This time around, the EU should not wait until the last moment to become flexible

Published on The Telegraph

As Britain gears up to the next stage of Brexit talks, the most pressing question of 2020 will not b “to diverge or not to diverge” from European Union regulations. Members of the government will instead be asked why they would be willing to sacrifice European market access from 2021 onwards, when there is no prospect of the UK altering the EU rules in its current playbook at anything like this speed. 

Boris Johnson's answer will be predictable: sacrificing market access in gradual stages could perhaps be defended, but the EU isn’t offering it as an option anyway.

Speaking at the LSE today, European Commission President Ursula von der Leyen warned: “Without the free movement of people you cannot have the free movement of capital, goods, and services. Without a level playing field on environment, labour, tax, and state aid, you cannot have the highest quality access to the world’s largest Single Market.”

That the EU continues to repeat its line on the indivisibility of the four freedoms suggests that nothing has changed. In practice, the EU stands ready to disrupt the supply chains of big manufacturers - all because the UK refuses to let Brussels govern the biggest financial center in the world, the City of London.

This is plainly a terrible idea. As the Bank of England Governor Mark Carney explained, “It is not desirable at all to align our approaches, to tie our hands and to outsource regulation and effectively supervision of the world's leading complex financial system to another jurisdiction.”

Big manufacturers will of course urge the EU to show leniency. Shouldn’t the EU be delighted that the UK is willing to align its rules for selected sectors, at least for a while? And didn’t the EU negotiate such a “pick and choose” arrangement with Switzerland in the 1990s, which has worked more or less fine for the last twenty years? Global geopolitical tensions already seem to soften the EU’s stance on security cooperation with the EU, so this may lead to it becoming more flexible on trade.

The EU would naturally retort that even if it wanted to go down that route, one year simply wouldn't be enough time, such a comprehensive trade agreement would require ratification by EU member states.

How to square this circle? One option would be for both sides to agree a bare bones trade agreement quickly, promising not to impose any tariffs and quotas. Perhaps the UK could even agree a “level playing field” similar to the one agreed by Theresa May in November 2018, as this didn’t really have any legal teeth, save on state aid.

Secondly, the UK would not consider permanently aligning with EU rules in a number of policy areas, including financial services. In such cases, a Treaty providing full market access for three years in return for regulatory alignment could be agreed. The UK would then have time to change EU rules and negotiate market access for these sectors until the 1 January 2024, ahead of the next General Election.

Thirdly, in a select few policy areas, the UK may be happy to adopt EU standards permanently, or at least for the foreseeable future. Manufacturing can broadly fall into that category. Don’t get me wrong: regulatory competition is a great idea and will also benefit EU citizens wary of Brussels overregulation, as the UK ditching harmful EU rules would help rein in Brussels. But surely market access should only be sacrificed when the UK actually wants to diverge?

Free traders needn't worry: the over-zealous Brussels regulatory machine is likely to be a greater factor in pushing the UK towards divergence than the UK’s preference for economic liberalism.

Fourthly, a number of pressing EU concerns, like fisheries access, could be sorted quickly, but only in return for EU leniency when it comes to the parallel negotiation that will take place this year on how to implement checks between Northern Ireland and Great Britain, so to make sure these checks will truly be minimal. Most of the Northern Irish economy revolves around services and small businesses, so exemptions for the latter should go a long way to make sure only a fraction of the intra-UK goods trade is hindered by this extra bureaucracy necessary to avoid border checks on the island of Ireland.

Here, the Irish Republic will likely be a great friend for the UK at the EU table, as its main goal will now be to avoid anything upsetting the hard-fought settlement, where it had to concede to a possible unilateral Northern Irish exit.

Even if the political will existed for all of this, many will rightly argue that major legal hurdles remain. Both sides should put any moves towards negotiating open markets between the EU and the UK at the very top of the political agenda.

Fundamentally, however, ways can be found. In 2010, the leaders of Eurozone countries were able to negotiate a 500 billion euro “bazooka” bailout fund over a weekend. Surely, in 2020, they should manage to use the twelve months available to work out a framework for the future EU-UK relationship.