As I write, Friday morning, July 6th, the UK’s faction-ridden cabinet is gathering at Chequers, the Prime Minister’s country residence (Pic), to try to finally trash out an agreed UK proposal to the EU over the direction of travel of the future trading and economic relationship between the UK and the EU after Brexit.
What the prime minister wants the cabinet to endorse appears to be a package of customs union and single market membership for goods, but not for services. The EU has already clearly signalled that it will reject any such proposal.
The clue is in the word “single”, as Chris Grey explains in this blog post: here. Let’s go further than Chris. How would you decide which companies fall within the definition of “goods” and which within “services”?
Clearly, banks and law firms can easily be categorised as services. But what about a company such as, for example, HP, which makes computers, a physical good, but which runs on software and is Cloud connected? Does it fall into the goods or services bucket?
Maybe a better example is Otis elevators. Clearly an elevator is a physical thing. If you are using one you would certainly hope so! But is it also a complex of software controls. More importantly, it requires continuous after-installation maintenance and servicing. Goods or services? Otis, in or out of the single market?
Consider a car. Obviously a physical good. But cars incorporate a great deal of services, from finance packages to GPS software, with such software being increasingly used to channel bundles of services towards the driver. If the company which finally assemblies the car, say a Honda, is considered a “goods” company” where does that leave the companies which provide the finance and software packages? Inside or outside the single market, even if they are owned by Honda? What about data protection issues if the car is feeding back data across borders?
Is Eurostar a good or a service? Degrees in theology would be required to decide.
The idea that in today’s economy you can neatly divide the economy between manufacturing and services is a non-starter.
Further, look at the issue from an employment and labour law perspective, something with which BEERG member companies are more than familiar. Single market membership requires acceptance of the EU’s labour law acquis and the ultimate jurisdiction of the Court of Justice of the European Union (CJEU). Would the UK government’s “half-in/half-out” of the single market mean that some employees are within the scope of EU employment law and others not? Could some employees within the same multinational, which had both goods and services operations, be within scope and some without? How would you decide?
What would happen if the UK decided in the future, for example, to scrap parts of the Working Time Directive? Could you have two working time regimes within the same company, one subject to EU law and the other not? Would some employees be entitled to have their holiday pay include overtime payments because of a CJEU ruling while those simply subject to UK law might not if the UK decided to change its own laws?
Would a low-pay cleaner directly employed in a manufacturing facility be considered as being within the single market regime while a similar cleaner employed by a professional cleaning company be excluded?
Could some employees in a company be entitled to representation on a European Works Council, because they were considered to be in the “goods” single market while others wouldn’t because they were considered “services”?
“Hokey-cokey Brexit”, one leg in and one leg out, would be a human resource nightmare, requiring dual systems in many companies, almost impossible to operate and imposing significant burdens and costs.
Not so much “taking back control” as requiring the imposition of multiple controls. From a single administrative system to multiple administrative systems.
But the elephant in the room when it comes to any deal between the UK and the EU is freedom of movement (FOM).
As Chris Grey explains in his blog, FOM is integral to the operation of any single market, along with the free movement of goods, capital and services. For example, the US is a single market. Could anyone conceive of, say, New Jersey, suddenly announcing that anyone from the other 49 states who wanted to work in NJ would require a visa and a work permit because the people of NJ had voted to “take back control”? NJ would continue to allow the movement of capital, goods and services, but not people. No, didn’t think so.
There is a great deal of confusion about what FOM within the EU actually means and it is often confused with two other things: the Schengen travel zone and migration from outside the EU.
To take the latter two first. Schengen is a zone that allows people within the zone to travel across borders without checks at those borders. For example, I can get in my car here in France, drive across the border into Belgium, down through Belgium into Luxembourg, back into France and then into Spain without being stopped at a border. The Schengen zone consists of both EU and non-EU countries, such as Switzerland. There are border checks coming into the zone but not within the zone.
But checks can be imposed if necessary. After the Paris terrorist attacks in 2015 there were daily checks on the French/Belgium border which I cross daily. They ran for several months until the authorities though it safe to lift them. Today, there are random checks from time to time, mostly concerned with illegal migrants.
Which brings us to the issue of migration from outside the EU. Recent years have seen waves of migrants attempting to get to Europe, across the Mediterranean from Africa or through land routes from Syria. War and economic destitution are the drivers. An end to war in Syria could see the stemming of the flow of refugees from that sad country. However, population growth of 2.5 billion in Africa over coming decades will likely result in significant people movement out of there as economic development will not provide the necessary jobs and the jobs that might have been provided, such as in textile production, are increasingly being done by robots.
At the same time, Europe need immigrants because of declining populations. But many of the potential migrants will not be white or Christian, but people of colour and/or Muslim. This raises complex political and cultural issues as are already evident today. This is not for discussion in this Briefing. The point I want to make is that controlling Europe’s external borders to manage incoming migration does not mean limiting FOM within Europe.
FOM is the right of any European citizen to go and live and work in another EU country without prior permission. A young Pole can go and seek work in Paris or London, if they wish. It is not unconditional. Some countries require you to register with your local commune. Others impose time limits on how long you can spend in the country without a job before you have to leave. In general, you are not entitled to turn up and claim welfare benefits.
In other words, FOM implies a common labour market in which you can go and work anywhere in the market. (I know FOM goes beyond the labour market, but it is the labour market with which I am concerned).
Whatever about post-referendum claims that UK voters had been driven by the dream of global trade deals, the reality is that what got Vote Leave over the line was immigration. The reasons for that are multiple. But a large part of it was clearly anger at the impact on living standards of many of the least well off of the global financial crisis and the self-imposed austerity policies of the UK government.
Vote Leave made the claim that EU citizens who came to the UK were responsible for driving down wages and working conditions and piling pressure on public services, such as hospitals, housing and schools.
And, of course, Vote Leave conflated EU FOM with external migration and claims about terrorists being able to roam freely across Europe because of the absence of Schengen borders. “Take back control of our borders” drove the referendum result. Put an end to FOM from Europe and things could only get better.
On the back of the referendum result both the government and the opposition Labour Party committed to ending FOM in whatever future deal was negotiated with the EU.
But FOM is integral to the single market and without accepting it the best that the UK can hope for is a trade deal. Why would the EU give a country that was leaving the EU a free pass on FOM, while allowing it all the benefits of the single market, while it is grappling with major people movement issues and external border management? Sure, they are not the same thing as we argue above, but politics is perception and if the UK gets to pull up the border drawbridge then others will argue that they should be allowed to do the same.
So, no single market deals without FOM.
Even if the UK’s “hokey-cokey” proposals were to be accepted that would require FOM in relation to those goods sectors within the single market while the services sector would be excluded. Could the UK operate a FOM regime in parallel with a second regime that required visas and works permits? If the record of the Home Office in managing issues relating to migration is any guide, probable not.
As we argued earlier, how do you draw lines between “goods” and “services” sectors when it comes to people issues? How would companies that might be half in and half out manage? It is not a static world. Someone could join a company as a factory worker, do further studies, become a software engineer and move out of manufacturing into IT. Do they then move out of one employment law regime into another?
Whatever about politically, a “hokey-cokey” Brexit would be, as we have already said, a human resource nightmare.