Ahead of next week's key Parliamentary votes on the Withdrawal Bill, the Labour Party has tabled an amendment calling on the government to negotiate "full access to the internal market, underpinned by shared institutions and regulations, with no new impediments to trade and common rights, standards and protections as a minimum."
On the face of it, this sounds very much like the EEA Agreement, which is discussed here. However, press reports suggest that Labour has in mind something different from the "Norway model" – although it has yet to set out its position in any detail and Keir Starmer has suggested that it could "involve some of the tools in the Norway-style toolbox". One possibility is that it envisages some form of Association Agreement with the EU – such as the one with Ukraine, which is effectively able to participate in the Single Market in areas where it has aligned its regulation with EU law.
Is the association agreement model viable?
The European Parliament has recently passed a resolution backing the idea of an association agreement as the model for the EU's future relationship with the UK – so the concept would appear to have some support on the EU side as well. The Ukraine model has received particular attention in the context of Brexit because although it provides for a significant degree of economic integration, it does not extend to free movement of people (whereas the EEA Agreement does).
Our view is that there is a reasonable prospect that the Brexit negotiations will, in the long term, lead to some form of association agreement with the EU – assuming that other options such as remaining within the EEA Agreement continue to be ruled out. But in one sense, this is an easy prediction to make because association agreements vary widely in terms of their substance; as such, they would be capable of covering a very broad spectrum of outcomes, ranging from a relatively close relationship to a more "arm's length" one.
Our latest Q&A looks in more detail at association agreements, including the Ukraine model, and discusses whether the EU would be likely to agree to a Ukraine-style arrangement for the UK (i.e. effectively allowing the UK to remain in the Single Market but without free movement of people).
Goods and services – or just goods?
Perhaps the bigger point here is that whilst the EEA Agreement is a reasonably well defined package, the association model is potentially more flexible, which could allow the UK to pursue more of a "mix and match" approach – provided, of course, that the EU was satisfied that this did not amount to "cherry picking".
One area where this could assist is in relation to financial services, where recent press reports suggest that there is tension between the Bank of England and the Treasury over the extent to which participation in the Single Market from outside the EU would deprive the UK of influence on key issues affecting financial stability. Whereas the EEA Agreement involves Single Market participation for both goods and services, an association agreement could conceivably involve Single Market participation for goods only (as is the case for Switzerland - albeit that this outcome is achieved through a plethora of bilateral arrangements with the EU rather than an association agreement). Such an approach would mean that the UK was free to set its rules on services, including financial services – although it would obviously mean that UK-based financial service providers would lose the benefit of current Single Market passporting arrangements.
What's happening next week?
Next week will see the House of Commons being asked to vote on whether to accept numerous changes made by the House of Lords to the Withdrawal Bill. These include amendments designed to make it a negotiating objective for the government to remain in the EEA and inside a customs union with the EU. If the government were to lose the votes on these issues, it would be obliged to change its negotiating position with the EU very substantially – a matter of days before the June summit with EU leaders at which the Withdrawal Agreement is due to be discussed. However, given that the government controls the legislative timetable, the fact that it has brought the Bill back before the House of Commons suggests that it believes it has sufficient support to reverse many of the Lords' amendments.