High Support for UK Rejoining EU, but Practical Hurdles Remain...Flexible Swiss-Style Model Considered [Economic Policy Zoom-In]

This year marks the 10th anniversary of the Brexit (the United Kingdom’s withdrawal from the European Union) referendum and the 5th anniversary of the conclusion of the Brexit negotiations. British media outlets are running articles examining how Brexit has actually functioned in practice and where future relations may be headed. The side effects and problems of Brexit have become apparent, and negative public sentiment toward Brexit is high. Nevertheless, it appears that a renewed debate on Brexit, rejoining the EU single market, or re-entering the customs union will be difficult to achieve in reality.

With the UK general election scheduled for May this year, there is a growing need to strengthen ties with the EU in some form. As a result, within the ruling Labour Party, a Swiss-style model that allows for sector-by-sector, gradual progress and flexible adjustments-though stopping short of a full customs union-is gaining traction.

Rising Public Support for Rejoining the EU in the UK

According to foreign media such as The Independent, recent polls show that a higher percentage of UK voters wish to be part of the EU compared to voters in France and Italy. In a survey conducted by the polling agency YouGov across six European countries, 50% of UK voters said they would support remaining an EU member state if a referendum were held now. This figure is higher than in France (45%) and Italy (46%). In Germany, 62% supported EU membership, while Denmark stood at 75% and Spain at 66%.

Furthermore, only 31% of UK respondents said they wished to remain outside the EU-a significant decrease from the 52% who supported Brexit (with 48% opposed) about a decade ago. For the same question, the figures were 30% in France, 28% in Italy, 20% in Germany, 14% in Denmark, and 13% in Spain.

According to a recent survey commissioned by The Economist and conducted by the polling agency More in Common, 52% of respondents in the UK said the decision to leave the EU was a mistake, while only 32% believed it was the right choice. With the exception of those aged 65 and older, most age groups held negative views toward Brexit.

If a referendum were held again now, 47% said they would vote to rejoin the EU, while only 32% preferred to maintain the current situation. A majority of respondents believe that Brexit has not reduced immigration but has actually increased it. Additionally, 55% of respondents supported forging closer trade relations with the EU, even if it meant somewhat higher trade barriers with the United States.

In this survey, 42% of respondents said that Brexit itself could have worked but was handled poorly by politicians. This shift toward negative public opinion on Brexit is expected to put pressure on Prime Minister Keir Starmer. However, Starmer continues to show no intention of relaxing the Labour Party’s “red lines” of not rejoining the EU single market, not re-entering the customs union, and not allowing the free movement of people.

"Brexit Has Had Negative Consequences for the UK Economy"

The Economist, in articles such as “Brexit has deepened the British economy’s flaws and dulled its strengths” and “It’s time to rethink Britain’s relationship with the EU,” diagnosed that while Brexit did not destroy the UK economy overnight, it has caused long-term and structural damage, likened to a “slow puncture.”

The first issue is stagnation in investment. For decades, the UK has remained at the bottom among the G7 countries in capital spending on areas such as infrastructure and research and development (R&D), which is a major cause of sluggish productivity. Between 2011 and 2016, corporate investment grew by an average of 6% per year, seemingly breaking out of stagnation. However, the Brexit referendum ended this recovery. Over the next six years, investment essentially stagnated. Although the pandemic certainly had an impact, two separate estimates suggest that, as of 2022, 10% of the shortfall in corporate investment can be attributed to Brexit alone. The prolonged uncertainty made investors hesitant. While much of this uncertainty has now dissipated, the aftereffects of Brexit remain. Brexit has reinforced long-standing tendencies among UK companies to avoid risk and focus on short-term results, thereby further hindering investment.

The second area is manufacturing. The UK’s share of global manufacturing exports more than halved between 2000 and 2022. High labor costs, intensified foreign competition, and soaring energy prices have all been obstacles. Before Brexit, access to the single market of 500 million people offset these disadvantages. However, with that advantage gone and replaced by various non-tariff barriers, goods exports have fallen to nearly 15% below pre-pandemic levels. More seriously, this sharp decline has occurred not only in exports to the EU but also to the rest of the world. The rising cost of intermediate goods imported from the EU has further exacerbated the UK’s existing weaknesses, eroding the global competitiveness of its manufacturing sector.

The third point is that Brexit not only amplified the UK’s weaknesses but also dulled one of its major strengths. The UK is the world’s second-largest exporter of services after the United States. Bankers in London’s financial hub, creative film producers, and numerous consultants all support a vibrant services economy. On the surface, the UK appears to have weathered Brexit relatively well in this sector. In real terms, service exports have increased by about 25% since 2019. However, this is largely thanks to a global boom. Had it not been for new licensing requirements for insurers or nationality rules for biologists-barriers with the EU-the UK would have performed even better. A study published in June last year estimated that Brexit had reduced service exports by 4-5%.

UK and EU Agree to Strengthen Cooperation, But...

