Brexit: customs cooperation

Saturday 22 October 2016  

Continuing on from my earlier piece on the post-Brexit "membership" of the EU's Customs Union, I've been doing a little more delving – all part of the ongoing research for the Monograph on the Single Market.

The indications are that the current obsession with the Customs Union started with the Financial Times in July of this year, when the paper reported that Whitehall was "split" on whether the UK should leave the EU's Customs Union.

But from the narrative offered, it would appear that this is based on a misunderstanding as to what is covered by the Customs Union. And there is  not one element of confusion but two. Firstly, there is a failure properly to distinguish between the Customs Union and the Single Market (both give tariff-free movement of goods within the EU). Then, as significantly, there is a mix-up between two separate concepts: the Customs Union and customs cooperation. Many share this confusion.

The matter can be cleared up by reference to the Consolidated Treaties. There it can be seen that the Customs Union is Chapter 1 of Title II (TEU) – Articles 30-32 – while customs cooperation is Chapter 2 – Article 33. The two are very separate, in treaty law and in practical terms.

The Customs Union actually pre-dates customs cooperation which was not originally part of the EEC. The original cooperation agreement came outwith the European treaties, in the Naples Convention of 1967. That means that the Customs Union was in place ten years before formal cooperation was introduced, and then not as part of the European treaties. Until the late 80s, goods travelling from one Member State to another still required customs clearance, even though internal tariffs had been abolished.

Despite this, we are told that leaving the Customs Union would create difficulties with "customs formalities", and delays at the ports. But these lie in the domain of customs cooperation and are nothing to do with leaving the Customs Union. Customs "formalities" are defined by the Union Customs Code (UCC), which relies on Article 33 (TEU) for its authority. In this context, the Customs Union is an irrelevance.

But, while I pointed out in my earlier piece that the UK cannot pick up the Customs Union without a treaty framework, neither can it adopt the EU's UCC. This is applicable specifically to EU Member States and cannot be adapted for non EU-members.

Not indeed does the Customs Code have EEA relevance, so the Efta states – such as Norway - have their own customs codes. Then, through Protocol 10 and Protocol 11 of EEA Agreement, the Efta states agree mutual border inspection programmes with the EU, and commit to "mutual assistance" on customs matters.

These separate Protocols are not part of the Single Market acquis, as such, any more than they are part of the Customs Union. They are, in effect, stand-alone agreements, bolted onto the EEA agreement. They are much the same as Switzerland negotiated in 1997. Along with Japan and China, the United States, where they are not embedded in free trade agreements, most major countries have separate customs cooperation agreements with the EU. This even includes India.

The point here is that, if the UK does not continue its participation in the EEA, it will have to secure a customs cooperation agreement with the EU. This can either be a separate treaty, part of the Article 50 settlement, or embedded in a free trade agreement.

Without such an agreement, there are going to be serious problems. At the borders, the core element of the UCC is Regulation 46 which specified that customs controls, other than random checks, "shall primarily be based on risk analysis".

This comes down to risk management, applied to reduce the number of border inspections, so that only the high-risk consignments are targeted and checked. But, unless we have close cooperation with the EU, effective risk management by EU customs officials is not possible.

As the Commission's guide indicates, this relies on building a "risk profile" for exporters. And to build those, customs officials must have access to a continuous flow of information which comes to them via the electronic EU Customs Risk Management System (CRMS).

This is built into the Customs Risk Management Framework, of which we are currently part. If we drop out of it as a result of Brexit, there will be no means of developing a targeted inspection programme for our exports to the EU. Inevitably, the number inspections carried out by customs officials will have to increase, with all that that entails.

Brexit, then, is far more than just dealing with tariffs – despite the Economist and all the others which seem obsessed with only that facet of our relationship with the EU. The risk of a customs logjam, flowing from a breakdown in customs arrangements, is potentially a far greater problem.

That is not to say that problems cannot be solved by negotiation. But customs cooperation is another facet which will have to be built into the Article 50 negotiations. Continuation of existing arrangements will not be automatic and, in order for agreement to be reached, there will also have to be a commitment to upgrades and developments to ensure we maintain operational compatibility in the future.

Possibly, though, there is an unexpected get-out for the UK. The original Naples Convention of 1967 was updated to become the Convention on Mutual Assistance and Cooperation between Customs Administrations of 1997 – called the Naples II Convention.

