Put yourself, for the moment, in the position of a non-EU country. The greatest possible access to the EU Single Market of 400 million consumers, the biggest economic bloc in the world, is the Holy Grail, the ultimate objective that all the EU’s negotiating partners in trade talks seek.
Britain will now join the long list of those nations. And even though its case will be treated as a priority, the outcome and the time needed to do a deal are uncertain. That is because access to the Single Market is tied to significant conditions. The EU wants to see standards in consumer, health and environmental protections equivalent to its own. It wants data protection to be as good as it is within the EU. It wants administrative procedures to be similar or aligned with those of the EU.
The greater the access you want to the Single Market, the more its existing members will insist you respect their rules – a perfectly plausible proposition. Theresa May is of course right when she says “it makes no sense to start again from scratch when Britain and the remaining Member States have adhered to the same rules for so many years”.
But what does that mean? Will Britain continue to abide by the EU’s current – and possibly also its future – rules for the Single Market, to secure access?
An “ambitious” free trade agreement between the EU and the UK would see the EU insist on the UK continuing to refrain from grating state aid. It will mean the UK will be under pressure to respect the rulings of various EU agencies (medicines, chemicals, food safety) but unable to shape their priorities or ways of working. And it would require an arbitrator to settle disputes and interpret regulations. The UK has ruled out being bound by the jurisprudence of the European Court of Justice, but it won’t be able to escape some kind of supranational decision making.
And how will the UK strike “comprehensive trade agreements with other countries” but keep a foot inside the customs union? Nobody knows, least of all Theresa May, by her own admission. To get (far) away from your erstwhile partners and still maintain close ties to them – that’s a balancing act not easily performed in the world of realpolitik.
The British government is still pursuing a policy of having its cake and eating it. For the time being this is understandable, but sooner rather than later in the negotiations some things will have to give. May has recognised this by already spelling out her fall-back position: A patchwork of sectoral agreements in areas where the mutual interest in unfettered trade across the Channel is particularly deep.
So let’s imagine, for a minute, that the supply chain of the automotive industry can be insulated from Brexit.
Could the UK then still have trade agreements covering motor vehicles with third countries that don’t have a free trade agreement with the EU? How would that work? What guarantees would the EU request to insure against the UK becoming a back-door entry point into the EU? The EU will surely insist on some kind of scrutiny of state support to the UK car industry.
And what happens when the EU decides to updates its rulebook for the automotive industry? Will the UK become a mere “rule-taker”, forced to abide by the relevant legislation made in Brussels to maintain the exemption for that sector? Does that deliver on the UK government’s promise to get out of the Single Market? What may appear easy on the surface, and generate favourable media headlines, is in fact fiendishly difficult to negotiate.
Still, this is where we appear to be heading. Brexit means Brexit, but not quite for everyone, and potentially not to the same degree in every sector.
Of course, there will be many people on the continent who will push for the same sector-by-sector approach provided it doesn’t end up being beneficial to Britain alone (“cherry picking”). Their aim will be to achieve the political objective of Britain leaving with as little disruption to commerce as possible. Perhaps this is where the outlines of a potential deal are.
If so, the gun has been fired on a process that will ultimately end up with winners and losers. Theresa May herself admitted that there will be compromises and trade-offs, although the government will not reveal where and what.
Business leaders are getting the message. They basically have two options. Some will find ways of getting around the uncertainty by relocating activities. Others must now work to ensure an outcome for their company that mitigates the damage – or ensures they end up on the winning side.
For that they can’t rely on Whitehall alone. They will need to lobby, find allies and supporters on the continent, both in government and business. The time for analysis and scenario building is coming to its end. Now is the time to act.