The best deal the UK ever got from the EU was the one it already had

Don’t leave me this way.
Don’t leave me this way.
Image: AP Photo/Frank Augstein
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Since the Brexit negotiations began, the UK government has been accused of trying to have its cake and eat it too. It’s a fair judgment, given that Boris Johnson, the former foreign secretary and one of the country’s most well-known politicians, said that was precisely what the government’s policy was. Continuing with the culinary analogies, the European Union has consistently said that the UK cannot “cherry pick” the parts of the EU that it likes and leave the rest behind.  

And while the EU is adamant about the indivisibility of its “four freedoms”—the free movement of goods, services, people, and capital—you can see why Johnson thought that both the having and eating of the cake would be available to the UK after it quit the bloc. Since its accession, the UK has had its cake, eaten it, and former prime minister David Cameron even managed to secure a last-ditch cherry as garnish a few months before the fateful Brexit referendum.

The thing is, the UK’s relationship to the EU already met many of Britain’s unique demands. The UK avoided important aspects of European integration, like joining the euro monetary union, but still enjoyed considerable influence in Brussels. That is now gone.

The president of Luxembourg, Xavier Bettel, spoke for many when he said of the UK: “Before, they were in and they had many opt-outs; now they want to be out with many opt-ins. We’re not on Facebook where there’s an ‘it’s complicated’ status.”

And yet, that is what the UK wants. It is painstakingly trying to recreate an arrangement with the EU that is as good as the one that currently exists but on the outside. It’s an impossible task, as Ivan Rogers, Britain’s former permanent representative to the EU, warns. “Being just outside of the EU perimeter fence—even if that is where we choose to be (which I rather doubt)—is not at all similar to living just inside it,” he wrote in 9 Lessons in Brexit, a short book based on a popular lecture he gave. Rogers resigned from his ambassador post in early 2017 before negotiations started, after warning that a UK-EU trade deal could take 10 years to sign.

The UK’s final deal

Before the referendum, with David Cameron as prime minister, the UK went to Brussels to renegotiate the terms of its membership. After a surge in support for the far-right UK Independence Party, this renegotiation was supposed to resolve concerns about sovereignty and immigration, particularly the (unfounded) alarm over government benefits that migrants receive. Cameron managed to secure various changes from the EU without changing the overall treaty that governs it. These were supposed to come into effect after voters rejected Brexit, in a campaign led by the prime minister.

In early 2016, Cameron got a commitment to exempt the UK from the “ever closer union” that was written into the treaties of the EU as a goal; a new “red-card” mechanism that gave more power to national parliaments to block European Commission proposals; and guarantees that countries outside of the euro zone wouldn’t have to fund bailouts inside of it. Though less sweeping than Cameron’s original proposal, the EU also agreed to a four-year “emergency break” on giving in-work benefits to migrants.

These agreements were all scrapped after the Brexit vote. Though they were not enacted, they would’ve come on top of a number of older exceptions the UK had previously negotiated with the EU: The UK does not use the euro and, like Denmark, is exempt from ever joining the single currency (other nations that want to join the EU must adopt the euro once they meet the union’s economic requirements); the UK is not a part of the joint action the EU has taken in response to the 2015 migrant crisis on the continent; the UK has the right to opt in and out of individual pieces of legislation relating to justice and home affairs; and the UK is also outside of the Schengen zone that allows for passport-free travel across borders. Also, since the mid-1980s the UK has had a discount on how much it contributes to the EU’s budget, unlike any other country.

Cameron’s renegotiation was “the last attempt to amplify and entrench British exceptionalism within the EU legal order,” as Rogers puts it. It was not enough.

“I wonder whether the problem was actually that the UK got so many opt-outs that it ended up assuming that everything was negotiable?” said Kevin O’Rourke, an economic historian at the University of Oxford and author of A Short History of Brexit: From Brentry to Backstop. “And actually there are some things that aren’t negotiable.”