Taking its legal base from the Maastricht Treaty (Article K.3) – which formally introduced customs cooperation into the European treaties - this seems to be still in force. As the UK is party to it, the text could form the basic of a post-Brexit agreement. With a presumption of continuity, it could even carry over into the post-Brexit era.

Whatever mechanism we do chose, though, there is an urgent need for some clarity in the debate. The Customs Union is not an option but, regardless of the shape of the Brexit settlement, we will need to define a comprehensive agreement on customs cooperation.

Richard North 22/10/2016 link

Brexit: nothing very much to report

Friday 21 October 2016  

In anticipation of Mrs May's first European Council as Prime Minister, I had cleared the decks, preparing to write a full analysis of the events, trawling the depths for deeper meanings. 

In the event, there is nothing very much to report. If Mrs May is in deep, meaningful discussions with the "colleagues", then she's keeping it very much to herself. And neither are her putative confidants leaking very much. 

All we had to entertain the media was a pre-Council comment by soon-to-be ex-president of France, François Hollande, who warned that the [Article 50] negotiations would be "hard" if the British Prime Minister persisted in moving towards a "hard" Brexit.

This, we can take as yet another indication of a certain looseness in the definition (not) of a "hard Brexit". The original concept as defined by the "lunatic fringe" had the UK walking away from the EU, repealing the ECA and relying on WTO agreements as the basis for trade with the EU.

As with much else, we have diverse players in the game, using the same vocabulary but meaning different – and sometimes polar opposite – things. Progress is going to be very hard won if people are talking past each other in this way.

Nor does it help having the Parliamentary zombies repeating their mantras, as with Shipley MP Philip Davies yesterday, at Brexit questions.

In common with much of the Tory Right, he regards membership of the Single Market as having to accept EU laws, having to accept rulings from the European Court of Justice, probably still making contributions to the EU budget, and accepting free movement of people.

All of this, he says, flies in the face of what the British people voted for in the referendum. This, in the minuscule mind of Mr Davies, the only question of principle that is at stake is "the question of whether the EU wants to continue its tariff-free trade with the UK or if it wants to commit economic suicide?"

When you have MPs who's sole context for Brexit is "tariff-free trade", there is no hope for them – no possibility of salvation. They are simply not in the game – just noise-makers who fill time and space in what would otherwise be a media vacuum.

And that is also the problem with European Councils. Attended by hundreds of hacks, with very little to occupy their time in between sessions, the pack spends its time chewing over the tiny number of "nuggets" it thrown, desperate to dredge a story out of what is often very little or nothing at all.

The combined presence represents a huge investment by the legacy media, which will insist on a story, come what may – with the result that newspapers throughout Europe are carrying much the same headlines, the collective telling us nothing very much that we didn't know already.

Largely, the emphasis is on the attempts by Mrs May to reassure EU leaders. The UK will be a "strong dependable partner" after Brexit, ITN has her saying. Nevertheless, die Welt tells us: "Theresa May ist für Brüssel das große Rätsel" (Theresa May is the great riddle for Brussels), which is something we're all going to have to live with.

For my part, I've been spending my time doing something useful – working on a new Monograph, this one on the Single Market. Things you think you know take on a whole new perspective when you start researching them in depth, and there are facets of the market which emerge which are very troublesome indeed. The stalled Product Safety and Market Surveillance Package is a case in point.

With or without the Single Market, the UK is potentially in for a very tough time, but even more so if it makes the mistake of standing aside from formal participation and tries to go it alone. Small wonder that the newly elected "chair" of the Brexit Select Committee, Hilary Benn, is calling for transitional arrangements for the financial services sector after Brexit. He is not alone.

Meanwhile, the House of Lords European Union Committee has published a report on parliamentary scrutiny of Brexit, arguing for greater scrutiny of the forthcoming Brexit negotiations. Not a word is said, of course, about the competence of those scrutinisers, but one would seriously question the Committee's assertion that Parliament can "make a significant contribution to the development of the Government's thinking".

So far, the noise-to-intelligence ratio is so high that the few nuggets of wisdom which may emerge are being drowned out by the torrent of dross. It is hardly worth the effort these days, of trying to sieve through it all, in the hope of finding anything of value.

At least, that leaves more time to do some useful work, even if it leaves the noise-makers to dominate the field for the time being. But as reality strikes, the "riddle of May" could emerge with something worth listening to. As it stands, that is our best and nearly only hope.

Richard North 21/10/2016 link

Brexit: confusion reigns

Thursday 20 October 2016  

David Jones, Minister of State for Brexit, has told a House of Lords committee the UK's negotiating position may not be "totally crystallised" by next spring. The government was "at an early stage of the process", he said, and thinking was "developing".

