The Brexit Dilemma: Why Lengthy Negotiations for a Compliant UK
Throughout the Brexit negotiations, one major question looms: why is the UK taking so long to decide on a model that it is already compliant with? The simple answer is that all the practical options available essentially render the UK as it is now, without any new benefits. Leaving completely would crash the service economy, something that terrifies even many Conservative politicians.
The key issue lies in the concept of regulatory alignment, which is a term the Conservative Party struggles to explain. It wants to dismantle EU Regulations, which are a major part of UK law, but also demands a level of regulatory convergence with the EU. This creates a paradox: the UK is seeking to break free from EU regulations while simultaneously needing to align with them through a transition period. This confusion is leading to extended negotiations rather than a quick resolution.
Current Compliance and Transition Period
The current situation is that the UK is only compliant until it exits the EU transition period. This means that all the necessary regulations and standards must be in place within a specified timeframe. However, the transition period offers a temporary solution, allowing the UK to adjust to new rules and norms without immediate disruption. The Conservative Party’s fixation on a 'bonfire of regulations' approach and subsequent efforts to transfer and discard EU laws have added to the complexity of the negotiations.
It is crucial to recognize that UK trade with the EU relies heavily on these regulatory frameworks. When the UK leaves the EU, its trade ties with other European nations become more complex. The ongoing bill in Parliament to transfer EU rules into UK law indicates the government's commitment to maintaining these standards. However, the gradual process of discarding and replacing these regulations creates uncertainty and prolongs the negotiation process.
Importance of Services in UK Economy
While goods trade accounts for only 10% of the UK's GDP, services account for a much larger portion – up to 80% of the economy. These services are not covered by normal trade deals or the World Trade Organization (WTO) agreements. Instead, they are largely covered by single market membership, a feature the UK explicitly does not want to maintain. This presents a significant challenge for the UK government as they attempt to negotiate new terms that adequately address the importance of the service sector.
The UK’s refusal to commit to any established models and its insistence on negotiating a "special" EU deal with 27 other member states has further complicated the situation. Negotiating a goods trade deal with one country is a significant challenge; negotiating such a deal with 27 countries while simultaneously addressing the complexities of service sector trade is nearly impossible. This passive-aggressive stance by the UK is essentially playing for time, while acknowledging that failure is inevitable due to the fundamental differences in approach.
Regulatory Convergence and EU Attitude
The EU's primary aim is to maintain regulatory convergence without the corresponding benefits of EU membership. This involves striking a balance between the common acceptance of each other's standards and the need for a level playing field in various regulatory areas. These areas include common acceptance of standards, competition law, state aid, environment, financial prudence, taxation, and the social market.
Canada, a country with a long history of regulatory alignment with the EU, has had a solid track record, allowing for a smoother transition into agreements. In contrast, the UK's sudden desire to take a different regulatory path has created confusion within the EU. Some see Brexit as a populist movement that undermines the EU, while others view it as a legitimate choice that the UK is entitled to make. This internal EU debate adds another layer of complexity to the negotiations.
The EU's desire to have access to the London financial markets, which are vital for corporate and sovereign financing in Europe, without granting reciprocal access, is a significant sticking point. This reflects a broader desire to maintain control over its financial sector while also denying other nations a similar advantage. These issues will take time to resolve, as imposing punitive arrangements would only require unraveling later, likely leading to further negotiations and delays.
Therefore, while the primary transition period is scheduled to end, there will likely be multiple mini-transitions in various sectors to provide both parties with more time to negotiate. The process will take time, given the complex nature of the negotiations and the deep-seated differences on regulatory alignment and access to financial markets.