Options for the future UK-EU relationship

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Now that the UK has voted to leave the European Union, attention has turned to what our future relationship with the EU might look like. There has been much interest in whether different ‘models’ of EU relationship – such as the Swiss model, Norway model or even Turkish model – could work for the UK. However, it seems likely that the UK’s future relationship will be a bespoke arrangement, not directly copying any current model but forging a new one to suit UK and EU interests.

The key building blocks of this future relationship will be:

• The degree of access to UK has to the Single Market
• Requirements placed on the EU (eg. to contribute to the EU budget or to observe EU rules)
• The extent of UK influence over EU rules

Within each of these there is a spectrum of different options, ranging from full integration to no cooperation.

Even if the UK ends up negotiating a bespoke deal, it won’t be able to simply pick-and-choose what options it wants. The existing models show that there will always be trade-offs.

It is very likely that any future UK-EU arrangement will have to be approved by all EU member states. They are unlikely to grant the UK an easy deal. Greater access in one area must be balanced against greater costs or obligations in another: the UK would be unlikely to get full access to the single market in goods without being obliged to accept free movement of people, for example. Here we outline the key options within each building block, set out some of the likely trade-offs that will shape any future deal.

Access to the Single Market

The single market can be divided into three ‘pillars’ – goods, services and people. Different degrees of access to the pillars of the single market are possible, ranging from full membership of the single market (which removes all barriers to the free movement of goods, services and people within the EU area, including tariffs and quotas); to limited access to trade in goods allowed under WTO rules, with quotas and tariffs strictly applied. Full membership of the single market is only possible as a member of the EU.

Norway, which, as a member of European Free Trade Agreement (EFTA) and the European Economic Area (EEA), has the closest relationship to the EU without being a member state, has a high degree of access to the single market in goods, services and people, but with some limitations - some quotas remain in place on raw agricultural goods. Countries with a free trade agreement with the EU – such as Singapore and Canada – have access to the single market in goods, but such agreements rarely cover trade in services or free movement of people.

The three pillars of the single market are closely related – greater access to one often requires greater access to all. This trade-off is neatly illustrated by the Swiss model. Through EFTA membership and a series of bilateral agreements Switzerland has access to the single market in goods, services and people. When the Swiss attempted to introduce a quota on migrant workers, undercutting free movement of people, the EU was quick to threaten to remove access to other areas of the single market.

For the UK, where control over immigration was a key message from the EU referendum, it seems likely that limited access to the single market in goods and services would be the price to pay for a deal that is politically acceptable to the wider public. But a deal delivering more limited access to the single market will not be universally popular and may have economic consequences – loss of access to the single market in services, for example, could limit the city of London’s ability to sell financial services across the EU.

Requirements

Looking at the existing models we can see that – to date - greater access to the single market in goods, services and people has come at the price of more substantial requirements. Norway and Switzerland, who both have a high degree of access to the single market, make financial contributions to the EU budget. In return for these financial contributions, Switzerland and Norway reap the benefits of EU funding. Both countries can receive funding from EU-wide programmes such as Horizon 2020 funding for scientific research. Countries with a looser relationship to the EU – such as Singapore and Canada, both of whom have negotiated free trade agreements allowing limited access to EU markets – are not required to make financial contributions to the EU budget. Countries with a free trade agreement with the EU are not automatically eligible for funding.

Whether or not the UK continues to participate in EU-wide programmes – and therefore continues to contribute to the EU budget – will be a matter for negotiation. UK universities have already voiced concerns that they will be excluded from EU research funds following Brexit, but continued contributions to the EU budget may be an unpalatable political decision.

Influence over EU rules

The final variable in the mix is the degree of formal influence the UK will end up with over EU rules. Whether or not we have influence over EU rules matters because in some potential scenarios we will nevertheless be bound by them, particularly when trading with EU markets. Unlike access to the single market or requirements to contribute, there is no scale or variation in influence over EU rules – countries either have a seat at the table or they don’t. Norway and Switzerland’s closer relationships with the single market and their contributions to the EU budget do not buy them increased influence over EU rules. Neither Norway nor Switzerland is represented as a member within EU institutions. EEA members (including Norway) have the right to be consulted on laws and regulations under the EEA agreement but there are limited channels for formal influence. Like all non-EU member states, Norway and Switzerland are reliant on informal channels to exert influence over EU policymaking.

While the range of options for the future UK-EU relationship seems wide and varied, in reality there are likely to be constraints on the kind of deal that the UK can aim for. Securing the right outcome will be a tough balancing act: the UK Government will have to broker a deal that meets the approval of EU member states, but which also satisfies varied domestic UK interests.