But then, if this recent report in the Guardian (and a parallel report in the Mail) is any guide, this should not come as a surprise. The debate seems to be going backwards, sowing confusion in place of clarity, adding needless complications to an already complex issue.

For a start, these two newspapers don't seem to know whether they are coming or going. Both apparently report on work submitted to the Cabinet by the Treasury, the think-tank NIESR, and the Centre for Economic Performance at the London School of Economics, but both seem to have a different idea of what it involves.

The Mail, on the one hand, has the work focusing on "a Norway-style model where the UK exits the single market but stays inside the customs union", whereas the Guardian has it that we remain "inside the single market but outside the customs union".

The Guardian then confuses the issue still further by suggesting that a customs union sets common external tariffs – which is fair enough – but then, bizarrely, asserts it "does not require customs checks".

There, we seem to have the newspaper confusing itself as both the Single Market and the Customs Union have the effect of abolishing internal trade barriers. Customs unions, traditionally, deal with tariffs - removing tariffs between members and settling a common external tariff to third countries. The Single Market goes further, abolishing qualitative and quantitative barriers to trade, between members.

There is, however, a degree of overlap, in that a free trade area (of which the Single Market is an example) also abolishes internal tariffs (in whole or part), so the main residual function of the EU's Customs Union is to set the Common External Tarriff (CET). Both the Customs Union and the Single Market require customs checks at the external border.

Unfortunately we cannot check the original reports as these do not seem to have been published, but the issues they raise are not at all helpful. Rather, they add to the more general confusion about customs unions, which should perhaps not have been raised at all in this post-referendum period.

The point is that, when there is a discussion about whether the UK should remain inside the EU's customs union, this begs the question as to whether we can do this and still leave the EU. In all probablity, this is not possible. 

At issue is a rather stark problem. The EU's customs union is underwritten by a legal code which gains its authority from the EU treaties. To countries outside that treaty framework, it can have no direct effect - any more than US federal law can apply to other countries, turning an outside country into part of the United States customs area. 

There is a contrast here with the Single Market. That is also underwritten by a body of law, which gains its authority from the EU treaties. But there is also a parallel a treaty system in the EEA Agreement. Through this, the EU Single Market acquis can be transposed into EEA law and thereby apply to to non-EU members (as in the Efta states). Thus, it is possible for them to participate in the Single Market and not be a members of the EU. They do not obey EU law. They obey EEA law. 

As regards the EU's Customs Union, there is no parallel treaty system by which EU law can apply to countries outside the EU. Therefore, there is no mechanism by which non-EU members can adopt Customs Union law, and become active members of the Customs Union with a common customs area.

By all means, we can agree a separate customs union with the EU (once we have left the EU), as have Turkey, Andorra and San Marino. But these are customs unions between the EU and third countries. That is not the same as being part of the EU's customs union. Its customs union was embedded in the founding treaties and carries through to the current EU treaties (Article 28 TEU). 

Article 28 states: the European Union "shall comprise a customs union". The customs union is an integral part of the EU – with duties collected paid to the EU, which become part of its income. To be in the customs union, you have to sign up to the EU treaties. To add non-EU members would require in all probability the EU treaties to be amended. And it is hard to see that happening. It is hard to see how that could happen.

Furthermore, the Union Customs Code - which is the key executive instrument of the customs union - is also applicable only to Member States. There are 97 references to Member States in the Code, imposing rights, duties and obligations. The Code could not easily be made to apply to third countries: it would impose obligations which would have no legal force on parties outside the EU treaties.   

Nevertheless, if for the purposes of argument the Code was adapted to allow continued UK participation, it would still be judiciable by the ECJ and would remain so. Unlike the Single Market, there is no separate court for non-EU members, such as the Efta Court, to adjudicate on the specific body of law. If the UK wanted to stay in the customs union, it would have to accept ECJ jurisdiction, post-Brexit.

Doubtless, that would keep the UK so closely embedded in the EU institutions that it would be hard to argue that we had completely left the EU. Contrary to EEA membership – where Efta states are decidedly not in the EU – UK membership of the customs union might make it only a semi-detached member. It is unlikely that that could be taken as fulfilling the referendum mandate.

Yet, perversely, this whole issue has only emerged after the referendum. I certainly don't recall discussing the customs union during the campaign – certainly not in any depth – and had always regarded it as a non-starter. All it is doing now is adding to the confusion. The sooner it drops out of the discussion, the better. 

