As negotiations over Britain’s departure from the European Union (EU) move towards a climax, the policy positions of the Tories and Labour register the balance of forces within each party. Last week the cabinet Brexit committee met at Chequers and agreed on what Theresa May would seek in the talks over Britain’s future relationship with the EU.
They adopted the principle of “managed regulatory divergence”. This would place Britain’s trade with the EU after Brexit in three “buckets”.
In the first would be sectors—for example, cars, chemicals, and medicines—which are closely integrated into cross-European production chains. They would start off with the same rules as those governing the European Single Market.
In the second bucket, primarily service sectors and above all the City of London, trade would be based on “mutual recognition”. In other words, each side would accept each other’s rules, and crucially these sectors would retain access to the single market.
Finally, Britain would go its own way in the third bucket, with new areas such as robotics and driverless cars.
This formula was designed to square the circle between the two factions in the cabinet.
There are those such as chancellor Philip Hammond who want to stick as close as possible to the single market. And there are the Brexiteers, led by Boris Johnson and Liam Fox, who want to break loose from the EU in the belief that Britain can then make great trade deals with the US and China.
But what works for the Tory party doesn’t work for the rest of the world, and in particular for the EU-27, the member states that will remain after Brexit. Donald Tusk, president of the European Council, immediately attacked May’s plan, saying it was “based on pure illusion”.
He was expressing the EU-27 position, repeatedly stated by its chief negotiator, Michel Barnier.
According to this Britain has two choices. It can stay in the single market, in which case it must accept regulations in which it has no part in making, be subject to the European Court of Justice, and continue to recognise the freedom of movement of EU citizens. These are all things that both May and the Brexiteers have set their faces against.
Alternatively, Britain can make a free trade agreement with the EU. This would give its manufacturing industries access to the single market, but not the City and other services.
By trying to avoid either option, the Tories are seeking what May calls a “bespoke” agreement—Johnson’s “having our cake and eating it”. But this is precisely what Brussels is determined not to let them have.
Why are the EU-27 taking this position? Two main reasons. First, because they can. The EU market is more important to British-based firms than the British market is to firms in the rest of the EU.
Secondly, because a more complex position will open up the differences on the EU-27 side.
The German government under Angela Merkel is backing Barnier. But German capitalism has invested heavily in the City and in the British car industry.
According to Charles Grant of the Centre for European Reform, other member states worry that a free trade agreement “could restrict trade with the UK too much”.
So the EU-27 have an interest in keeping their position simple and hard. Meanwhile, a pro-Remain minority of Tory MPs are pressing May to move closer to the EU-27 and stay in a customs union with the EU.
This is anathema to the Brexiteers because it would mean Britain couldn’t make trade deals with third countries.
And now Jeremy Corbyn is backing a customs union and saying Britain should keep “a close relationship with the single market”. The Financial Times called this a “clever move” because it increases the pressure on May. But Corbyn is also bending to the demands of pro-Remain Labour MPs.
Financial Times columnist Wolfgang Münchau said that “the EU would impose tough rules on Britain” in a customs union. This could mean the neoliberal restrictions that staying in the Single Market would require, which is why Corbyn rightly rejected it in the past.
Sometimes boxing clever isn’t so clever.