LEADING THE WAY OUT OF THE EU

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Tuesday 19 December 

Rhetoric from Michel Barnier, David Davis and Downing Street point to a battle over ‘regulatory divergence’. It is far more ominous than that.

As eyes turn to the “end game” with the failing bloc, the most likely alternative to a no deal remains a conventional trade agreement, but to sign such a deal with the EU would represent a failure.

The EU buys a surplus of British services, particularly the financial kind, and presides over a massive goods surplus, a mutually acceptable trade deal between the two sides would therefore consist of easier access to each other’s services as well as goods markets. But according to Michel Barnier, in an interview with the Guardian: “There is no place [for financial services]. There is not a single trade agreement that is open to financial services. It doesn’t exist”.

The EU’s chief negotiator envisages a conventional deal orientated in the EU’s favour: they get access to our goods market, but shut out stronger British competition in services. If that’s the case, a no deal is the only possible onward course. Note that a petition to immediately leave the EU has just reached 100,000 signatures.

However, David Davis is optimistic of forging the “deep and special partnership” eyed up by the Prime Minister. Echoing Barnier’s own words from the weekend, the Brexit Secretary has stated his intention of telling the European Commission (i.e. Barnier) that it cannot “cherrypick some sectors”. Davis will cite Stefaan De Rynk, one of Barnier’s top negotiators, who has promised Theresa May a bespoke deal. But as for as De Rynk’s boss is concerned, the only offers on the table are a full-fat Single Market one or the super-skinny goods-based alternative, there is no scope for finely tailored add-ons.

“We will not accept from the other side, regulatory competition against social rights, against environmental rights, against consumer rights and against fiscal regulations … Or against financial stability”, said Barnier in his Guardian interview, adding: “We will not accept chlorinated chickens, nor other products that do not meet our food standards”.

A limited trade deal or continued Single Market membership would be very bad outcomes. One would be weighted in the EU’s favour, the other would encroach on UK regulatory freedoms and the ability to add a handful of growth points to the economy by cutting EU red-tape, now known as “regulatory divergence”. Single Market membership would also entail open borders, a direct contradiction of the electorate’s will.

However, Britain possesses a £60bn trade surplus with the EU, a powerful bargaining chip. Barnier’s words are not gospel. He could yet be forced to eat humble cherry pie.

Yet, the EU, thanks largely to the British Government’s lack of backbone, has shown itself to be a determined negotiator. Brussels has framed the situation as an either or for the spoilt Brits. If they want a third way, they will have to cough up yet more concessions. Open borders and yet more cash transfers are the obvious carrots in Eurocrats’ sites. May and Davis must not therefore stake their reputations on privileged access to the EU’s burdensome services market, which is protected from foreign competition by layer upon layer of national, as well as EU rules. The US is the UK’s biggest export partner in services for a reason.

In fact, the Government’s position is a lot more desperate than a simple choice between polar options and a ruinously expensive and treasonous third way. The UK is already on course to remain in the Single Market.

The terms of the withdrawal agreement agreed on Friday have pushed Britain in the disastrous direction of continued Single Market membership. In spite of that uncomfortable reality, the media, together with the Government’s spin doctors are portraying a scenario steeped in self-determination. The only point of contention? The speed of regulatory divergence.

Within Government, consensus is said to be building between the Remainers and the Leavers, with even Philip Hammond getting excited by a bonfire of EU regulations. The debate within Cabinet now is not about whether the UK will diverge from EU rules or not, but how quickly, with Hammond and Amber Rudd typically favouring a slower paced approach. But as Robert Peston rightly points out, you cannot have a trade deal built upon the foundation of shared regulatory standards and then move away from them. In other words, the EU is setting up a convergence trap, one that Britain has already walked into, the debate over the speed of divergence is a misleading one, there will be no divergence.

We know this already of course. The open border settlement over Northern Ireland means British standards will have to remain in line with the EU’s, thereby keeping the UK in the Single Market. The Government is desperately creating a smokescreen. Those patriots who see through must sign that petition.