The Shared market: the future EU-UK partnership!

In this conference, held in Brussels on 1st march 2018 by FEPS and IPPR, Tom Kibasi and Marley Morris, Director and Senior Research Fellow of I.P.P.R. (Institute for Public Policy Research), have presented their report on the “The Shared Market” (dated December 2017). This proposal sets out a plan for a new UK-EU partnership after Brexit that would meet the UK’s priorities and, at the same time, tries to grant a long-term agreement with the European Union.

The UK is set to leave the EU in March 2019 because of the Brexit; hence one of the major consequences is represented by the “leaving” of the European Single Market. Nowadays, the UK Government has to decide what it wants for its long-term future outside the EU and how to deal with the EU27.  One of the most important proposals for the UK’s future trading relationship with EU is the so called “Shared Market”.

First of all, we define four broad options and types of relationship with the single market. IN of the single market includes two options: membership and participation. Membership of the single market means that as a member, a country can participate in deciding the rules of the single market – e.g. EU27 in the European Single Market. Meanwhile, participation in the single market means that, as a participant, a country has to follow the rules set by the members without having an active role in the policy making – e.g. like Norway, Iceland and Liechtenstein today in the EU context. OUT of the single market includes other two options:  alignment and access. Alignment to the single market that is a country that is outside the single market can decide to align its regulatory regime with the members of the single market; anyway, this type of relationship allows broad possibility for divergence – e.g. Switzerland and Ukraine. Access to the single market implies a country that has the possibility to trade with the single market with or without free trade agreements.

The “shared market” is an ambitious plan because, on one hand, it aims for a continued alignment between UK and EU and, on the other hand, it allows for a divergence, if that is the willingness of UK. This new model proposed by IPPR is based on two pillars. The first pillar is the alignment between UK and the single market meaning dynamic regulatory alignment with the single market, with the objective of long-term stability relationship. The second pillar is the creation of a new comprehensive full customs union between UK and EU, in order to maintain a good level of trading flows: a customs union is the basic condition to implement a borderless trade.

Another fundamental point concerns the building of a new UK Surveillance Authority and a new UK Court of Justice, whose both jurisdictions would be based in the UK, but both of the institutions would be composed by representatives both from UK and EU (so they would be basically international authorities). The objective is to have an independent supervision and to resolve disputes. There are different reference points of alignment.  First of all, the “four freedoms”: free movement of goods, services and capitals, with a compromise on the free movement of people. Concerning the last one, there would be an agreement that maintains the key points of free movement of people but introducing at the same time new controls on immigration. Secondly, competition-based measures such as state aid, public procurement, intellectual property rights. As last point, horizontal and flanking policies concerning financial policies, company law, employment rights, consumer protection, environmental protections, gender equality, anti-discrimination legislation.

What about divergence? The objective of the “shared market” is continued alignment but recognising also the possibility of divergence over time. This model is proposed to be dynamic to allow for positive constructive regulatory innovation by both sides. The possibility of divergence is allowed only as a backstop for some meaningful and particular reasons (e.g. the Union proposes an FTT but only for banks HQ’s outside the EU).

Moreover, there are also “wicked issues”. First of all, freedom of movement of people: political reality in the UK means that there must be changes to immigration arrangements post-Brexit. Therefore, there must be a compromise and it must reflect EU priorities to protect the integrity of the European project. The Swiss model is very attractive for UK. In addition, supervision and dispute resolution in case of divergence would cause the need of the creation of new institutions (UK Surveillance Authority and UK Court of Justice) composed by representatives of both sides to monitor over the agreements. Then, financial contribution meaning that UK should contribute with EU, with solidarity contributions, program contributions (such as Horizon 2020) and security ones. Lastly, customs union is very important. EU is reluctant to open the negotiation with UK for the new customs union. If customs union will not be established, there will be massive problems for the UK, who will suffer more for the lack of the customs union than EU.

Here follows a brief description of the reasons why UK decided to leave EU. The first reason is sovereignty (49%) meaning no supremacy of EU law in the UK and no direct role for the ECJ (European Court of Justice). The possibility of divergence means that sovereignty is assured. The second reason is immigration (33%), therefore most British people wanted an increased level of control on immigration.Another reason is political integration (13%), this means that UK is outside the political structure of EU.Lastly, for economic reasons (6%), there is no need to pay the Membership Fee, hence the country saves a lot of money that could be used in projects and innovation.The “Shared Market” allows for greater control over immigration and greater sovereignty.On the other side, EU’s objectives about this negotiation are integrity of the single market (no interference in single market mechanisms by the UK), soft Irish Border (as no need for either customs nor compliance checks, immigration compromise implemented by employers, not borders), autonomy of EU and ECJ (new Court structure only has jurisdiction within the UK) and level playing field and trade (minimal disruption to trade).

In conclusion, since now UK plays as a sort of “third country” and not anymore as a member of the European Union; IPPR is just trying to find a compromise between UK and EU by proposing an alignment of regulatory regime that could serve as a long-term model for the UK’s future relationship with EU.

The “shared market”, like every agreement, will not please everybody; but nowadays it represents the most plausible and reasonable after-Brexit proposal that respects both the Leave voters and the Remain voters, taking into account the priorities of the public and protecting the UK’s trading relationship with the European Union.  Will the EU27 agree with this proposal?