A group of German economists have argued that creation of a new form of partnership — specifically a newly created European Customs Association (ECA) between Britain and the EU — would break the Brexit deadlock and successfully steer them away from the no-deal scenario.
'Hard Brexit ahead: breaking the deadlock' paper suggested a "politically feasible approach" that would see creation of a space with common external trade policy, where Britain would be a full and active participants as opposed to a rule-taker.
This is an agreement which links the European Customs Union (as it currently exists) to the customs territory of the UK, creating a space with a common external trade policy and giving the UK full and active participation instead of merely being a rule-taker. This minimizes the risk of a hard border between Northern Ireland and the Republic of Ireland and is economically advantageous for both the EU and the UK.
"Issues beyond those covered by the ECA, i.e. policy areas other than trade in goods, should be dealt with in the Withdrawal Agreement as already agreed. The ECA should 4 cover areas related to trade in goods that are currently falling under the exclusive competence of the EU in Brussels. The permanent nature of the ECA does away with the need for a backstop," German economists argued.
However, the model would require sacrifices on both sides of the Channel. Namely, Westminster would at least partially, forego trade policy autonomy and accept a dispute settlement mechanism related to the ECA. Brussels would have to relax its "four freedoms" dogma, allowing Britain to participate in product market integration but allowing London to make own decisions on the freedom of movement of people.
The benefits reaped by both sides would include:
- Irish backstop provision is dropped
- Britain permanently delegates all trade policy matters in goods to a newly created European Customs Association (ECA) in which the EU (and, why not, Turkey) is also a member, while neither EU nor the UK pursue independent trade policies, and the ECA represents them equally at the World Trade Organization (WTO)
- ECA covers all "classical" areas of trade policy, such as tariffs, quotas, rules of origin, trade defense, et cetera. On these issues, the EU has exclusive competence.
- Areas in which the EU has no exclusive competence and in which countries have veto rights (trade in services, intellectual property, direct foreign investment, audiovisual and cultural services, and social, educational and health services), should not fall under the ECA
The outlined vision would certainly trigger objection on the part of hardcore Brexiteers within the UK Parliament who argue that complete independence from the EU states is ultimately what the British public voted for in the 2016 referendum.
Even more lenient Conservative MPs could point out that inclusion of Turkey in this new form of economic partnership is not acceptable for Britain, whose leadership said on numerous occasions it was confident in independently securing Free-Trade Agreements (FTA) with third countries that would benefit the UK first and foremost.
Turkey hasn't been in an advantageous position when it comes to its trade relationship with the EU bloc. Recognized by British lawmakers as "almost unbelievably asymmetrical," the shortcomings of the customs union à la Turque were also outlined in the ‘Hard Brexit ahead' report.
"Turkey is obliged to align its trade policies to EU trade policies, as a customs union of course requires a common external tariff (CET). Specifically, whenever the EU signs a free trade agreement with any third country, Turkey is required to adopt all tariff reductions against this third country as well. In short, Turkey is a rule-taker," the economists explained.
Various forms of economic integration, such Turkey-EU union, are far from being a novelty in international cooperation, even less so in European Union's agreements with its peripheral neighbours.
The report provided the examples of the European Free Trade Association (EFTA) + single market (Iceland, Norway, Liechtenstein) and EFTA + bilateral agreements (Switzerland).
"Why not placing ECA + bilateral agreements (United Kingdom) in this row?" the economists asked.
They argued that the proposed European Customs Association between UK and the member states of the EU is theoretically convincing. What stands in the way is the "critical issue of political feasibility."
In other words, it is unclear and quite concerning as the clock is running down, whether London and Brussels will ultimately give up their red lines and their ultimatums in order to prevent an EU member crashing out from the bloc for the first time in history and without a deal on its hands.