions. This would mean that the UK would need to maintain freedom of movement (FOM), continue to pay budgetary contributions to the EU, but now – as a non-EU member – as a rule-taker.
Norway-Plus-for-Now could not be time-limited without infringing the EU NI backstop red-line. That so, given the complexities and uncertainties of negotiating a replacement free trade agreement, the arrangement would need to be indefinite one, contrary to its prime purpose of providing a temporary holding pen for the UK. The prospect of the UK being a ‘vassal’ state indefinitely is deeply troubling, not only to hard-Brexiteers, but to some Remainers, such as Dominic Grieve, who have indicated that a second referendum would be preferable. Many Labour MP’s, such as Caroline Flint, representing leave-voting constituencies on their part have expressed a willingness to vote against such an arrangement, while accepting a principle of a continuing CU, because UK EEA membership would involve full participation in the single market and thus continuing FOM, putting themselves at odds with their Campaign for Single Market colleagues.
The end-game to secure a deal that is politically acceptable in both Brussels and Westminster is imminent. Time is certainly running out to avoid mounting abortive and wasteful expenditures on preparations for a disorderly ‘no deal’ exit with its accompanying market turmoil. The Withdrawal Agreement (WA) should be agreed at least in principle by an EU Summit in November – certainly no later than early December – for it to be approved by the scheduled EU Council on the 12/13th December.
Rather than making a CU an adjunct to UK continuing full involvement in the SM through the EFTA/EEA route, as Norway-for-Now does, a more bespoke arrangement that focused on extending UK participation in an equivalent CU with the EU to encompass regulatory alignment for goods in sufficient depth to render the NI backstop unnecessary, would seem to offer a better prospect of securing both EU and UK parliamentary approval.
As Sam Lowe of the Centre for European Reform, noted back in July, in Inching Towards Jersey, from the EU standpoint, such an arrangement would need to provide comfort to the EU that the UK would follow all 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 to prevent checks on origin and standards, among other things, becoming necessary;
• State aid, industrial emissions and social and employment laws, to avoid the charge of environmental and social ‘dumping’.
Lowe further noted that it would need a surveillance mechanism, to check that the UK is complying with EU rules, a court to settle disputes between the EU and the UK that 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.
Such an arrangement could allow the UK to pursue and sign FTA’s in services with third-party countries. It could also possibly be provided some flexibility on developing an independent migration policy – probably the most pertinent point in terms of selling it to MP’s who my be prepared to vote with the government, as well as the wider UK public-at-large. It would no longer be bound to the Common Agricultural and Fisheries Policy, thus addressing the concern of David Mundell, the Secretary of State for Scotland, who, in October warned that he would resign from the Cabinet if the UK was still subject to the Common Fisheries Policy when the next Scottish Holyrood elections next took place in 2021: a resignation that Mrs May cannot really withstand.It would allow the transition to be time-limited: the Political Declaration would simply confirm that both parties would apply best endeavours to negotiate, resolve, and finalise the arrangement prior to the expiry of the transition period. Overall, it could offer a model close but crucially distinct to the EEA, particularly with respect to the addition of a CU so to ensure continuing frictionless trade in goods between the entire of the UK and EU, rendering the NI backstop unnecessary or irrelevant in practice: one bespoke to the particular economic and political prevailing circumstances of the UK impacting upon on Brexit. As is required, of course.
In that light, if the national interest is the assessment criterion to be applied, this Chequers Mark 2 ‘Jersey’ option appears to represent the least damaging available Brexit option that can also politically sidestep the hiatus of No Deal by attracting a sufficient number of MP’s to approve it. There would, however, be an economic downside in terms of loss of EU market access for services. In that regard, while the importance of the financial sector to the UK economy and its public finances should not be under-stated, the sector is better-placed to withstand and adapt to such loss of access than most goods sectors are, with better distributional outcomes. An alternative Canada FTA would have similar or even worse impact. Better to remove the uncertainty now and support the export-oriented service sectors to get on protecting their existing EU business and to secure new and growing markets across the ROW.
The EU can be expected to insist that the NI backstop remains in the legally binding WA. Semantics is likely to come into play in cross-referencing it with the accompanying Political Declaration, in terms of reconciling the ‘temporary’ with the ‘indefinite’. Both parties committing to the end outcome of no return to border infrastructure within Ireland as an inherent feature of any post-transition replacement must be central to that. Crucially, as noted above, and unlike the negotiation of a Canada-style replacement FTA, a bespoke CU+ regulatory alignment for goods arrangement covering the entire UK could be finalized within a time-limited transition.
The EU previously has underscored that the four freedoms underpinning the single market are inviolable and indivisible. Well, needs-must. The NI backstop on a smaller spatial scale showed that. A bigger prize beckons. The advantages to the EU of avoiding No Deal – with its economic and diplomatic known and unknown adverse consequences – and in securing a higher market share in services are salient to its balancing of the net advantages and disadvantages to its members of such a bespoke deal . Navigating the separation of services from goods in practical implementation terms is not unproblematic, but possible.
Across the Channel, Prime Minister May could offer this Chequers-Mark 2 as the ‘pragmatic’ and ‘principled’ best available deal that follows the thread of her the July 2017 Brexit White Paper on establishing a sustainable free trade area in goods with the EU. One that within a realistic longer-term timescale could provide scope and opportunity for the UK to progressively identify and reap the most advantage of its altered and new relationship with Europe, in accordance with the result and spirit of the 2016 referendum vote.
Not only could the UK could forge new FTA’s concerning services with the ROW, it could also possibly allow the UK’s to progress FTAs concerning goods to the point where they could come into operation when the UK finally leaves the interim equivalent but still bespoke CU, where that is consistent with the NI backstop: that will be sometime in the indeterminate future, as always has the been the case. The actual prospect of independent deals – at least of the significance and scale needed to offset the loss of frictionless trade with our nearest and main partner, the EU, across the high value supply chains that are of particular economic importance to many communities in the north and midlands, was always to put it kindly, dim and distant, and unrealisable in the short-term, at least. The majority of MP’s appreciate that.
So such a Chequers Mark 2 deal could pass muster, at least on a two-thirds glass full basis, with enough Labour and Conservative MP’s to pass parliament. That, in turn, could create political space for co-ordinated labour market and industrial strategies to be put in place on a sustainable basis that can effectively upskill and provide more secure and better paid conditions for indigenous workers and young people., especially across the caring, construction, cleaning, hospitality, and other low wage and insecure, service sectors. If Brexit is to provide any lasting benefit to the UK economy and society that process needs to start now in earnest.