There is no real prospect of the UK remaining in the Customs Union, and neither would we want to.

Richard North 20/10/2016 link

Brexit: mutual recognition of standards

Wednesday 19 October 2016  

While the media is still stumbling around, trying (and largely failing) to make sense of the available Brexit options – often relying on sources who have less idea than they do – we see the idea of an interim solution gradually taking hold.

Not yet though do we see any coherence in defining an end game, other than the vague offering of a "free trade agreement" with the EU, most often expressed in terms of the EU-Canada trade deal (CETA), which has yet to be ratified.

But, if the interim package is to involve continued participation in the Single Market via the EEA, what none of these media geniuses are asking is why industry and commerce would accept such a transition.

After all, the EEA Agreement offers unparalleled access to EU markets, while the Canadian deal – which is one of the most comprehensive negotiated outside the EEA – affords a very substantially reduced rights. There is no logic at all in abandoning an interim deal if the final outcome is substantially worse.

One significant example I have been studying is the issue of mutual recognition – not the recognition of conformity assessment to which we have previously referred, but the mutual recognition of standards.

Within EU law, this principle applies in the so-called non-harmonised sectors, where goods are not subject to common EU rules and may come under the national rules. In that case, in the absence of a harmonising law, a Member State must allow a product lawfully produced and marketed in another Member State into its own market, even if its own local rules impose more stringent (or different) requirements to which the product does not conform.

Ironically, this principle was not initially promulgated by the European Commission, but emerged from a ruling from the much-maligned ECJ, in the now famous Cassis de Dijon case of 1979, cemented in by Case 113/80 of 1981.

For over 20 years, traders largely relied on the case law: the principle was not fully incorporated into EU law until 2008, in Regulation (EC) No 764/2008, "laying down procedures relating to the application of certain national technical rules to products lawfully marketed in another Member State".

As an aside, the title itself (as well as the text) illustrates some of the limitations of Mrs May's intention to repatriate EU law. Even if the UK adopts this law, it will have no effect on our trade relations with the EU because the principle applies to goods produced in one Member State and marketed in another. When we leave the EU, we will no longer be a Member State, so the law will not apply to us – unless special provisions are made by the EU.

A suitable provision could be continued participation in the EEA as the Regulation has been incorporated into the Agreement by virtue of Annex II Part II (page 214), following EEA Joint Committee Decision No 126/2012 - with the exception of food and animal products.

That, however, is as far as you will get, outside the EU/EEA. When it comes to the fabled 1,508-page EU-Canada Agreement, the Parties merely endeavour to undertake regulatory cooperation activities that may include:
… identifying the appropriate approach to reduce adverse effects of existing regulatory differences on bilateral trade and investment in sectors identified by a Party, including, when appropriate, through greater convergence, mutual recognition, minimising the use of trade and investment distorting regulatory instruments, and the use of international standards, including standards and guides for conformity assessment.
In other words, there is nothing like any blanket mutual recognition principle – not in this trade agreement nor any other.

The effect of the UK leaving the EU and not continuing with the EEA Agreement, therefore, would be dire. Where there is no EU harmonising law covering specific products – which accounts for about 20 percent of our trade in goods – our exporters would have to comply with the local laws of each Member State to which they send goods. With different standards applying to different states, exporting would become somewhat complicated (and considerably more expensive) - increasing costs by as much as 20 percent..   

Nevertheless, there are always those optimists who suggest that Member States would take a relaxed view of regulatory divergences, and would not apply local codes to UK goods. But we are unlikely to be so fortunate. 

Even with mutual recognition in place, a 142-page report on the "Evaluation of the Application of the mutual recognition principle in the field of goods" for the Commission suggests that the principle "is still not achieving its objectives", particularly as the knowledge of the functioning of the principle is generally at a rather low level among companies and Member State authorities.

So problematic is its implementation that the trade body Business Europe recently complained that national standards were interfering with the free circulation of goods.

The Commission, therefore, is to present an EU-wide Action Plan to raise awareness of the principle of mutual recognition, and is to revise the Mutual Recognition Regulation to improve its functioning. This is part of its strategy to strengthen the Single Market – something of which the UK will not be part.

And there is yet another illustration – this time of the dynamic nature of the Single Market. It is subject to constant change and development, in which the UK currently participates but will no longer if we stand apart from it after Brexit.

Thus, should we take advantage of the EEA-interim solution – assuming we can – the divergence between the Single Market and any free trade agreement that we can broker is likely to increase. The idea then of using an interim arrangement to buy time to negotiate something worse then starts to look absurd.

