Margaret Thatcher’s greatest gift to Britain and the European Union was her instrumental role in delivering the EU single market. It has generated more economic benefits for the European Union as a whole and the United Kingdom in particular than any other EU measure. And it is popular too: The Brexit vote notwithstanding, polling in the UK consistently demonstrates the highest support for options that leave the United Kingdom in the single market.
All of which underscores the awful muddle the country has got itself into over Brexit. It’s not just that the process of leaving the European Union has proved to be much more difficult than many of its proponents initially believed; British strategy, to the extent that there was a strategy at all, has also been unbelievably clumsy, alienating negotiating partners on the continent while creating divisions at home. London is currently negotiating a withdrawal treaty in Brussels which is likely to be rejected by Parliament, leaving Britain with a last-minute choice between a catastrophic “no deal” exit and revoking the withdrawal process, thus remaining an EU member state.
Underneath all the confusion and rhetoric, however, there is, even at this late stage, a compelling argument for an alternative approach that would respect the initial referendum result, maintain open borders between the UK and Ireland, protect both the UK and EU economies from the effects of a no-deal Brexit, and provide a significant strategic advantage for London and for the European Union. This approach is for the United Kingdom to, like Norway, be a part of the single market via what is known as the European Economic Area, while being a full participant in the EU Customs Union, which would avoid erecting a hard border with Ireland. This deal would square the circle: It would not undermine the British economy, not threaten the political integrity of the United Kingdom, and avoid a return of the Troubles to Ireland. Toward the end of the Brexit process, it is the one way out for a floundering Prime Minister and her divided party—a chance to resolve many of the conflicts they face while providing the means to turn the tables on their opponents.
Much of the blame for the British Brexit muddle deservedly falls on former Prime Minister David Cameron. The previous referendum debate on Scottish independence took place over two years. As a result, by the end of the referendum campaign the Scottish electorate was fed up with the issue and the information all sides had bombarded them with for 24 months. However, the info dump seems to have had a positive effect, giving voters a good grip of the issues when they finally cast their ballots in September 2014.
By contrast, the British electorate only had a referendum debate of four months. For the large part of their country’s 45 years of EU membership, few Brits had given much thought to the European Union. To the extent that Brussels impinged on British consciousness, it was through stories in the British media about crazy EU regulations (some of which were true, most of which were phony or very heavily distorted). Given the lack of knowledge and awareness of the role of the European Union in British economic and political life, it was vital that such discussions took place during the campaign. However, the four-month campaign was marked less by informed debate than by assertion and counter-assertion from all sides. Crucially there was only limited debate on the importance of the EU single market, the Customs Union, and the dangers of a hard border between Northern Ireland and the Republic of Ireland.
The underlying assumption in much of the debate was that the United Kingdom had infinite options between, say, EU membership, a Norway model, or third-country status (namely, no special economic relationship with the European Union) with a free trade agreement. The assumption was that the costs of any of those choices were minimal, and that any of them could be executed speedily, allowing Britain to continue on economically and politically pretty much as it had before the referendum. This low-cost view of Brexit was shared by both Remainers and Leavers, as well as across much of the British political and media class. It is also entirely wrong. Now, it’s true of course that, during the referendum campaign, David Cameron did raise the prospect of economic disaster if Britain voted to leave the European Union, but he talked up the prospects of disaster in such blood-curdling terms that it is doubtful even he believed it. In any case, it was certainly not believed either by the Leavers or by the elites on both sides of the debate. Once the votes were in, even elite Remainers in the political and media class automatically accepted that Britain should leave the European Union, and that all options were on the table, including having no special economic relationship with the EU.
What the people and the elites overlooked was the reality that the United Kingdom had become progressively locked-in to the EU market over the past four and a half decades. This process of economic lock-in accelerated after the formal completion of the EU single market in 1993. The single market removed almost all barriers to trade in goods and much of the barriers to trade in services. Within the single market there are now fewer barriers to trade between EU states than there are between U.S. states. As all the internal trade barriers disappeared, businesses created EU-wide distribution systems; a wave of mergers saw EU-scale rather than national-scale firms being created; foreign investors created globally competitive supply chains; and smaller specialist companies were able to grow and develop at the continental level. The effects of this economic transformation were as immense as they were underappreciated. In essence, the United Kingdom went from having a largely independent trading British economy to being in essence the British part of a European economy. As a result, any attempt at leaving the single market, if not the European Union, then became fraught with serious economic danger.
Somewhat ironically, by becoming the greatest exploiter of the value of the single market, Britain magnified this threat. After the creation of the single market, the UK saw a flood of foreign direct investment. Investors believed the UK’s global language, its ease of doing business, and its common law made it the best European base for trading into the rest of the single market. As a result, the United Kingdom has the world’s third-largest stock of foreign direct investment, behind only the United States and China. It also used the European Union’s right to trade in services to create a world-beating services exporting machine. After the United States, the United Kingdom is the world’s largest exporter of services. The UK first used the EU’s open market services rules to open up the financial, business, and legal markets in the EU, then deployed EU trade negotiators to gain access to services markets in third states. Britain’s success dramatically raised the costs of exit from the single market.
None of this was properly debated or even acknowledged by either side during the four-month referendum debate. It has only been in the two years since the referendum that the true economic costs of exit from the single market have slowly but surely become apparent.
