Martin Lodge and Nick Sitter
Regulation will be at the heart of the relationship between a post-Brexit UK (or should that be England and Wales?) and the European Union. As politicians and civil servants scramble for answers as to what a future relationship may look like, rose-tainted images of a post-Brexit world are being paraded, whether this involves images of happy and sovereign Norwegian Vikings, cheese-melting Swiss or well-disciplined free-trading Singaporeans.
Assuming that Brexit does go ahead at some point in the future, then, as with any dissolving relationship, there are two questions that need to be addressed. One is what sort of life the departing partner seeks to have, and the other is how such lifestyle choices can be arranged in a way to maintain somewhat constructive post-divorce relationships. Some serious effort has been spent on analyzing the latter (although it was earlier dismissed by the Brexit coalition), less on the former.
The question about what regulatory standards the Brexit campaigners actually want points to two rival positions. One side, populated by those of the ‘official’ Brexit campaign, dreams of a world where red-tape doesn’t exit, where environmental and labour standards have been minimised as they constitute barriers to innovation, and where employment markets are ‘flexible’. This contrasts with the alternative Brexit vision of a world of regulatory standards that establish high market barriers to ‘protect’ domestic industries and ‘protect’ employment from any competition. This is the world personified by the typical broadcast from the town of Clacton-on-Sea, a heartland of anti-EU sentiment at the Essex coastline.
These two visions of post-Brexit regulatory standards cannot easily be reconciled; at best, they lead to a world in which inspection and enforcement of standards hardly exist (as they constitute ‘red tape’ and need to be financed somehow), where environmental standards are downgraded (as they ‘prevent innovation’), financial markets are left to their own devices, and where competition and state aid regimes are set aside to protect concentrated interests.
If that is what the Brexit side wants, then how could this possibly be molded into relationship with the EU-27? It all comes down to two broad sets of options. The first – the Norwegian model – involves British participation in the Single European Market through some form of ‘buy-in’. The second – the Singaporean model – is based on a set of options that centre on some kind of free trade relationship. Both come in a highly optimistic version, and a more reasonable version that is compatible with the political realities in the UK, the EU and even the EFTA states.
The ‘Norway option’ comes in three different varieties: 1) a bilateral deal with the EU where the UK chooses which parts of the EU system to take part in, 2) a series of bilateral treaties on the Swiss model, and 3) the actual Norway model: membership of the European Economic Area (EEA).
The first, wildly optimistic, variety envisages the UK cherry-picking which parts of the Single European Market (SEM) rules it wants to apply now and in the future, and which it will reject. This is about as likely as the England football captain being asked to pick the German line-up in the next penalty shootout (or an Icelandic starting eleven).
Hardly any EU state would accept such an arrangement at the best of times, let alone in a context when they fear their own Frexit, Nexit, Italexit and perhaps Plexit or Huxit. All EU governments and institutions have made one thing clear – any deal that involved access to the SEM must involve all four freedoms of movement – of goods, capital, services AND labour.
The Swiss option is also unlikely to be offered to the UK. The principal difference between this model and the full EEA model is that it is based on multiple treaties, does not update the set of regulations that apply to Switzerland automatically, and does not include the same strong role for the European Court of Justice. And it does not cover financial services. The European Commission has been dissatisfied with the workings of the Swiss arrangement, and has long tried to nudge the Swiss in the direction of the EEA. There is no reason it, or any EU member state, would want to offer the UK this (except, perhaps, as a way to keep the City out of the Single European Market?). At present, migration is at the heart of a conflict between the Swiss government (following a referendum result) and the European Union. In short, Switzerland pays for access to the Single European Market and the whole set of arrangements is characterized by a degree of contractual complexity that will neither reduce cost nor appear politically attractive to both sides of the Brexit divorce.
The Norway option remains the most likely option, even if many voices in Brussels (and even in Oslo) concede that this deal has, so far at least, proved far too good for Norway. Like the Swiss and bilateral options, this would involve the UK accepting most of the SEM rules and regulations, including the free movement of people, in return for full market access to the market. The main benefit is formal sovereignty, and the main drawback is hardly any real sovereignty as it involves limited or no influence over rules and regulations that apply to the country. The pro-Brexit camp have made much of Iceland’s many derogations (349 exemptions) from Single Market rules – but on closer reading these turn out not to be so many, and mainly to be linked to sparsely populated rural areas, special energy rules and rules than cannot possible be implemented, such as airport security for primitive rural landing strips.