Without some serious thought, therefore, the idea of an interim solution isn't going to fly. And one of the add-ons which we will have to secure in any end game is the full application of the mutual recognition principle.

Richard North 19/10/2016 link

Brexit: off the edge of a cliff

Tuesday 18 October 2016  

If he was a little brighter, Nick Clegg, he would already know that a "hard Brexit" was not on the cards. But then, he is a politician, and a Liberal-Democrat, so we can't expect too much of him.

Nor can we really complain that he didn't see the result of the referendum coming – after all, we didn't either. Had he done so though, he and his fellow remainers might have hedged their bets and been more cautious about rejecting the idea of the EEA as an interim option.

But now he's telling us that leaving the EU and taking the "soft Brexit" option of joining Norway as a member of EFTA, is a credible alternative after all. And it's much better then exiting without any alternative trading relationship in place and relying instead on WTO rules.

The most important decision of all, Clegg says, is whether to remain a member of the Single Market, where we benefit from zero tariffs and can help to shape the harmonised non-tariff rules that ensure that goods and services can flow smoothly across borders.

Clegg is unequivocal on this. "It is completely possible to be a member of the Single Market while standing outside the EU: Iceland, Lichtenstein and Norway all do so".

Sadly, though, instead of pushing for precisely that option, Clegg has decided on the "scare" route of telling us how awful a "hard Brexit" is, in this instance telling us how badly the food industry will be hit. And he tells a good enough tale although, being a politician briefed by prestigious people, he doesn't grasp the full horror of it all.

In his accompanying paper, he tells us that, at present, UK food and drink products are traded across borders with no forms or checks. Once we leave the EU, he says, products will have to go through customs checks at the EU border.

But exporters of products of animal origin (not only meat but also eggs, milk, honey, and gelatine products) will need to go through a number of additional steps.

They must register with the EU as a third country company, authorised to export animal products to the EU. They must apply for relevant import licences along with documentary proof of the product's country of origin. And they must apply and pay for costly export health certificates to show that the product meets EU public health standards.

When the shipment is ready, they must notify the relevant EU Border Inspection Post (BIP) in advance of the arrival of the goods. When the goods arrive, they must submit them for veterinary inspection and then, only at that point, after payment for the relevant checks, will the UK exporter receive an import certificate. If the consignment fails the checks, it is either returned or destroyed.

What he doesn't say very clearly is that these products may only enter the EU via a Border Inspection Post, which must be approved by the Commission's Food and Veterinary Office as having the necessary facilities to carry out inspections, to the requisite standard.

And here's the rub. Had he checked with the official list, he would have found that the major port for UK goods into France – the post of Calais – is not a registered BIP. The nearest is Dunkirk, and that only has the capacity for inspecting 5,000 consignments a year - and average of less than 15 per day.

Failing Dunkirk – which invested €2 million in its facilities - the nearest French alternatives are Le Havre or Brest, but it is unlikely that they will have much spare capacity. And to develop the capacity is going to take time and a great deal in capital investment. For a very long time, therefore, it will not be possible to export some types of food product to France.

But not only does Clegg understate the problems, much of what he does say is, in any event, going to be dismissed as a continuation of "project fear". Despite him correctly saying that two years isn't long enough to negotiate a free trade deal, already he has the lunatic fringe dismissing him as "delusional".

Clegg's intervention, therefore, is not terribly helpful. His attachment to the EEA-interim option is seen at a ploy to keep us in the EU, and there are enough stupid people out there who believe the Efta state members of the EEA are in the EU and subject to the jurisdiction of the ECJ.

Since Clegg is also pushing for a parliamentary vote on Article 50, his credentials are coming under further suspicion so, when he argues that a "hard Brexit" will bring turmoil, he simply isn't being believed by the extremists.

Not least, for a man who was quite happy to see our parliamentary democracy undermined by the EU, his latter-day conversion to the need for a greater role for parliament is a little hard to take. Thus, the chances are that the former Lib-Dem leader wouldn't be believed, no matter what he says. His latter-day conversion to the "Norway option" can only do harm.

A better stratagem, of course, would be to push for an attractive end game, swamping the negative of a "hard Brexit" with a positive. That much, though, would be beyond Clegg and his Europhile cohorts, which leaves it up to Mrs May and her Cabinet - turmoil notwithstanding.

Given probably, that there is little support for leaving the Single Market, that may not be as difficult a task as it sounds. Even now, there is everything to play for.

