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05 July 2017

13: Great Repeal Bill – Don’t know what I want, but I know how to get it

Events this week have raised again the question of what sort of Brexit the Government is seeking.

We discussed in the last post that Chancellor Philip Hammond and SSExEU David Davis seem to be at odds, with the Chancellor increasingly pushing the economic argument for a ‘softer’ Brexit (even if that diminishes ‘sovereignty’), while the SSExEU insists that (as set out in the White Paper) the UK will definitely be leaving both the single market and the customs union by March 2019.

This week has brought reports that DExEU is increasingly accepting that there will need to be trade-offs between market access and political control when the UK leaves the EU (ie the UK cannot ‘have its cake and eat it’).

Of course, Labour’s position is little clearer, with Corbyn sacking three shadow ministers on Thursday for supporting a backbench Queen’s Speech amendment which backed staying the Single Market.

In that context, let’s have a look at the UK’s options.

Staying in the single market

The single market is perhaps the most ambitious type of trade cooperation. That’s because as well as eliminating tariffs, quotas or taxes on trade, it also includes the free movement of goods, services, capital and people. For goods, the single market strives to remove tariffs and also so-called ‘non-tariff barriers’ like different rules on packaging, safety and standards (hence all those EU regulations). A single market for services is more difficult, because the ‘non-tariff barriers’ are things like necessary qualifications and applicable regulations. It remains a work in progress.

In order to stay in the single market, the UK would have to allow the free movement of goods, services, capital and people, which means immigration is difficult (if not impossible) to control. Membership of the single market also normally involves making annual payments towards the EU’s budget and accepting the jurisdiction of the European Court of Justice.

In the current political climate, we can probably rule this option out.

EU customs union

The UK could aim for a relationship like Turkey has, which is part of the EU customs union, but is not in the single market (which means it is not obliged to follow EU single market rules on allowing freedom of movement, and so has ‘control of immigration’).

In a customs union, the countries agree to apply the same tariffs to goods from outside the union. Once goods have cleared customs in one country, they can be shipped to others within the customs union without further tariffs being imposed. Going for this option would solve the Irish border question – it would remain relatively open and easy for goods to cross.

Charles Grant, director of the Centre for European Reform said this week:

‘Though retaining a customs union with the EU would madden the Tory right, there is a strong macro-economic case for doing so. According to the Treasury’s unpublished analysis, the economic benefits of future [free trade agreements] would be significantly less than the economic cost of leaving the customs union.’

On the other hand, some argue that staying in the EU customs union would be of little benefit to the UK.

  • first, because services are a huge part of the British economy (about 78%) and are not generally covered by the EU customs union (nor would agriculture or fishing, since the UK would not be in the CAP or CFP);
  • second, the UK would have to comply with ‘rules of origin’ (ie demonstrate that UK goods originated in this country and were not just imported from, eg China or India, and then exported tariff-free into the EU). That could complicate the UK’s trade with those companies (particularly in the motor industry) that import components from around the world to put into finished products made in the UK;
  • third, the UK couldn’t negotiate free trade deals with other countries, as the EU would do that (as it does now); and
  • fourth, it would probably mean paying money to the EU and accepting ECJ judgements when they relate to trade.

A new customs union?

Given these disadvantages, one idea being floated is that the UK would leave the EU customs union, but create a new customs union with the EU customs union in respect of goods.

This would allow physical products to trade freely across borders without export duties or delay so long as the EU27 and UK shared a common external tariff (or perhaps more accurately, so long as the UK continued to mirror the EU’s external tariff). Crucially, however, that deal would not apply to services, and so would not prevent the UK seeking deals with countries outside the EU in the services sector.

Any such deal would have a number of hurdles to overcome: the EU27 may consider it ‘cherry picking’ and may also require the UK to ‘mirror’ EU regulations on product standards and to remain subject to the jurisdiction of the ECJ (which hard Brexiteers would resist). The EU27 have also stated that, in principle, the UK cannot have a better deal outside single market than within it.

Free trade area

The White Paper position is to leave both the single market and the EU customs union, and to seek to negotiate a free trade deal with the EU, ie a deal under which there are no tariffs or taxes or quotas on (particular) goods and/or services from one country entering another. In the services sector (e.g. banking and education), the free trade deal would involve mutual recognition of different rules, standards and qualifications.

The UK could join EFTA, the European Free Trade Association, which currently has Norway, Iceland, Switzerland and Liechtenstein as members (but note that all but Switzerland are also part of the single market). Switzerland has had to negotiate individual deals with the EU covering particular sectors – this has been a long and arduous process.

The EU also has free trade arrangements with many other countries around the world; so it is not against negotiating one with the UK in principle, but compared with staying in the single market or the customs union, or even a new customs union, this would be the ‘hardest’ form of Brexit. It would also almost certainly mean border controls (including between Ireland and Northern Ireland).

No more fudge

What the Government cannot do is continue to obfuscate the choices to be made with meaningless phrases like ‘Brexit means Brexit’. It needs to agree in its own ranks what option to take, in order that real progress can be made in the EU negotiations over the summer. Sustaining the fudge is walking into the negotiations without knowing what it wants.

‘Don’t know what I want, but I know how to get it’ (The Sex Pistols, Anarchy in the UK)
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Written with Aaron Nelson

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