A PROPOSAL FOR STRUCTURING EU-UK RELATIONS

Authors: Jean Pisani-Ferry, Norbert Röttingen, André Sapir, Paul Tucker and Guntram B. Wolff (Bruegel)

"We propose the creation of a Continental Partnership (CP). The aim of this CP is to sustain deep economic integration, fully participating in goods, services, capital mobility and some temporary labour mobility, but excluding freedom of movement of workers and political integration.

The CP should involve:

  • Participation in a series of selected common policies consistent with access to the Single Market;
  • Participation in a new CP system of inter-governmental decision making and enforcement;
  • Contribution to the EU budget;
  • Close cooperation on foreign policy, security and possibly defence matters;

The CP would build a wider circle around the EU without sharing the EU’s supranational character, except where common enforcement mechanisms were needed to protect the homogeneity of the Single Market. Members of the CP would be the EU, all EU-countries, the UK together with any other countries that participated.

The obvious challenge for EU-CP cooperation will be to preserve the processes and structures of the EU as a supranational entity and the same time to ensure that CP members that are not part of the EU have a say in common matters. Two basic cases must be distinguished. The first concerns matters for which the EU already has an intergovernmental decision-making process. Here, the issue of cooperation can be relatively easily solved as the CP by its very nature is intergovernmental. Politically, this area of intergovernmental cooperation is important. In particular, the activity of the CP in the fields of foreign, security and defence policy – the areas in which Europe has to face a range of complex, persistent and existential threats- would be included.

The second, and arguably more difficult case, concerns areas in which the EU acts as a supranational body with (partial) sovereignty, including in particular all Single Market matters. Cooperation in this area means that although a CP member is not a member of the EU, it would get full access to the respective parts of the Single Market with all rights, opportunities and obligations other than freedom of movement for workers. In the following, we discuss how this cooperation could be organized.

One issue concerns the law making itself: We propose that CP countries would meet in a CP Council, in which EU institutions would participate. At the level of the CP Council, the UK would thus continue to participate in the numerous different formations where the details of Single Market regulations and other policies in which it would continue participating are discussed and negotiated. Obviously, the CP Council could not pass EU legislation but CP partners would be involved in CP Council readings of draft EU legislation and they would have the right to propose amendments.

EU law on the Single Market, would, however, continue to be adopted through the normal EU legislative process. In practice, in the areas that concern the CP, the CP Council would deliberate the legislative proposals before they are formally passed in the Council of the European Union and the European Parliament, so that positions expressed by non-EU members could be taken into account throughout the legislative process and in the final decision.

Formally, it would be a political – not legal- commitment by EU Member States to take into account the positions and deliberations in the CP Council. Our CP Council would therefore deal with this major political task. If the EU and partners disagree within the CP Council, the final say would formally remain with the EU. The non-EU CP members would then still have to implement the Single Market legislation in their national legislation or face restrictions on participation in the Single Market. The CP partners therefore would not have veto rights over the EU decisions but they would be closely involved in law-making at the intergovernmental level of the CP Council.

Conversely, CP members would have to accept the enforcement measures and jurisprudence that safeguards the relevant freedoms of the Single Market. Otherwise the integrity and coherence of the Single Market would erode. The key challenge will be to balance fairness with the necessity of homogeneity in application.

In the case of EEA countries, an EFTA Court is responsible. It consists of judges from the three EEA countries. However, rules ensure that the Court follows the relevant case law of the ECJ. Whether such a mechanism would be sufficiently strong in the case of the CP with a major country as the UK is for political and legal debate. We think that it may be necessary to contemplate instead an extended ECJ Court composition involving judges from all CP countries. However this Court would still be bound by ECJ case law.

Another important question is competition policy enforcement and state aid control. In the case of EEA EFTA countries, the European Commission is largely in charge for any cases that have repercussions beyond borders. Whether this is a feasible model for the CP should be for political debate.

Participation in the EU budget would also be vital. While many spending items of the EU budget might look outdated, the budget still constitutes an essential element of the integrated economic space.

It is indispensable in the area of agricultural policy but, with its aim of structural convergence, is also important for opening up economic opportunities for less-developed parts of the EU. The EU budget also provides support for ‘catch-up’ countries. While the effectiveness of Structural Funds is a matter for debate, they serve as a quid pro co for the adoption by cohesion countries of demanding Single Market legislation that might exceed what would be appropriate at their development level. Participation in the budget is therefore the necessary counterpart to participation in the Single Market. The UK would need to a make a budgetary contribution.

From a political point of view, our proposal would constitute a significant concession by the EU to the UK on the free movement of workers. Politically, there may be a tendency in continental Europe to demand limits in other areas of the Single Market such as financial services. We would note, however, that under our proposal there is already a political ‘price’ to be paid by the UK, as CP membership entails significantly less political influence compared to EU membership. Whether that price is appropriate is a matter for political judgement.

Other CP Policy Areas

We see three areas in which the CP would operate. The first, as we have outlined, consists of accepting the acquis in all Single Market areas except those relating to the free movement of workers. Here, we would see the emergence of a system under which the UK would impose a quota-system of some kind on the EU as a whole, while the EU would impose a quota on the UK.

