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15 December 2016

This technicality the UK once loved could hold up a Brexit deal for years

Welcome to the world of mixity. 

By Rachel Cunliffe

Do we want our Brexit hard or soft? Are we prepared to pay for access to the single market, or maybe accept some immigration in exchange? How much are we willing to bargain for our thriving financial services industry?

All these questions are potentially irrelevant. The fact is, the realm in which Britain can negotiate a trade deal with the EU alone is much smaller than we think it is. And it’s like that because we – the British – helped make it that way, thanks to a little-known technicality known as “mixity”.

Simply put, some aspects of trade deals, such as tariffs and competition requirements, fall entirely under EU “competences” (ie, jurisdiction). But others, like investment regulations and visa rules, fall under national competences. Increasingly, the kind of deep and comprehensive Free Trade Agreements needed for 21st century economies contain aspects of both. That, my friends, is mixity.

If you’re wondering why this is crucial, look at the EU’s attempt at an FTA with India that has stalled after nine years of talks. This ongoing negotiations don’t just include specifications about imported goods (covered exclusively under EU competences), but also work visas for Indians in Europe, which is the purview of national governments. That means it has to be ratified by both the EU (via a qualified majority) and by every member state parliament. When India was an EU priority back in 2010, some member states (in particular Britain, with Theresa May leading the charge as home secretary) were adamantly opposed to the immigration aspects. Although it was an agreement between India and the EU, not individual member states, the mixity in the deal would have allowed one obstructing government to block the whole thing.

There’s a battle currently raging within the EU about what kind of deals contain mixity. It’s become a hot-button issue with regards to the Canada trade agreement (Ceta) in particular, especially after Wallonia, a tiny regional parliament in Belgium, was able to hold up CETA even after it had been ratified by everyone else. The EU Commission originally tried to classify Ceta as an exclusively EU deal, thanks to the widening scope of EU competences granted in the Lisbon Treaty. But member states disagreed – in fact, all the ambitious FTAs negotiated since Lisbon have still been categorised as mixed. The Commission has actually sent the EU-Singapore Agreement – another deep FTA – to the European Court of Justice to get clarity on the mixity issue. An opinion is expected in mid-2017.

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What does this mean for Brexit? At the same time as haggling over our Article 50 exit agreement (which is basically a divorce specifying what we have to pay to leave), we are trying to negotiate a bespoke trade deal for our future relationship in parallel. And that is almost certainly going to involve mixity.

You might think that the kind of things Britain wants in an EU trade deal would all come under exclusive EU competences, namely the right to sell our goods in the single market without tariffs. But our relationship with the EU is far more complicated. When I spoke to Conservative MEP Vicky Ford, who chairs the Committee on the Internal Market and Consumer Protection and has been working on what a Brexit deal could look like, she was clear that the kind of agreement Britain is seeking goes well beyond any type of FTA that has ever been tried before.

“Even the most advanced mixed trade agreement falls very far short of the type of market access that we currently have between the UK and the rest of the EU,” she said. “Especially on key 21st century economic sectors such as digital, automotive, advanced manufacturing, medical research and financial services. The idea that we could somehow agree an adequate trade agreement using the ‘EU-Only’ model seems completely out of touch with the needs of economic actors both in the EU and the UK.”

What this means in practice is that any deal that covers some of our most crucial industries (in particular financial services, the UK’s crown jewel) would be considered mixed. Even the Canada deal falls far short in areas British groups prioritise most. That inevitably puts the decision of whether the UK can offer banking and investment services to the EU or continue our cutting edge medical research at the mercy of 27 national governments.

And it’s not just what we want. What’s a high priority for Britain may not be for anyone else. It’s likely that immigration is going to come up in some form, with countries like Poland arguing for work permits in exchange for single market access. It is virtually impossible that we could come up with a deal acceptable to both the UK parliament and the EU devoid of issues that would then have to be ratified by member states.

The irony is that this likely stumbling block to a Brexit deal was championed by the UK, and by the Conservative delegation to the European Parliament in particular. Ford acknowledged that this is still the position of the European Conservatives and Reformists: “We think that approval by national parliaments is a prerequisite for the democratic legitimacy of trade and investment agreements, even if this makes them more complicated to negotiate and apply.”

But now the British – at least those who want a quick deal in place by the time we leave – are in the awkward position of changing sides. We need to desperately hope the EU has greater jurisdiction than we thought, to save us from the tyranny of member state parliaments that could hold up a Brexit deal for years.

Either way, whether we get the kind of red, white and blue Brexit Theresa May wants isn’t really up to us at all.

Rachel Cunliffe is the deputy editor of Reaction. Follow her @RMCunliffe.