Richard North 18/10/2016 link

Brexit: listening to the silences

Monday 17 October 2016  

Nick Clegg, on the Marr Show yesterday argued that "There are countries outside the European Union, such as Norway, which do have greater powers of control over who comes in and out of their country, and yet they have full participation in the Single Market".

His view is, that if the United Kingdom played its cards right, it could continue to participate in the Single Market while doing a deal on freedom of movement - the best indication yet that the Liechtenstein/EEA solution in Monograph 1 is gaining traction.

This is even more the case when we have John Rentoul in the Independent directly citing the Monograph, stating:
Norway and the other countries in the EEA, the European Economic Area (Iceland and Liechtenstein), are allowed to take "safeguard measures" under articles 112 and 113 of the EEA Agreement, "if serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist are arising". EEA status, with this measure already triggered to limit immigration from the EU, has been suggested as a transitional arrangement for the UK when it leaves the EU, allowing it to remain in the single market while a permanent relationship is negotiated.
Even if he spoils it somewhere by saying: "I don't think the EU would agree to it", Mr Clegg seems to think otherwise.

And then, we see in the Telegraph the novel idea of the UK seeking the Efta/EEA option as an interim "quick fix". This is from economist Anton Muscatelli, who is not there yet on the detail, but at least they are beginning to get there.

We also get Lord Livingston, former minister of state for trade and investment, also arguing for an interim deal. "I know that trade deals aren't hard or complex", he writes. "They are extremely hard and very complex".

He then goes on to say: "They can be good, comprehensive or quick. However, they cannot be all three. The UK would suffer if it sacrificed the first two elements on the altar of a speedy exit from the EU trading system".

His interim deal, however, only last for three years, an interim agreement with the EU and he has not caught up with Clegg on the free movement issue. Nor, having discussed the idea of an interim option has the man come up with a credible end game – which is something the Government is going to have to work on.

But we do have the Financial Times which is telling us that Mrs May "has not ruled out making future payments to the EU to secure privileged access to the single market".

This is straight out of the Monograph 3 playbook, cutting through the public chatter on a "hard" Brexit, to give more substance to the idea that the Prime Minister is lining up a deal which will keep us trading with the EU on a sensible basis.

Several senior ministers have told the Financial Times that the cabinet is considering how Britain could carry on paying billions of pounds into the EU budget. "We would have to be careful how we explained it", said one minister. "But Theresa has been very careful not to rule it out". Another senior Tory said: "With Theresa, you have to listen carefully to the silences".

Keeping up contributions will allow the UK to keep in place vital access to EU markets for the City of London and other sectors, including maintaining "passporting" rights for UK financial services. It will also keep carmakers such as Nissan in the game, shielding them from the impact of leaving the EU.

It appears that these contributions are being considered during any "transitional period" between Brexit, expected in 2019, and the conclusion of any European free-trade deal, which could take many more years to agree. Says the FT: "The payments could extend even beyond that period".

With that, we get the obligatory "senior EU diplomat" who says that: "There will have to be a budgetary contribution through the transition", although Downing Street is refusing to be drawn on this, calling any debate on future budget contributions "minutiae".

Sooner or later, it is going to dawn on the series masses that the UK has, effectively, already guaranteed payments up to the end of 2020 – the end of the current Multi-annual Financial Framework (MFF). This is agreed at Head of State and Government level, and has the force of a contract. The EU would almost certainly demand compensatory payments, which would the run into the next MFF.

The big deal most certainly is going to be how to explain all this, but as the Observer reports, there are new alliances building, which support the more rational line.

Certainly, the "hard" Brexit rhetoric is getting more than a little tiresome, and the noisemakers intensify their efforts, but we can probably take a little comfort from the saying that "empty vessels make the most noise". They might care to note that happy little suggestion from a senior minister: "With Theresa, you have to listen carefully to the silences".

Richard North 17/10/2016 link

Brexit: the "Sherlock" moment

Sunday 16 October 2016  

Straight out of the "no shit Sherlock school" today comes the Sunday Telegraph story which has ministers "privately" telling the newspaper that Britain could end up with the most "extreme" version of Brexit "because there may not be enough time to negotiate a good deal with Brussels".

The really stunning thing about this, though, is that it is even a headline. From the very first, the premise in Flexcit has been the view that there wouldn't be enough time for an optimum deal, but now we're getting "senior ministers" (anonymous, of course) who believe negotiations may not be completed by 2019 because they are "very complicated and this has never been tried".