Future relationship

The UK has been made several mistakes in the past two years of negotiations—including the initial one of setting a deadline for leaving before the government decided what it wanted to achieve—but one of the larger mistakes was it underestimated how important precedent would be to the EU, instead of money. The UK government looked at its sizable financial contribution to Brussels and figured that kind of lucre would ensure the union would yield to the kingdom’s wishes. But the EU has proven it won’t give up anything to the UK as a “third country” that it doesn’t want to give to others later. There can’t be a special status for the UK outside of the EU that is superior to being a fully-fledged member of the bloc. The UK has also been unable to divide the bloc to get its way, and instead has learned that the EU can show a surprising amount of unity when it wants to.

The UK has also become fixated on getting frictionless (or as frictionless as possible) trade with the EU in goods. Much of the debate has been about tariffs and “just-in-time” manufacturing supply chains, with little about the trade in services. This is in spite of the fact that 80% of the UK’s economy is in services. In 2017, the UK had a £28 billion trade surplus with the EU in services, versus a a £95 billion deficit in goods. “The needs of the UK services’ industries have been sacrificed to the primary goal of ending free movement” of people, Rogers writes. Outside of the single market, it will be incredibly difficult to replicate such an integrated system. No other trade agreement in the world comes anywhere close to removing the non-tariff barriers that make trading services so fluid in the EU, which also depends on the free movement of capital and people. It’s why the government’s own analysis only expects new trade deals signed after the UK leaves the EU to boost the British economy by 0.1%.

This is not the only way in which the UK’s future trade policy seems ill conceived. The new Department for International Trade is advertising a “Global Britain.” Pro-Brexit politicians speak excitedly of plans to freely strike trade deals with the US, New Zealand, India, etc, unshackled from the burdensome constraints of the EU. This fails to consider that the EU is one of the most active blocs—as well as one of the largest markets—signing trade deals all over the world. Agreements with Canada and Japan recently went into effect, while negotiations with New Zealand and Australia began last year. There is a long list of countries in negotiation with the EU, including India, a top target of the UK. As Rogers said, the UK will need to “run hard to stand still” because two-thirds of the nation’s exports are to the EU or countries with preferential trade arrangements with the bloc. If the UK doesn’t want to suffer an immediate and painful contraction in trade to its largest markets, all of these need to be rolled over swiftly.

Even then, striking deals that are truly independent of the EU is a fantasy. The cost of deviating from the standards set by the bloc is too high for both goods and services. If the UK lowers its regulatory standards in new trade deals on goods, then the EU might shut its doors to the UK—or firms would have to spend a lot of money conforming to two different regulatory regimes. In services, the EU has the power to set global rules. For example, it grants equivalence decisions on financial services to allow outside countries access to its markets. Switzerland’s equivalence agreement has been extended for six months but can still be revoked at 30 days’ notice as it is pressured to sign a new treaty, which some parties say erodes too much of Switzerland’s sovereignty.

The UK should consider Switzerland more. It is a clear example of what it’s like to be outside of the EU but reliant on a close relationship. There are more than 100 bilateral agreements between the EU and Switzerland, managed through approximately 20 joint committees. There is no future for the UK that doesn’t involve a close relationship to the EU, unless the country’s political leaders willfully choose to crash the economy. The UK will be like Switzerland, Rogers writes, “in a state of permanent negotiations with the EU about something highly intractable.”

A timely escape?

The UK joined the European Economic Community in the 1970s because it realised it would be better to influence what was happening in the bloc from within. Bruegel, a Brussels-based economic think tank, said the UK was “instrumental” in strengthening the European Political Cooperation, which became the EU’s Common Foreign and Security Policy, responsible for all external matters. In 2014, the UK also pushed for the creation of an EU commissioner for financial services and a former UK minister was granted the post.

However, the fears of euroskeptics were that the EU evolved beyond what the UK had signed up to, eroding its sovereignty. Consider, however, that between 1999 and 2016 the UK voted with the majority 95% of the time in the EU’s council of ministers. The figure decreased slightly towards the end of that period, but it doesn’t paint a picture of a UK hamstrung by EU legislation it didn’t agree with.

