Access to the single market requires acceptance of free movement of goods, capital, services and people
Access to the single market requires acceptance of free movement of goods, capital, services and people © FT montage

Theresa May once promised to take the UK out of the EU’s single market and customs union, shake off the jurisdiction of the European Court of Justice and free her government to forge its own trade policy.

As Brexit talks near a crunch point ahead of a crucial EU summit next week, things no longer look so simple. The British prime minister is fighting to overcome opposition on almost all fronts to her plans to keep the UK closely aligned with the bloc on customs and single market regulations.

Here the Financial Times explains what is at stake, and why making a clean break with the EU could prove easier said than done.

The status quo

Participation in the single market requires acceptance of all four EU freedoms: movement of goods, capital, services and people.

Companies operating inside the bloc can, in theory, sell their products and services freely anywhere in the EU. In practice, the single market is still far more developed for goods than it is for services, where languages, face-to-face contact and trust remain important.

To create a fair internal market, the EU is committed to a common regulatory framework to prevent one company — or country — from gaining a competitive advantage by undercutting regulations.

Countries must promise to implement common rules and to recognise each other’s standards. The ECJ is there to interpret EU law and serve as arbiter of any dispute.

The EU is also a customs union. Its members impose common tariffs on imports from non-EU countries and can trade freely with each other without border checks. EU countries automatically benefit from trade deals that the EU strikes with other states but cannot set their own tariffs.

What Theresa May wants

The UK has been negotiating with Brussels for more than a year and there are less than six months to go before Brexit. Other big issues are not yet resolved but the two sides have reached a provisional deal over a 21-month transition.

Under this agreement, which would be part of the formal exit treaty, Britain would remain in the single market and the customs union until December 31 2020.

This is far from certain — the country could still drop out of the EU and all its workings without a deal on Brexit day, March 29 2019 — but the bigger question is what the UK’s long-term relationship with the customs union and the single market will be.

This is the focus of Mrs May’s Chequers plan to keep Britain in a EU-UK free trade area covering goods and agriculture.

What her critics say

The EU argues that Chequers poses a threat to the single market, since it would give the UK access to the single market for goods while cutting back on other basic principles such as the free movement of people and the supremacy of the ECJ.

The fear among the EU27 is that such “cherry-picking” would give UK business an unfair advantage, undermining the principles of the single market and the EU itself.

Mrs May’s Eurosceptic critics, such as former foreign secretary Boris Johnson, take an opposing tack.

In his campaign to “chuck Chequers”, Mr Johnson says that it would keep the UK in “manacles” — because of Mrs May’s plan to maintain EU goods regulations, as well as the impact on the UK’s ability to negotiate trade deals.

Indeed, the knock-on effect of Chequers — and keeping to EU single market regulations for goods — could be considerable for the prospect of future UK pacts with other countries.

Trade deals are often as much about standards as tariffs. By keeping to EU goods regulations, Britain might make it make it much harder for itself to strike agreements with other countries. The US, for example, wants the UK to break away from the EU’s prohibition on chlorinated-treated chicken as part of any trade deal with Washington.

Where the UK may be heading

Mrs May has long campaigned for a form of “customs partnership” — an idea at the heart of the Chequers proposals — that would keep the UK closely aligned with the customs union.

Such a kind of partnership has been rejected as unworkable by both Eurosceptics and the EU, since it would involve the UK collecting tariffs on behalf of Brussels and could involve burdensome regulation for businesses to establish whether goods would remain in the UK or cross over to the continent.

Jacob Rees-Mogg, one of the most prominent Brexiters in the House of Commons, says that he and EU negotiator Michel Barnier agree that “Chequers will not work”.

Brussels argues that, because of the difficulties Chequers poses, Britain will ultimately have to chose between two established models: Norway-style access to the EU market (the Scandinavian country is part of the single market although not the customs union) and a more limited free trade deal along the lines of its recent accord with Canada.

Eurosceptics like Mr Johnson and Mr Rees-Mogg want a Canada (or Canada plus) style deal that would ensure tariff-free trade for most goods.

Mrs May told the Conservative party conference that she would accept neither Norway nor Canada but plough on with her plans instead.

However, there is a further possibility. In the coming days of negotiations, the Chequers proposals could be altered significantly.

Some Eurosceptics have long suspected that it is a place holder for the more straightforward idea of a customs union with the EU (such as the one Turkey has with the bloc) and (largely voluntary) regulatory alignment with single markets standards for goods and agriculture.

Jeremy Corbyn, leader of the opposition Labour party, has said that he could back a deal keeping Britain in a customs union and protecting workers’ rights.

Mrs May’s government is already working on similar ideas as part of its proposals for a “backstop” to avoid a hard border with Northern Ireland — the issue that needs to be resolved for a Brexit deal with Brussels to go ahead.

Such an outcome could reduce the options for trade deals with the rest of the world. But it could conceivably square Mrs May’s Brexit circle.

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