Second, the CP would deal with shared external economic policies, in particular in trade and financial regulatory matters. The CP should aim for global influence in trade, financial regulation and climate and energy policies. Its creation would ensure that Brexit does not result in a long-term weakening of Europe’s voice in global negotiations, bearing in mind the growing dispersion of international power.

Trade policy is an exclusive competence of the EU. We could see an interest of non-EU CP countries participating in EU trade policy through the CP Council, thereby choosing to give up their ability to negotiate individually new free trade agreements. Again, ultimate decision making would, however, remain with the EU, which legally would retain formal competence. But there are also substantial obstacles and it will therefore be a matter of intensive political discussions.

Financial regulatory matters are often negotiated and agreed on in global institution such as the Basel committees. In these fora, Europe is represented by a combination of EU institutions and the authorities of some of its Member States. In the medium to long term we would expect an increasing concentration of the external representation of the EU through institutions such as the European Central Bank. It would make sense to coordinate the positions of the Bank of England, other CP Central Banks and the ECB. Whether or not CP countries will ever want to cede their representation to common institutions would be a matter for future discussions.

Finally, energy and climate policies are also areas for the CP. This could involve participation in the EU emission trading system (ETS), coordination of CP positions in international climate negotiations and participation in an energy union if it progressed.

The third area of CP policy should consist of an active role in foreign, security and defence matters. Russia’s annexation of Crimea and military incursion into Eastern Ukraine are not bilateral issues, but threaten Europe’s peaceful order as a whole. This new status quo is not just a challenge for EU countries. The same holds for the turmoil in the Middle East and North Africa. The spill-over effects from the conflict in this region to Europe are unprecedented in recent times.

No European nation state will be able to manage these and other future threats single-handedly. The CP should emerge as a forum and even an active participant in foreign security and defence policy. Justice and security affairs are a shared EU competence, which means that it is not a purely intergovernmental set-up and EU institutions have formal roles. This raises difficult, but hopefully surmountable, legal questions of how the CP-EU collaboration should be structured.  The UK, one of the two permanent European members of the UN Security Council and one of the current EU members able to project forces overseas, will remain a crucial partner on these matters. The Europeans cannot and must not solely rely on the US as the guarantor of European security. The Cold War is over, the Pacific sphere is of growing significance, new threats in forms of cyber-conflict and terrorism have materialized and US politics is likely to face its own domestic challenges for some time to come. For this reason we believe that closer cooperation in this area is important and will be even indispensable over the medium-term if Europe is able to adequately react to threats.

Geographical Scope

One advantage of the proposed Continental Partnership is the flexibility of its governance model. At its core it consists of participation through the CP Council in the EU law-making process while simultaneously accepting the ultimate authority of the EU and the enforcement of commonly agreed rules or minimum standards. Its nature is thus essentially intergovernmental. The Continental Partnership could thus be open to other European countries that might want to join.

It will be important not to overstretch the flexibility of the CP in the economic area. The central issue here is the move away from free movement of workers. But the CP should be flexible in relation to the security and defence policy area and potentially also external economic relations. Since security and defence policy are at the core of national sovereignty, we could see some CP members participating in the joint security partnership while others would not.

One important question is about the members of the European Economic Area (EEA) that are not part of the EU (Iceland, Liechtenstein and Norway). These three countries fully participate in the Single Market but do not have any significant say in the law-making process of the Single Market. We could imagine that these three EEA countries could have the right to join the CP is they wished. We could also see the CP as an attractive model for Switzerland since it wishes to limit free movement- but, as a counterpart to joining CP, it would have to adopt the full set of Single Market regulations in other areas.

The creation of a Continental Partnership might also provide a basis for coming to honest terms in the negotiations with Turkey. Arguably, one of the reasons why some EU Member States would never accept Turkey joining the EU is free movement and, more broadly, the political nature of the EU. Framing the relationship with Turkey in terms of EU accession was, therefore, always liable to be awkward. But provided there is a shared will to strengthen the partnership and provided that essential political conditions are met, we see it as possible and perhaps even desirable to move towards including Turkey in the Continental Partnership in the medium- to long term. Offering Turkey the prospect of a structured partnership with the EU in which it would have a voice could contribute to deterring a drift away from democracy and associated values.

In the longer term, the CP might also provide a framework for a strengthened relationship with EU neighbours in the east (Ukraine). It is an open question whether a similar template might be used for relationships with neighbours to the south (Morocco, Tunisia). Again, the intergovernmental character of the partnership and the exclusion of free movement of workers could contribute towards addressing existing stumbling blocks.

Becoming a member of the CP would require compliance with criteria, assessed via clear procedures. For the UK, the negotiations over its participation in the CP should be held in parallel with the EU exit negotiations to avoid unnecessary and mutually damaging disruption. EEA members could also qualify for the CP. Other countries would have to comply with the necessary legislative acquis before being admitted to the CP. There should also be a definition of shared values of the CP, including issues such as the rule of law and democracy.

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