Nevertheless, written within the bloc’s treaties is the goal of reaching “an ever closer union among the peoples and Member States of the European Community.” For many decades there have been people that push for European countries to become a federation, a single sovereign state—a United States of Europe, if you will, a term used by Victor Hugo in 1849 and later by Winston Churchill at the end of the Second World War. But Churchill didn’t see the UK as central to this new Europe, but rather a “friend and sponsor” alongside the British Commonwealth, America, and the Soviet Union. The concern among euroskeptics was that the UK moved away this supportive role for one too entwined with the rest of the continent.

Uta Staiger, co-founder of the Europe Institute at University College London, said that concerns about a future loss of sovereignty are overblown. “The direction of travel as far as we can see it from the past few years pointed much more towards stronger intergovernmental coordination in the EU rather than a further supranationalization,” she said.

Recent national elections also indicate that a more supranational organization would have been harder to achieve as more people voted for anti-establishment, nationalist parties, everywhere from Germany and France to Italy and Hungary.

The UK’s panic about a European superstate is overdone. “The first major lesson of Brexit is that European integration—in the old sense of grand new treaties that transfer powers to the Union—has stopped,” Charles Grant, the director of the Centre for European Reform, wrote in the organization’s latest annual report. “From the Single European Act (ratified in 1987) to the Lisbon Treaty (ratified in 2009), five major treaties endowed the EU with substantial new powers. There will probably never be another such treaty.”

EU’s got problems too

None of this is to say that the EU was even close to perfect. It’s deeply in need of reform, as Staiger said, to prove that it is both “relevant and accountable.” But some of the most serious trouble with the EU is with the eurozone and this is an area in which Cameron was right to raise the alarm, she said.

The design flaws of the eurozone—a monetary union without a banking and fiscal union—means that there will need to be more integration to overcome its problems. From a political perspective, this could cause a subgroup of countries to increasingly come to wider European issues with a single voice, Staiger said. As time goes on, how would non-eurozone countries assert their autonomy? This was of particular concern to the UK, because while only 19 of 28 EU countries currently use the euro, as mentioned above, all of the rest are on a path towards adopting the single currency, apart from the UK and Denmark.

Still, this didn’t implicitly mean a more supranational future. “They’re not stupid,” Staiger said. “They do see that just making it more integrated isn’t really going to solve things very much. The difficulty is it’s a complex mechanism.”

In a bind

The complexity of the EU is being revealed as the UK tries to unpick itself from 40 years of synchronization. However, even now, right as the clock ticks down, the UK is struggling against a lack of honesty about what a future arrangement with the EU can achieve. “Too much of our current political debate just insults people’s intelligence and suggests that every facet of Brexit you don’t like is purely a feature of the prime minister’s version of it, rather than intrinsic to leaving,” Rogers writes. As long as British politicians continue to suggest that there is a better deal within grasp—a magical path that sees the UK leave the EU, end the free movement of people within Europe, keep frictionless trade, and avoid any borders with Ireland—the political charade that now taints the nation’s reputation will drag on.

And even if a deal is signed and there is a transition period where everything stays the same for a few years, Brexit is really only just the beginning. The government calls the transition period—which would end at the end of 2020 or could be extended to end of 2022—an “implementation period” despite there being nothing to implement. It’s unlikely that a new trading arrangement will be worked out in that time. UK businesses would operate in the same way they do now, and then at the end of the implementation period the country will once again face a cliff-edge scenario or seek another delay.

These challenges are among the reasons why calls for a second referendum are growing louder. There is no unity for anything in Parliament: not for prime minister Theresa May’s current deal, not for no-deal, and not for an extension. Such a political impasse suggests that a democratic decision would be to ask the public again how they want to proceed. That said, don’t take for granted that another vote would provide a clear idea of what the country should do next.