By Charles Brasted and Andrew Eaton
On 2 March 2018, Theresa May made her third major speech on Brexit in which she set out in more detail than ever before the ambitious future relationship that the UK Government is seeking to negotiate with the EU.
The speech marks a key milestone in the Brexit process. After six months of discussions focusing on withdrawal issues and the need for a transitional arrangement, this was a speech directed solely towards the future relationship between the UK and the EU. The level of detail and the granularity of the analysis will likely give some comfort businesses concerned about whether the UK Government is on top of the detail and has a plan.
The Prime Minister has provided welcome clarity on the UK Government's position and has sought directly to address the inherent trade-offs between the UK's desires to take back control and pursue a global trade agenda, on the one hand, and to maintain frictionless access to the EU's market, on the other.
With the heads of States and governments of the EU27 due to meet on 22 March 2018 to approve the Commission's political mandate to begin negotiating the future relationship with the UK, officials in the Member States as well as the EU Institutions will have been listening intently to what the UK Prime Minister had to say. The question is, will the speech have convinced them Mrs May's vision is something they can build on.
Foundations for the future
Theresa May reiterated the message from her 2017 Florence speech that the existing models, known colloquially as the "Norway" and "Canada" models, do not deliver the UK's Brexit ambitions, and that only a bespoke deal that addresses the UK's unique circumstances and historical relationship with the EU would do.
That being the case, Mrs May has established "five foundations" that she said would need to underpin the UK-EU future relationship:
- Reciprocal binding commitments to ensure fair and open competition;
- A completely independent arbitration mechanism;
- On-going dialogue with the EU, in particular between regulators;
- An arrangement for data protection that goes beyond an adequacy agreement; and
- Maintaining the links between our people.
The unspoken sixth foundational principle is that access follows alignment, and the level of commitment the UK will be seeking differs across sectors of the economy. Mrs May recognised explicitly in the speech that any deal would necessarily involve a balance of rights and obligations and that access to each other's markets on fair terms necessarily means finding a balance that works for both parties.
She also recognised that, although Parliament would no longer be bound to accept the primacy of EU law over the UK law, there may continue to be strong incentives for the UK and EU to have the same or similar regulatory standards and processes in exchange for market access. This would effectively mean that the UK would be exercising its new-found legal independence to maintain close regulatory alignment with the EU in certain sectors, where it is in the UK's interest to do so. Theresa May should be commended for the pragmatism of this position, which was no doubt the result of hard-won battles within the Cabinet.
She has also called on the EU to address the tensions in its own position, namely its stated aspiration of an ambitious and wide-ranging deal with the UK and its rigid insistence to date that the indivisibility of the Single Market means that preferential access to its market can only be on its terms. To quote Mrs May: "neither of us can have exactly what we want".
The EU's position to date has been to insist that the degree of access the UK will have to the Single Market is not a matter for negotiation, but the result of the operation of technocratic logic and legal principles: the UK must choose whether it wants access on the EU's terms or not. In seeking to warm the EU to a potential compromise, Mrs May adopted a classic carrot and stick approach.
- On the one hand, she indicated why it is in the EU's interest to do so – particularly the importance of the UK's market for the EU economy, as well as the level of integration between them and their geographical proximity. She also sought to quell the accusation that what the UK Government was asking for amounted to "cherry picking", stating that every free trade agreement reflects and is tailored to the individual circumstances of the parties involved. Therefore, by seeking to adopt different approaches for different sectors, the UK was no different from any other third country with whom the EU has negotiated and entered into bespoke free trade deals.
- The stick came in the form of Mrs May calling out the EU for itself indicating that, where it is in its own interest to do so, it is minded to seek to negotiate new arrangements with the UK that are without precedent, for example in relation to mutual access to each other's fisheries. Therefore, it is clear that the EU is prepared to think creatively to achieve its objectives: Mrs May wants the EU to recognise that such an ambitious and creative approach to the overall relationship is also desirable, even where it may require compromise on the EU side.
In setting out her vision for the treatment of goods and services under the new arrangement, Mrs May has demonstrated the work that has until now been going on in the background in relation to understanding the specific concerns of individual industry sectors.
A key development in this respect is the indication that the UK Government would consider signing up – as an associate member – to certain of the EU's regulatory agencies, for example in the aviation, medicines and chemicals sectors. She also endorsed the calls from the financial services industry, principally the International Regulatory Standards Group, for an access settlement based on mutual recognition and outcomes-based regulatory alignment in the financial services sector.
In other sectors, for example agriculture and fisheries, the Prime Minister indicated that the UK would seek to diverge from the EU where it considered it desirable to secure flexibility to take advantage of opportunities presented by Brexit. However, she made clear that this would not be at the expense of maintaining the UK's existing world-leading regulatory standards.
Over to EU
With this, the UK now has a coherent starting position in the negotiations on its future relationship with the EU. However, much remains to be resolved in those negotiations.
In anticipation of Mrs May's speech, Michel Barnier warned the EU27 in a speech on 1 March 2018 that the "economic and political benefits of the Single Market, of the Customs Union and staying together in the EU are far bigger than any possible cost of Brexit" and that "the EU cannot and will not compromise on its founding principles".
The UK's opening position is an invitation to the EU to adopt the same hard-nosed economic pragmatism in its negotiations with the UK as it has in relation to previous free trade negotiations with other third countries.