Four years after Brexit, in May last year, the UK and the EU agreed to reset their relationship and strengthen cooperation in defense, energy, and trade. The Russian invasion of Ukraine, which threatened European security, and the return of US President Donald Trump-who rejects traditional alliances-to the White House, prompted the UK and the EU to draw closer together. The EU plans to establish a 150 billion euro (about 240 trillion won) “Security Action For Europe (SAFE)” fund to support joint weapons procurement in the form of loans, with UK defense companies allowed to participate. In the economic and trade sectors, the UK agreed to grant the EU fishing rights in the North Sea in exchange for significantly relaxed safety inspection and certification procedures for agricultural products and food exported to the EU. The UK also pledged to participate in the EU’s Erasmus+ student exchange program, though no specific youth exchange plans were included in the agreement.

However, in November last year, negotiations for UK defense companies to play a larger role in the EU’s SAFE fund broke down over funding issues due to strong opposition from France. Other negotiations on UK-EU relations, including food standards agreements, only began last month-six months after Prime Minister Starmer’s summit with European Commission President Ursula von der Leyen-due to delays in EU authorization. There are still significant differences between the two sides in negotiations over youth mobility. In the higher education sector, the UK agreed to rejoin the Erasmus program from 2027, with a reduced annual contribution of about 570 million pounds (about 763 million dollars). However, there is ongoing debate over whether EU students should pay the same high fees as other international students.

Practical Obstacles and a 30% Brexit Support Base

As public support for rejoining the EU rises in the UK, some voices within the ruling Labour Party are calling for joining the customs union. Wes Streeting, Secretary of State for Health and considered a future Labour leader, urged in an interview with The Observer last month for “deeper trade relations” with the EU, departing from the official government line. Streeting suggested that joining a customs union with Europe could serve as a distinctive message for Labour in the upcoming general election (scheduled for May this year, including local elections in England and parliamentary elections in Wales and Scotland) to counter Nigel Farage, leader of the far-right Reform Party. Prior to Streeting, Deputy Prime Minister David Lammy also indicated that rejoining the customs union with Europe would be desirable and noted that it has benefited countries like Turkey.

However, public support for maintaining the current situation-that is, for Brexit-remains at around 30%. In addition, as seen in the slow progress of follow-up negotiations despite last year’s agreement to strengthen cooperation with the EU, there are practical obstacles to negotiating with the EU itself, as well as the high costs the EU demands in exchange for concessions.

Another UK-EU summit is scheduled for this summer. It is uncertain whether this meeting will introduce new proposals on trade. In the past, the EU has rejected so-called “cherry-picking”-attempts to enjoy the benefits of the single market without accepting obligations such as compliance with EU rules, budget contributions, and the free movement of people.

There is also the issue of “money,” which was not mentioned in the UK-EU agreement of May last year. The EU has now made it clear that the UK must pay to participate. The UK’s attempt to join SAFE in November last year also failed due to disputes over financial contributions. France led a demand for up to 6 billion euros (about 7 billion dollars), which Peter Ricketts, chair of the UK House of Lords European Affairs Committee, described as “outrageous.” The UK refused even a reduced demand of 2 billion euros. Charles Grant of the London think tank Centre for European Reform believes that France wants to exclude the UK from SAFE. Nick Thomas-Symonds, Cabinet Office Minister who led the UK’s negotiating team with the EU last May, described himself as “ruthlessly pragmatic” and said he would not sign any agreement if the costs were excessive.

'Flexible' Swiss-Style Model Gains Traction

According to The Observer, the idea of the UK rejoining the customs union, once dismissed as a fringe position, is now being openly discussed by Deputy Prime Minister Lammy, Secretary Streeting-considered a candidate for the next party leader-and the Prime Minister’s economic adviser Minouche Shafik, signaling a shift in sentiment within the Prime Minister’s office.

While rejoining the customs union remains off the table, a Swiss-style “dynamic alignment” agreement, which would grant the UK partial access to the EU single market, is gradually gaining support among Prime Minister Starmer’s close aides.

The Swiss-style dynamic alignment agreement involves gradually expanding free trade and market access between the parties according to sector-specific standards in areas such as goods, services, and intellectual property rights (IP). The main features include: phased tariff reductions, market opening, and regulatory easing according to sector-specific schedules; negotiations based on international standards or criteria for each sector; and flexible adjustments to the agreement in response to changes in the economic environment or technological advances.

A policy document from Labour Movement for Europe, an influential pro-European group advocating for a Swiss-style dynamic alignment agreement, is also gaining attention. The document explains that Switzerland “in short, maintains access to the single market in certain sectors such as industrial goods, agri-food, electricity, aviation, and land transport, and participates in EU programs such as Horizon (research and innovation), Erasmus+, the global navigation satellite system Galileo, and the satellite-based augmentation system Egnos, through a series of agreements.”

However, there are also costs. The document adds, “As part of this system, Switzerland accepts the free movement of people and has a ‘safeguard break’ that can be triggered in the event of serious economic or social harm, and also pays a financial contribution to the EU.”