Brexit declaration sends May's Chequers plan to the grave

22 November 2018 4:59pm

22 November 2018. By Matthew Holehouse.

Chequers is dead.

The political declaration on the UK’s post-Brexit relationship with the EU is stuffed with vague aspirations and warm words, but on one front it’s unambiguous: UK prime minister Theresa May’s bid to find a “bespoke” model between the binary options of the single market or a conventional free-trade deal has failed.

The 26-page text released today spells doom for the British government’s proposal to remain a de facto participant in the EU’s single market for goods only.

That proposal was unveiled in July after a tense ministerial conclave at the prime minister's country residence, Chequers. It envisaged the UK Parliament bound by treaty to implement new EU legislation in goods under a harmonized “common rulebook,” as well as retain its place in the bloc’s cross-border authorization and surveillance networks in medicines, chemicals, automobiles and foods.

It was the only way of keeping faith with the Brexit referendum, May insisted, while protecting the supply chains in high-value industries and preventing the emergence of regulatory checks between Northern Ireland, the rest of the UK and the EU.

The proposal triggered a crisis in government, with the resignation of David Davis as Brexit Secretary and Boris Johnson as Foreign Secretary. The EU dismissed it, saying it undermined the bloc's “four freedoms” — in the movement of goods, capital, labor and services — and would hand British manufacturers a destructive advantage by jettisoning the bloc’s rulebook on services.

In its place, the draft text produced today by UK and EU negotiators and circulated among national capitals bluntly reiterates a position first set out by the European Commission in January this year. This is that, outside the single market’s ecosystem, the only option available to the UK is essentially a conventional free-trade agreement, or FTA — often referred to as the "Canada" model.

This would offer the possibility of “deep regulatory cooperation,” but would let each side ultimately define its own rules in its own markets. And that inescapably means border checks of the type that May said she wanted to see eliminated.

The text notes the desire of the EU to defend its “autonomy of decision making” and the “integrity” of the single market, and the UK’s wish for “sovereignty” and the “development of its independent trade policy.”

“Following the United Kingdom’s withdrawal from the Union, the Parties will form separate markets and distinct legal orders,” the text says. “Moving goods across borders can pose risks to the integrity and proper functioning of these markets, which are managed through customs procedures and checks.”

Theory and reality

The consequences of this theoretical proposition for British industries are clear.

The UK and EU envisage a "technical barriers to trade" agreement of the type common in FTAs, that will assert “common principles in the fields of standardization, technical regulations, conformity assessment, accreditation, market surveillance, metrology and labeling.”

The UK can also secure an agreement on plant- and animal-health standards, akin to those the EU has agreed with Chile and the US. But this will not be as far-reaching as the EU-Swiss agreement, which sees full harmonization and eliminates the need for food imports to undergo costly veterinary inspections at the EU border.

The UK can limit the intensity of these checks by choosing to unilaterally shadow EU legislation, the text notes. Brussels is confident that the wish to minimize frictions will ultimately lead the UK to remain in lockstep with EU rules of its own volition.  

“The parties envisage that the extent of the United Kingdom’s commitments on customs and regulatory cooperation, including with regard to alignment of rules, would be taken into account in the application of related checks and controls, considering this as a factor in reducing risk,” the text says.

“This . . . can lead to a spectrum of different outcomes for administrative processes as well as checks and controls, and note in this context their wish to be as ambitious as possible, while respecting the integrity of their respective markets and legal orders.” 

The bloc will also “explore the possibility of cooperation” with the UK’s drugs, chemicals and aviation safety agencies. But this is fundamentally different to the UK’s aspiration of retaining a rulemaking role in the European Medicines Agency, the European Chemicals Agency and the European Aviation Safety Agency.  

For UK-based manufacturers pondering their next move, the lesson to draw is stark: Should the political declaration be approved by lawmakers, and May remain in office to negotiate it, the UK must fully leave the single market. The underlying principle that products will only need to be approved once for sale in the UK or the EU will end. Companies’ regulatory functions will need to be restructured accordingly.

Brexit Special Report