Wednesday, 7 September 2016

Single market: access or membership?

The government’s first parliamentary statement of Brexit, made by David Davis on Monday, was hardly illuminating. One exchange (on how to manage the transition from EU to UK law) seemed to sum things up, though, when Davis admitted that what he had initially thought would be straightforward turned up to be much more complicated than expected. It is perhaps a bit late in the day for that. On the key issue, there is no clear sign of what the aim is in terms of single market membership in particular. Davis seemed to imply that membership was highly unlikely, but the Prime Minister almost immediately said that such an implication was not government policy. Instead, the aim is, apparently, to secure ‘the best possible deal of trade in goods and services whilst having some control over EU migration’. But what that means is almost as unclear as Brexit means Brexit’. Trying to understand the various cryptic statements being made is becoming an exercise in Biblical hermeneutics and presumably either means that no one has any idea how to proceed, or that there is an almighty row behind the scenes between different views.

None of this is helped by a persistent confusion – both during the campaign, but now, more alarmingly, amongst ministers – between single market membership and single market access, with the related confusion of these with ‘tariff-free trade’. Single market membership is not just about tariff-free trade; it is also about the removal of non-tariff barriers to trade and it is from this that most EU regulatory harmonization flows (which does not play well with the Brexiter ‘taking back control’ playbook). Non-tariffs are the most technically complex and significant barriers to trade and are most especially pertinent to services. For this reason, a single market access deal would be unlikely to cover services, which are key to the UK economy and to UK exports. This would also be very unattractive to foreign direct investors who want not just to sell into EU markets but also have deeply intertwined pan-EU goods and services supply chains.

Similarly, single market membership entails free movement of people not as a kind of a bolt-on which, for some ideological reason, the EU insists on but as a core part of the definition of what a single market is: a complete unification of production and consumption of goods and services. You can no more be a member of the EU single market without free movement of labour than you could have a functioning UK single market that restricted movement between different counties. Incidentally, this is why I think a single market is a much better response to globalization than a free trade area; because it partially equalises the rights of labour and capital so that labour can move to jobs rather than being forced to take or leave whatever capital investments are made. Be that as it may: to want single market membership but no free movement isn’t simply an unrealistic negotiating position, it’s a logical impossibility. You might as well say you are going to sail your boat up the M1. Free movement isn’t a ‘price to paid’, negotiable to a higher or lower level, for being in the single market: it is an integral and definitional aspect of being in the single market.

This makes what seems to be the Prime Minister’s current approach completely unrealistic. The idea seems to be that some degree of single market membership can be set off against some degree of control of free movement. Stated in those terms, it is a meaningless formulation: you are either in the single market or you’re not. But it is equally meaningless to state it in terms of seeking some degree of single market access which can be set off against some degree of control of free movement. If you are outside the single market and have a trade access deal, free movement of people doesn’t arise at all so there is no set off to be made. The set off is, rather, if you have trade access (even assuming it is tariff-free) you aren’t going to have much in the way of services access, and will still face non-tariff barriers to trade. So this is a circle that can never be squared, especially for a predominantly service economy: you either wreck that economy or you have free movement. That’s the choice.

The only sense that can be made of it is this. Since May has been careful to state that she is seeking the best possible deal on goods and services, the implication (unless she simply does not know what she is talking about) is she is hoping for single market membership. If so, the only degree of control over free movement of people she can get is a properly enforced version of the current rules (which as this useful article explains are not the free for all that is supposed) and, just conceivably, some beefed-up version of the EEA emergency brake, perhaps all packaged up as a form of Associate Membership. I think this may be what she has in mind by insisting it will not be an ‘off the peg solution’ which I take to mean not identical to EEA membership as currently configured. It also explains the formulation of ‘some control’ over EU migration, which is certainly more conditional than most Brexiters want to see. This may also explain why she has come out against a points-based immigration system, as this would certainly be incompatible with single market membership. Even so, under repeated questioning today, she will not say whether single market membership is the aim or not, so it remains a matter of speculation.

If it is her aim on something like the terms I have outlined, it will be a hard sell to both the EU and the EEA, and of course also to Brexiters, and sooner or later I assume there will be open conflict over it, including, very likely, resignations from some of the Brexit ministers. Politically the key to that would, presumably, be keeping the relatively malleable Boris Johnson on board, even if Fox and/or Davis walked out. But, whatever the plan is to be, it has to be one that ceases the present confusion – if not dishonesty – about the complete difference between single market access, however preferential the terms, and single market membership.

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