Daniel Hannan is an MEP for South-East England, and a journalist, author and broadcaster.
So, demand the pundits, which is it to be? Are we going to control our borders, or are we going to stay in the EU’s single market? Because (the pundits assure us) we can’t do both. Europe’s four freedoms – free movement of goods, services, people and capital – are indivisible. So tell us, Leavers, which will it be, eh? Eh? Which?
Commentators like to present simple, binary choices. But they are missing the real argument here. The case against membership of the single market is not that free movement of people is too high a price to pay for it; it’s that subjecting our entire economy to EU regulations harms growth.
Look at what it says on the back of your iPhone: “Designed in California. Assembled in China”. Neither the United States nor China has any trade deal with the EU, but this doesn’t stop them selling their products here. Access to the single market is not the same as membership of the single market.
The trouble is that the terminology is misleading. Most people understand “single market” to mean something like “free trade zone”. In fact, in the EU context, it means “single regulatory regime”. Membership of the single market doesn’t mean the right to buy and sell there (pretty much the entire world can do that); it means accepting EU jurisdiction over your domestic technical standards.
Britain, as a relatively large economy which exports more to non-EU than to EU markets, would be better off trading freely with the single market than belonging to it. Before we come to that, though, let’s look at whether the single market really does require the unrestricted movement of people.
We keep being told that the only way to retain full access to the single market after Brexit is to join the European Economic Area (EEA), alongside Norway, Iceland and Liechtenstein. But this isn’t true. Most European states and territories, from the Isle of Man via Switzerland to Turkey, have full access to EU markets.
The EEA tends to duplicate the EU’s standards and structures because it was designed as a transitional step to full EU membership. The mechanism for the automatic adoption of EU legal acts in EEA states – the “government by fax” which Remainers kept banging on about – only made sense as a temporary mechanism to facilitate the assimilation of the EU’s full legal corpus. No one imagined, when the EEA was negotiated in 1992, that it would still be around today.
Is free movement a sine qua non of EEA membership? As a matter of fact, no. There are three EEA states outside the EU. Two of them, Iceland and Norway, accept free movement on terms similar to EU states. The third, Liechtenstein, does not. It caps net inward migration at 71 people a year. My point is not that Britain should model itself on the princely microstate. I am simply observing that, for all their pieties, EU leaders in practice do not regard the principle of free movement of people as inviolable. It is, rather, one of many desiderata open to negotiation.
I have little doubt that Britain could get some sort of modified EEA arrangement that provided for some restrictions on free movement. But that should not be our goal. We should aim, rather, to have the closest possible alliance with our European neighbours commensurate with full sovereignty. That means a deep and profitable trading relationship based on mutual product recognition rather than standardisation.
Only six per cent of British companies do any business at all with the rest of the EU; yet 100 per cent of our firms must apply 100 per cent of EU regulations. Our aim should be to exempt the 94 per cent (representing 85 per cent of the economy, the highest proportion of any European state) from EU directives and regulations.
Of course British exporters will have to meet EU standards when selling to the EU, just as they must meet Russian standards when selling to Russia. There may be certain businesses, even whole sectors, which choose to duplicate EU regulations for reasons of convenience or economies of scale. But there is little purpose in Brexit if we continue to hobble ourselves with the Ports Services Directive, the Temporary Workers Directive, the Resale Rights Directive, the Alternative Investment Fund Managers Directive, the End of Life Vehicles Directive and all the rest.
What will be the implication for financial services, one of our greatest export industries? Well, take another glance at those words on the iPhone. What applies to goods applies to services, too. Governments don’t trade with governments; businesses trade with businesses. The largest export destination for British financial services, including pensions and insurance, is the United States. Yet, to repeat, there is no US-UK trade deal – there being no US-EU deal.
Many banks are fretting publicly about whether they will retain “passporting rights” outside the EU – in other words, the right to operate in all 28 states if they are headquartered in one of them. Frankly, their attitude suggests that they are privileging the interests of their Brussels-based lobbyists over those of their shareholders. For the truth is that a financial institution doesn’t need to be based in the EU to trade there. All it needs is to be based in a jurisdiction whose regulation is deemed to be equivalent to that in the EU.
Last month, the EU’s regulator recommended that passporting rights be extended to firms regulated in Australia, Canada, the Cayman Islands, Guernsey, Hong Kong, Japan, Jersey, Switzerland and the United States. Now remember that, on the day Brexit takes effect, Britain won’t just have equivalent regulation to the EU; it will have identical regulation. The idea that the Cayman Islands might enjoy passporting rights but not the UK is risible.
Whether we’re considering financial services or the wider economy, our interest is the same. We should seek a comprehensive free trade deal with the EU founded, wherever possible, on the mutual recognition of regulatory standards and professional qualifications. But we should retain the freedom to make our own laws.
That freedom is incompatible with EEA membership. We should leave the EU precisely so that we can embrace a global, free-trading, deregulated future. Control over our immigration policy? That’s just an incidental bonus.