That, as we repeated last July could – as this newspaper now tells us – lead us to crash out of the bloc and adopt World Trade Organisation rules. This, we are told, would mean that tariffs have to be imposed on trade between the UK and the EU – which would actually be the least of our problems.

It is certainly being styled as the "hardest" possible Brexit, with no access to the single market but, it seems, some senior ministers believe this is actually the best-possible solution for Britain because it will allow the UK to be "totally in control of its destiny".

One of these idiots actually goes so far as to say that, if the Article 50 negotiations don't succeed, "we go back to WTO rules". He adds: "This is seen by some people as some kind of disaster but that is not the case. Britain could succeed if that happens".

Having set out the consequences on this blog so many times, and then in Monograph 3, one tires of this stupidity – and also of the number of people who seem unable to cope with its consequences.

The point about the WTO option, though, is that we drop out of the EU with no bilateral agreements or other formal settlement, and acquire "third country status" in respect of trade with the EU. This means no mutual recognition of standards, no mutual recognition of conformity assessment and no mutual recognition of customs systems, all of which will lead to considerable perturbation in our exports to EU Member States.

No one is saying that, overnight, every consignment gets checked at entry points to the Union, but it is the case that the smallest disturbances at the borders can have severe knock-on effects, with delays escalating very quickly, with catastrophic effect.

And as is pointed out in this report, something this complicated has never been tried before. There is no reason why – if talks have ended without an agreement – EU Member States should take a relaxed view of entry requirements for UK goods.

That said, from both sides of the divide, we've had a commitment to negotiations, so the only way the WTO option can happen is by accident. But that would make it a forced (i.e., unplanned) event. The effect would be that, there will be no systems in place to facilitate trade – which must have an impact on the flow of goods. 

It is all very well then talking about work-rounds, and further negotiations to sort out the very evident problems, but there are some people who need to get their heads round certain facts. If we end up with the WTO option (and nothing on the books as an alternative), the vast array of agreements we have with the EU immediately cease to have effect. For sure, we can then start emergency talks to solve the problems, but that will take time.

For that reason, any one with any sense (and that does not include some senior ministers) will want to avoid the WTO option at almost any cost. And, because it is now increasingly widely acknowledged that we can't secure a bespoke deal inside two years, the best idea is to go for an interim settlement, using the EEA template to save time.

That, contrary to some claims, will exclude the UK from the jurisdiction of the ECJ, bringing it under the aegis of the Efta Court. And although this Court shadows the ECJ, in the final analysis, Efta Court rulings are not binding on states. Thus, the Efta states, "voluntarily" adopt the Court's "advice", thereby preserving sovereignty.

Bizarrely, though, the Sunday Telegraph is citing "senior EU diplomatic sources", stating that Mrs May's conference speech excluded the UK from jurisdiction of the European Court of Justice (ECJ) which, they say, "is necessary for any kind Free Trade Agreement".

This is so wrong-headed that one marvels that it could ever be published in a newspaper. Not a single nation, party to a Free Trade Agreement with the EU, is subject to the jurisdiction of the ECJ, and there is no way that this could ever be considered necessary. The ECJ has jurisdiction only over EU Member States and legal entities domiciled or trading within the territories of EU Member States.

Just as bizarre, then, is an assertion that senior officials in the Department of International Trade "accept that Britain will have to accept some form of bespoke 'supranational body' to regulate services trade between the UK and Europe, even if it is not the ECJ".

One assumes that might be the Efta Court (which, wrongly, styles itself as "supranational"), but any dispute body policing a Free Trade Agreement could not rightly be called "supranational".

But, while this inane chatter dominates the public debate, one can sympathise with the view that many in Europe are privately watching and waiting for Britain to feel the economic consequences of Brexit.

"The feeling among the Europeans seems to be 'let's not bother engaging with these people until they are feeling the pain a bit more. Just let the pressure build'", says a Whitehall source. They will start to talk seriously at the end of 2017 "when the Fox, Davis and co have come to their senses" – assuming that is at all possible.

Richard North 16/10/2016 link

Brexit: political illiteracy

Saturday 15 October 2016  

When Paul Goodman of Conservative Home writes about "Lichtenstein's emergency brake" and tells us, "it is not certain that Britain could join the EEA in the first place", we know we are dealing with a degree of ignorance so profound you could slice it and sell it at a premium.

Yet this is a man who would guide us through the labyrinth of Brexit, one of so many who are exhibiting a similar level of ignorance and thereby making a mockery of the public debate.

