by Atul Hatwal
Imagine for a moment you are Michel Barnier, the EU’s chief Brexit negotiator.
The man entrusted with securing Brexit on the best possible terms for the 27 EU states.
The man whose job it is to stop those truculent Brits going a la carte on the EU set menu and establishing a precedent where leaving the union means that cake can be had and simultaneously eaten with no question of anyone having to touch their greens.
You are the man who had a very interesting lunchtime last Thursday.
That is when the British government announced that Nissan would be building its new cars in the UK, something which infuriated a number of the EU states who had hoped they would win this investment. States that will be represented by Barnier in the Brexit negotiation.
As a very senior EU official and seasoned French politician, Michel Barnier will have been in contact with Nissan and a variety of international businesses, through official and unofficial channels.
He will know that Nissan had drawn some very clear red lines before making such a commitment.
He will have been baffled by the visits of the UK secretary of state for business, Greg Clark, to Japan for the same reason that most of Whitehall was perplexed.
What on earth could Clark give the Japanese manufacturer?
Specifically, Nissan wanted assurances on the continuation of country of origin rules, which mean parts sourced from around the world but assembled in an EU state do not incur tariffs; that tariffs would not be levied on the finished car in the EU and non-tariff barriers, such as forcing importers to register each car up a mountain, at a portakabin that is staffed once a week, which is only accessible by dirt track, would not be put in place.
Thanks to the efforts of the British government, somehow, Nissan have been convinced to make a multi-million pound investment. It’s clear that what they were told did not amount to warm words. Some very hard and definite commitments were given (with a clear implication that non-delivery by Britain will nix the deal).
The British press have focused on perceived promises from the UK government to compensate Nissan financially if tariffs are imposed, but Michel Barnier will have known better.
As Greg Clark admitted on Sunday, any such pledges would blatantly contravene Britain’s WTO treaties and be difficult to fulfil for Nissan, let alone for the other car manufacturers who would demand the same treatment.
No, Michel Barnier will have seen the news on Thursday and immediately grasped the reality of the situation.
The British government has committed to remaining in the single market for the automotive sector, a promise that can only be delivered on the say so of one Michel Barnier.
A few months ago, Oliver Letwin said that the Brexit negotiation would be “fine grained and multi-dimensional.” As with most of Letwin’s pronouncements, this was nonsense.
The basic equation that describes the negotiation is simple.
The UK wants some single market participation – retaining country of origin rules and zero tariffs for certain sectors as well as a continuation of financial passporting for banks.
In return, the EU will demand that there is some measure of ongoing free movement and that Britain continues to make some payments into the EU and direct to Eastern European states, as Norway does for its EEA membership.
After Thursday’s announcement, the two unanswered questions are what Michel Barnier will set as the EU’s price for UK participation in the single market for motor vehicles, in terms of free movement and contributions.
On the latter, the government is comparatively relaxed.
Between the funds that would have been paid into the EU if Britain remained in Europe and the potential for contributions from UK business – rumours are already swirling in government about the extra contribution that the Corporation of London could make to secure financial passporting – money will be found.
On Sunday, Nadhim Zahawi MP, a prominent leaver, made a strong case for continuing some British payment to the EU, in return for single market participation.
Hard Brexiteers will howl that this is the same as staying in the EU. They will have a point but the government response will be that UK has control over whether we make these contributions. We’ve voted to leave and have taken control. It’s just that we choose to keep contributing.
Barnier might hike the cash price after last Thursday, but the UK will be able to pay.
The more intriguing question is about free movement.
There is absolutely zero chance that Monsieur Barnier would permit the UK to have one of the things it prizes the most – the automotive single market– without extracting a concession on the issue that exercises Central and Eastern European states the most: migration.
Some of the animus among the Visegrad, Baltic and Balkan nations will be assuaged with direct financial contributions from Britain but a blanket ban on free movement is politically impossible in the EU.
The firmness of Britain’s commitments to Nissan mean that the British government knows that it has to accept a compromise on this issue.
There are two likely approaches to enable some free movement to continue: sectoral, where industries such as automotive or construction are given a distinct status and something approximating to the current migration arrangements persists or geographic, where parts of Britain are designated free movement areas.
Both could be administered through a system of work visas albeit with a new bureaucratic overhead. Enforcement would be via employers who would need to check their employees’ credentials appropriately.
The political challenge with sectoral free movement is that it has to be administered nationally. Central government would be in charge of deciding which sectors would be in a free movement scheme and manage its implementation.
Electorally, it would be the ultimate hospital pass and is acknowledged as such within government.
Geographic free movement is a different prospect and, unsurprisingly, generating rising interest at Westminster.
There is now a regional government infrastructure in Britain. Scotland, Wales and Northern Ireland have devolved government. London and Bristol have Mayoral administrations. Manchester, Birmingham and Liverpool are about to elect metro-Mayors.
If national government pushed the decision down to the regional and local administrations – to opt-in to free movement with some associated single market advantages for these regions – there would be a democratic mandate and local control over decision-making.
Regions that were hostile to migration could simply not opt-in to any free movement scheme.
London and Scotland would instantly sign-up – Sadiq Khan and Nicola Sturgeon have said as much already. The economic consequences for Manchester, Birmingham, Liverpool and England’s other major cities being wholly outside of the single market while London and Scotland were at least partially inside would likely be untenable in the long run.
Ultimately, almost all major population centres would either have to opt-in or face the consequences of jobs and investment flowing to their more European neighbours.
In this scenario, the numbers of EU migrants in the UK would be roughly the same as today but the decisions would have been made by local politicians, accountable to their local electors. The argument on sovereignty, used against free movement at the referendum would be reversed.
It would be the core of a case in favour of reformed free movement and allow central government to absolve itself of responsibility for the specific choices made except to say that Britain had retaken democratic control over migration.
A beneficial corollary would also be that the case for a second independence referendum in Scotland would be fatally undermined if it remained largely within the single market.
From an EU perspective, such a regional approach would make a certain sense. Within the EU there is a strong regionalist tier of governance. For example, the Committee of Regions gives 350 regions and cities a say in the EU’s legislative process.
Practically, a system of regional work visas is also reasonably well understood. Australia and Canada have a comparable system and immigration specialists at PwC have drawn up detailed plans for how it might work in the UK.
For Michel Barnier, he could get more than he currently expects on free movement. If Britain’s cities and regions opted into this type of deal he might be able to say to EU member states that their citizens could retain access to over 80% of the UK labour market.
The Nissan deal is a major turning point in the evolving Brexit drama but not for the reasons reported.
The real story is that by committing to remain in the single market for motor vehicles, the UK government has implicitly accepted that some form of free movement will continue.
And in this context, the development in the past week which could have the biggest impact is the unreported emergence of a geographic approach to reform of free movement, one which balances the imperative of UK control with the EU priority of access.
If the free movement circle could be squared then Britain’s Brexit negotiations would be transformed.
Atul Hatwal is editor of Uncut