Stephen Booth is Head of the Britain in the World Project at Policy Exchange.
Last week, a brief Brexit storm developed over the Sunday Times’ story that senior government sources were mulling advocating a “Swiss-style” relationship with the EU to reduce trade barriers. The Government quickly distanced itself from the report and this week the Prime Minister ruled out a closer relationship based on greater alignment with EU regulation. “Under my leadership we’ll never align with EU law,” he said in his speech at the Lord Mayor’s Banquet.
After the years of internal Brexit debate in the UK, there are obvious reasons why the “Swiss model” shouldn’t be a runner for either a Conservative or Labour government. Switzerland is effectively a member of the EU’s single market for goods but must align its domestic regulation with the EU to achieve this level of access. The Swiss also accept the free movement of people – a clear red line for Labour – and make a financial contribution to the EU’s newer member states.
In reality, the “Swiss model” isn’t really an off the peg model at all – and the EU has previously ruled out a similar arrangement for the UK. The EU-Swiss relationship is based on over 120 bilateral agreements developed over decades, and it remains in flux. Brussels has long been trying to consolidate and formalise the relationship under a new framework agreement but, after seven years of talks, the Swiss walked out last year citing several concerns with the EU’s proposal, including a binding role for the EU Court of Justice in dispute resolution. Since then, the relationship has become strained, with the EU refusing to update previous agreements and letting others lapse.
So, if the “Swiss-model” is a red herring, then what might acceptable improvements to the UK-EU Trade and Cooperation Agreement entail? After all, as David Frost has said recently, “There is definitely room to sand off the edges.”
Throughout the negotiations over the TCA, the EU refused to grant the UK various technical agreements which would ease trade barriers and reduce costs for business. For example, there is no mutual recognition of conformity assessments in the agreement, meaning UK bodies are no longer authorised to test whether many UK consumer goods – from mattresses to toys – meet the product regulations of the EU market. Instead, they must be tested by a body based in the EU27, increasing costs.
This is not a particularly big ask from the UK. The EU included a mutual recognition clause in its deal with Canada, meaning that a conformity assessment body in the EU can test EU products for export to Canada according to Canadian rules and vice versa.
Meanwhile, the mutual recognition of professional qualifications would make it easier for UK accountants, auditors, and architects to provide their services in the EU. While the TCA provides for this possibility, it requires further agreements to be struck either across the entire EU, or bilaterally with individual member states. As the UK’s Financial Reporting Council has noted, with respect to auditors, “most EU states have indicated that their preference is to adhere to the EU Commission policy position and wait for an EU-wide agreement between the EU Commission and the UK, even though this will likely require more time to achieve.”
Unless the EU changes its mind, the question is what would the UK give up to get these agreements?
Equally, the EU has refused to grant the UK access to research and development programmes which the TCA explicitly bound Brussels to provide for (Horizon, Copernicus, Euratom R&T and Fusion for Energy). The EU has delayed access to these programmes for over two years, due to the dispute over the Northern Ireland Protocol, and the uncertainty has caused significant issues for UK research organisations and the private sector in the fields of space and energy.
The UK has begun dispute resolution proceedings in an effort to get the EU to deliver its commitment and last week the Government announced its own independent funding for these sectors. But it has yet to decide whether to cut its losses and give up on these EU programmes altogether and pursue alternatives.
There is a possibility that the more positive mood music following the UK’s role in supporting Ukraine means that Brussels will reconsider its previous refusals of UK requests. The new Government’s decision to engage positively with the fledgling European Political Community is an opportunity to remind the EU of the UK’s wider European role, which would ideally provide a context for Brussels to engage more positively with London. But until there is an acceptable solution reached on the Northern Ireland Protocol, this seems unlikely.
Meanwhile, the UK should focus on the other policy levers at its disposal. As I have previously argued, this means using regulatory reform, including divergence from EU regulation, to build on the UK’s strengths in financial services and emerging technologies.
Equally, the UK must continue to deepen its trade ties with other partners, particularly in the Indo-Pacific. The long-term strategic case for joining the Comprehensive and Progressive Agreement for Trans Pacific Partnership, or CPTPP, is evident in the region’s positive demographic outlook which contrasts with a shrinking EU population. Membership would provide the UK with a strong voice in a region that is increasingly central to global economic and political questions.
As the Minister for Trade Policy, Greg Hands, noted on this site recently, there is a shorter-term tactical reason for the Government to get CPTPP membership over the line before the next election. It would make it more difficult for a future government to reintegrate with the EU as a rule-taker, since future UK-EU agreements would need to reflect the UK’s commitments to its other partners. However, as George Eustice’s recent intervention showed, the UK needs to decide whether it actually would like to join soon or prioritise continued protection for farmers.
Ultimately, the evidence is that a closer economic relationship with the EU means either becoming a rule-taker, or asking for things which the EU has previously refused to grant the UK. There is no harm in continuing to ask for sensible improvements, but wishful thinking shouldn’t distract from this reality. Better to invest the greatest effort in areas where the UK has greater control – reforming domestic regulation, deepening ties with willing trade partners, and demonstrating its value to transatlantic security.