Under the EEA the UK would not need to adopt the single currency, would not need to join Schengen and would not be committed to ever closer union. It would still have to commit considerable budgetary resources to support the EEA arrangement. Plus ça change, plus c’est la même chose. But if Norway’s experience is anything to go by – and of course it is – it would make police cooperation against terrorism and foreign policy cooperation against external threats more difficult. The good news is that the Norwegian model also allows for further buy-ins, in areas like higher education. However, it is unlikely that a Brexit government would have the same kind of interest in supporting higher education (especially non-STEM disciplines) as Norway.
So none of the ‘Norway’ options are likely to affect immigration, and all involve maintaining access to the Single Market for UK goods and services, including financial services under the actual Norway model. And new EU rules must be taken on board. This is Norway’s very own version of the democratic deficit: all the regulation, without representation. And it comes at a financial net cost more or less equal to that of full membership (83 per cent in the case of Norway). Indeed, it is hard to imagine the EU offering an access price much below an estimated €4bn per annum; again, not an option that is particularly palatable to the world of Brexit government.
All this assumes that the new party leaders can manage a Scandinavian-style burst of consensus politics and put the national interest ahead of short-term party and personal goals. If not, one of the options where the UK really is not bound by the rules of the Single European Market, but faces a range of barriers to the trade of goods and services, might be the default option.
Then there is the dream of a free-trading Singapore, apparently free to choose its own standards and flourishingly autonomously (whilst forgetting the near-annual months-long toxic cloud cover generated by Indonesian wildfires). Even when setting aside the somewhat different politics of Singapore to the UK, this world is again based on rather optimistic assumptions, it assumes a world in which optimal trade deals will be easily and quickly negotiated, and where products appear simple. Even financial markets though are complex, are regulated by multi-level systems of regulation and supported by governments. Furthermore, a world in which a national government simply stated that it would apply unilateral free trade is unlikely to survive the next general election.
Such a ‘Singapore world’ also flies in the face of most of the Brexit vote that called for more interventionism and restriction rather than less. The world of Clacton-on-Sea is one that is far away from Singapore. Even in a scenario where only WTO arrangements would apply, trade and non-trade barriers would apply, certification requirements would have to be fulfilled, and deals over trade needed to be fought. Even if the Brexit government had the capacity to engage in such processes – which is debatable in an age of institutional memory loss and massive civil service redundancies – it is unlikely that a little-UK could strike the same kind of deals as a much larger European Union.
A world in which the UK struck some form of ‘association agreement’ might be called an ‘Albania light’ arrangement. This would grant some access to the Single European Market as part of a trade agreement. But such a deal would surely be used by the EU-27 to discourage any other member state from going down the route of the UK, and the more comprehensive such an arrangement would be, the more like a ‘Norway’ scenario this agreement would become. The EU track record in trade negotiations is one of flexibility when it comes to large markets (such as the US), and to take a take-it-or-leave it approach to smaller economies.
Whatever the chosen divorce relationship, it is unlikely to be the end of the story. The incoherence of the Brexit coalition – one that is shared among the so-called insurgent political parties across the EU – between those dreaming of a quasi-anarchic world of no red tape and maximum flexibility and those dreaming of national protectionism through regulation is one that will generate continuous dissatisfaction whatever the type of deal that might be struck. While political options need to not necessarily lead to Clacton-on-Sea, they will certainly have to pass through it.
Such a political landscape also suggests that an EU response to Brexit of ‘more EU’ is unlikely to go down well in the national capitals of the remaining member states. In other words, as in the real world, amicable divorces are rare in the world of human relationships and in the world of regulatory governance. The future is more likely to be one of continuous political opposition to any form of multi-level governance at high economic and social cost which will frequently expose the limits of European governance. European crisis management is here to stay.
Both authors write in a personal capacity. Lodge used to have family ties to Clacton-on-Sea.