The other issue which was almost entirely unaddressed during the referendum campaign was the Irish border issue. Despite being raised by former Prime Ministers John Major and Tony Blair during the referendum campaign, the issue received very little media attention. This again reflects the “curse of Cameron” in having such a short campaign period for a referendum dealing with a decision involving so many vital issues and a media unable to work out what was important in the limited time available. The Irish border issue, as it happens, is a crucial one, involving not just economics but potentially also matters of life and death.
Under the 1998 Good Friday Agreement, approved by 71 percent of those voting in Northern Ireland and 94 percent of those voting in the Republic of Ireland, the United Kingdom and Republic of Ireland agreed, amongst a number of other peace measures, to remove from their land border all physical barriers, which had proved over the previous 80 years to be a major impediment to peace. The border had been the result of an agreement between the United Kingdom and the Sinn Fein-led government in December 1921 in the Anglo-Irish Treaty to accept a border between the then Free State and Northern Ireland. The issue split Sinn Fein and led to the Irish Civil War, in which approximately 14,000 people died. After the Irish Republic stabilized politically in the 1930s the Sinn Fein splinter group, the Irish Republican Army (IRA), still ran border bombing campaigns to protest against the boundary in the 1930s, 1940s, and 1950s. The “Troubles,” beginning in the late 1960s, saw rising violence in Northern Ireland; by the time the Good Friday Agreement was signed in 1998, more than 3,600 lives had been lost. Throughout the Troubles the IRA regularly launched attacks on the border posts because they were physical representations of the hated division of the island of Ireland.
The Good Friday Agreement put the border issue to sleep. This was possible because both Ireland and the United Kingdom were EU member states. Within the European Union the single market permits the removal of all national regulatory barriers and the EU Customs Union removes all tariff controls. With the Good Friday Agreement and the agreement to end the armed struggle with Sinn Fein, the IRA, and the armed loyalist (paramilitary groups nominally “loyal” to the Crown) groups, the UK and Ireland could the abandon all security controls on the Irish border.
Brexit, however, threatens to reopen not just the terms of the Good Friday Agreement but also, given the bloody history of the Irish border since 1921, hostilities in Northern Ireland. If the United Kingdom is no longer an EU member state—and thus potentially no longer in the Customs Union or single market—there will have to be a border between Northern Ireland and the Republic.
London and Brussels have been locked in a dispute as to how to create a special regime for Northern Ireland that avoids the need to erect a border. This dispute has been made much more difficult by Theresa May’s dependence on the ten loyalist Democratic Unionist Party (DUP) MPs to sustain her government’s parliamentary majority. The DUP are wholly opposed to any EU special regime for Northern Ireland, where the province is in the single market and Customs Union but the United Kingdom is not. The DUP also has a significant body of support on this issue amongst 40-80 Conservative MPs. To make matters worse for May, if Northern Ireland gets a special deal, then the Scottish government will be pushing very hard for a special deal for Edinburgh as well.
The danger for May is that, even if she can get a deal with the European Union that includes a special regime for Northern Ireland, Parliament could vote down the deal. The DUP and Conservative Brexiteers will not support the government on that deal, and the opposition will object to any deal that does not keep the UK in the single market at least. The question then is what should the UK do?
This is where the European Economic Area (EEA) and Customs Union come in. The EEA involves accepting approximately one-third of the body of EU case law and legislation, so as to significantly lessen the burden of complying with EU rules. If the whole United Kingdom were to remain in both the Customs Union and the single market, then there would be no need for a border between Northern Ireland and the Republic of Ireland, protecting the Good Friday Agreement and peace in the province. Furthermore, an EEA and Customs Union deal would bring the British government into compliance with the referendum, as the United Kingdom would no longer be an EU member state.
The argument against this solution comes down to two points. First, remaining in the Customs Union will restrict the UK’s trade sovereignty. It is true that the UK would not be able to make its own trade deals if it remained in the Customs Union and accepted the EU’s trade authority under the common commercial policy. The question one ought to ask, however, is why would the UK want to exercise trade sovereignty on its own in the first place? Given its trade weight, the European Union is always going to be able to extract better trade deals for its members than the UK could alone.
The second point is that being in the EEA would mean the United Kingdom would become a rule taker rather than a rule maker, having no influence on the development of single market rules. However, that is not strictly true; the EEA has its own court separate from EU courts, its own rule-making procedure, and its own secretariat.
Furthermore, with the UK as a member, the EEA would begin to significantly develop its own reach and influence on the European Union. It is likely that the increasingly isolated EU states not in the Eurozone would, when faced with an EU dominated by EU states in the Eurozone, consider switching to EEA membership. This would be more likely if participation in the Customs Union and common commercial policy were possible. The EEA could develop into a parallel European structure focussed on the single market and the Customs Union. The EEA would end up influencing the EU as much as the EU influenced the legal and policy development of the EEA.
Politically, an EEA/Customs Union solution provides the means for May’s government to play a political master stroke. There is now rising pressure for a second “Peoples’ Vote” on any deal with the European Union in the British polling; approximately 700,000 people marched in London in favor of a new vote last week. This pressure is understandable given the shallowness and shortness of the original referendum debate. May could deploy this pressure to her advantage. If, as now seems likely, she fails to get a vote through Parliament, she can go back to the European Union and agree to remain in the EEA/Customs Union—and then put that deal to a referendum. She would be likely to triumph in such a vote given the high and consistent public support for the single market, if not the European Union as a whole. It is very likely that such a deal would gain most of the pro-Brexit vote, and the more reluctant Remainers would also plump for an EEA/Customs Union solution.
Who knows? Playing the single market card may turn out to be an advantage for more than one British Prime Minister.