The result of the recent general election was disastrous for the Conservatives, but it has also been bad for Brexit. Before the election, it was fairly clear what the government was aiming to achieve. It was for the UK to exit the Single Market, the European Economic Area (EEA) and the Customs Union and to negotiate a free trade deal between the UK and the EU27. This was potentially the best outcome for everyone – the UK and, the EU27. It would have given business broadly speaking the same access to the Single Market as it has now. Most people in the UK would have been reasonably satisfied and the deep divisions in the UK over our relations with the EU would have been substantially ended.
From the EU27’s perspective, however, there were always going to be two major difficulties with the free trade option. One was finding a way of distributing among the EU27 the £12bn net budget contribution which would no longer be coming from the UK. The second was fear that too attractive a deal for the UK would tempt other countries towards their version of Brexit. This is why it was always an essential part of the UK’s negotiating stance that we should have a fall-back position in the World Trade Organisation (WTO) option. This would be a much worse outcome for the EU27 than a free trade deal. With a bit of give and take, the free trade option would then become the best available compromise outcome for the EU27.
What has happened now is that the outcome of the general election has made the WTO option look much less credible, although the manifestos for both the Labour and Conservative parties clearly and unambiguously supported withdrawal from the Single Market. This inevitably makes the free trade deal by far the best available outcome, although we need WTO in the background to get there. Instead, for many MPs, staying in the Single Market now seems to have become the overriding UK aim, while writing the WTO option completely out of the script but still, nevertheless, claiming to respect the June 2016 referendum decision to leave the EU.
Now this is the problem. Without the UK being willing to fall back, in the last resort, on the WTO option, our negotiating position is gravely weakened. If we are prepared to pay almost anything to stay in the Single Market, the offer we are likely to get from the EU27 will be for us to leave the EU but to stay in the EEA. We will then have access to the Single Market on the current basis, but we will also – like Norway – still be subject to the Luxembourg Court, free movement of people, liable to pay a large net sum of money every year to the EU budgets, unable to negotiate our own trade treaties if we also stay within the Customs Union, and with no say over how the Single Market evolves. This is manifestly a worse position than we are in now. But why should the EU27 offer us anything different?
So what needs to be done? Both the Labour and Conservative parties need to stick to their manifesto commitments. We need to get access to the Single Market through a free trade deal and not through the EEA. To get there, we need to be willing to fall back on WTO terms – not because this is where we want to finish up but because having this outcome in the background is the only way to make it possible for the EU27 to settle on what is actually the best outcome for everyone.
Will this now happen? Potentially not, but with huge risks, perhaps particularly for those still favouring Remain, who are now pushing for us to stay in the Single Market and who are not prepared to contemplate the WTO option in any circumstances. The danger for them is that by pushing us towards an EEA-based settlement, they unwittingly become responsible for the UK getting a really poor deal out of the Brexit negotiations. Even worse, there may be no consensus in Parliament about any of the available options, precipitating the risk that we leave the EU, without any adequate reparations, an outcome which nobody wants.
If Parliament either votes through a settlement along EEA lines, or is unable to settle on any agreed outcome, the country – and many Labour as well as Conservative supporters – would be deeply unhappy. Euroscepticism would simmer on. Remainers would then be seen as substantially to blame. This is why Labour and the Conservatives need to come together broadly to support the government’s position – subject to Labour caveats on issues such as employment legislation and the environment – to provide the greatest possible national unity. It is vital for us that we finish up with a free trade deal and not the EEA option.
Article originally published on BrexitCentral.com on 19 June 2017 and can be viewed here.