When Emmanuel Macron told the BBC's Andrew Marr yesterday that the UK could have a bespoke Brexit deal only with preconditions, he offered comfort to both sides in the British debate.
For critics of a hard Brexit the French president was simply repeating what other European leaders have said: that Britain’s choice is between Norway and Canada. By ruling out membership of the single market and the customs union, Theresa May has taken the Norway option off the table, leaving herself with no choice other than a Canada-style free-trade deal.
For the prime minister’s allies, however, Macron’s words offered some hope that France could be persuaded to support her favoured option: neither Norway nor Canada but something in between. “You should understand that you cannot, by definition, have the full access to the single market if you don’t tick the box. So it’s something perhaps between this full access and a trade agreement,” Macron said.
The UK has not yet told its EU partners what it is looking for from the 'deep and special partnership' that May hopes will follow its withdrawal from the bloc
The UK has not yet told its EU partners what it is looking for from the “deep and special partnership” that May hopes will follow its withdrawal from the bloc. But when the prime minister next month makes her third major speech on Europe she is expected to propose a regulatory partnership under which the UK’s divergence from full regulatory alignment would be limited and managed.
The British government has not published a paper describing this model, but a report last month by the Institute for Government, Whitehall's favourite think tank, may offer a blueprint.
The report suggests that a regulatory partnership would acknowledge the unique starting point – the current full regulatory alignment – in trade negotiations between the UK and the EU. After the UK leaves there would be three levels of regulatory alignment, with a “core tier” of regulations remaining fully aligned with current and future rules of the single market. These could include chemical and pharmaceutical regulations and perhaps competition and state-aid rules.
A “mid tier” of regulations would allow the UK to diverge from EU rules to achieve the same regulatory outcomes by different means, a managed form of mutual recognition. “If the UK’s divergence was shown to have a material impact on the single market, it would lose market access. This could potentially include some other level playing field provisions, for example, environmental protection standards,” the report says.
An “outer tier” would include all regulations outside the scope of the single market and perhaps those rules that have no impact on EU-UK trade, with the UK allowed to diverge fully from the start.
This proposal echoes a passage in May's Florence speech last September, when she called for a discussion of "new ways of managing our interdependence and our differences" after Brexit. "There will be areas of policy and regulation which are outside the scope of our trade and economic relations where this should be straightforward. There will be areas which do affect our economic relations where we and our European friends may have different goals; or where we share the same goals but want to achieve them through different means. And there will be areas where we want to achieve the same goals in the same ways, because it makes sense for our economies. And because rights and obligations must be held in balance, the decisions we both take will have consequences for the UK's access to European markets and vice versa," she said.
The initial, informal response in Brussels and in member-state capitals to the UK's idea of a regulatory partnership has been somewhere between cautious and sceptical
The initial, informal response in Brussels and in member-state capitals to the UK's idea of a regulatory partnership has been somewhere between cautious and sceptical. The Institute for Government cites the EU's "deep and comprehensive free trade agreements" with countries including Ukraine, which is allowed to participate in parts of the single market where it adopts EU rules, as a kind of reverse precedent.
European officials point out that Ukraine is on a path towards full alignment rather than managed divergence, which to many smacks of cherry-picking. For Brussels a more alarming precedent lies in Switzerland, which participates in the single market through more than 120 specific agreements. The EU has faced difficulty enforcing these agreements in Swiss courts and is determined not to conclude any more of them.
Another problem with the British idea lies in how to determine which regulations should fall into which of the three baskets. Where, for example, would it leave financial services, which are excluded from most free-trade agreements? There is a risk that any special deal for the UK, especially on financial services, would oblige the EU to offer the same to countries such as Canada and South Korea, with which it has free-trade agreements.
EU member states are expected to give the European Commission’s chief negotiator, Michel Barnier, a mandate for the second phase of Brexit negotiations that includes the future trade relationship. Despite Macron’s words France remains committed, alongside Germany and the European institutions, to defending the integrity of the single market and preventing the emergence of the UK as a regulatory rival on Europe’s doorstep.
London will hope that other member states, particularly those that trade heavily with the UK, may be open to a more flexible approach. Despite the tensions between Dublin and London over the Brexit negotiations last year, Ireland is still viewed as a potential ally in the second phase of negotiations.
The Government has a complicated calculation to make as it balances the economic necessity of maintaining a close trade relationship across the Irish Sea with the likely impact of any solution on Northern Ireland and the Border, the risk of offering British competitors an advantage over Irish firms, and Ireland’s future position and role within the EU after Brexit.
Denis Staunton is London Editor