But it's actually worse than that. As Pete remarked yesterday, the debate is breaking down along tribal lines. If you want "soft" Brexit you are a remainer trying to subvert democracy. If you want a "hard" Brexit you are a leaver, and there is nothing in between.

But this distinction has no bearing on reality. The discussion is between an option that doesn't exist and an option that isn't defined, where the line of contention between the tribes is the single market. Sadly, neither faction has any real idea what it is, and neither understands the ramifications of continued participation.

What marks out the debate, though, is that there is no premium on knowledge. The only thing that matters is tribal conformity. This makes the public debate sterile, contributing nothing to the eventual outcome of Brexit. What will be negotiated lies wholly outside the public domain.

And the reason for this is precisely because, in the real world, it isn't a binary debate, but one of nuance and complexity. The "hard" Brexit, which ITN outlines, which has us relying on the WTO option, has already been ruled out by Theresa May. She has committed to a negotiated settlement.

Yet the so-called "hard" Brexit of which Donald Tusk speaks is not the same animal that ITN describes. For all the rhetoric, he too speaks of negotiations, declaring that they will be carried out "in good faith".

Understandably, he also speaks of defending the interests of the EU 27, to minimise the costs. He then goes on to say that the task is to seek the best possible deal for all, arguing that no outcome exists that will benefit either side – the UK or the EU. Yet this he calls a "hard" Brexit.

That is the nub of the issue. No one grouping could define a single version of either a "soft" or a "hard" Brexit, and as fast as someone seeks to put substance to either one, the goalposts change. Then, even if it was possible to settle the definitions, an interim deal would render them redundant. A long-term deal is neither "hard" nor "soft", but in a category of its own.

You would not have thought that the media commentariat and the politicians could make such a mess of this but, after not covering the issues properly for decades, it should be unsurprising that the whole lot of them are proving to be so incompetent.

The trouble is that there is no sign that any of the players are sufficiently self-aware ever to realise their own inadequacies, and therefore so sign of any correction. The debate is spiralling down to rock bottom but, every time we seem to get there, a new low is defined.

But then, in theory, there need not be any limit to political illiteracy. The ignorance of the herd is self-reinforcing, and there is no external corrective which can penetrate its determination to stay ill-informed. We are in for a rocky ride.

Richard North 15/10/2016 link

Brexit: the uncertain boundary

Friday 14 October 2016  

The judicial review on Article 50 got underway in the High Court in London yesterday, with the judgement expected some time in November, well before the Government is expected to invoke the Article, kicking off the formal negotiating process.

Needless to say, the media is making a meal of it, as QC David Pannick put the case that formal notification by ministers alone – invoking Crown prerogative - would undermine parliament and "deprive people of their statutory rights".

With commendable speed, the transcript has already been published, alongside the Government resistance which sets out the arguments for those who care to follow them.

The thrust of the plaintiffs' argument, though, is that Article 50 should not be invoked without the direct authorisation of Parliament – precisely the issue which the House of Commons debated on Wednesday.

Without it being overtly (or at all) stated, this debate illustrated precisely why the High Court should find for the Government – the point being that Parliament has had plenty of opportunities to challenge the executive on the application of Crown prerogative, and has so far not stepped up to the plate.

In putting the case to judicial review, the Courts are being asked to intercede in a matter that rests between parliament and the executive, effectively arbitrating on where the balance of power lies, as between the two institutions.

This, to say the very least, puts the Courts in an invidious position, addressing what Jonathan Sumption called the "uncertain boundary" between judicial and political decision-making. His thesis itself was not without criticism but the man nevertheless points up a crucial fault-line in the system.

To my mind, the High Court is being asked to side with Parliament against the Government, abandoning its neutrality to become a party to a power struggle between the institutions.

It will be interesting to see how the Court responds to this, but I would not be at all surprised if it declined the invitation to get involved. Specifically, it could argue that since Parliament itself has the means and – if it cared to exercise it – the power to force the issue (not least by bringing down the Government with a vote of confidence), it is neither appropriate nor necessary for the Court to intervene.

In my own career, I have been to judicial review several times, on issues that have been highly politicised, and that is the view the Courts have taken. Regardless of the legal merits of the arguments, it has refused to become overtly politicised.

In essence, the plaintiffs will not overcome the balance of convenience test, where remedy that the plaintiff seeks can be achieved (and should rightly be sought) through political means, while the injury done to the Government, as the defendant, will be so severe as to damage its ability to govern.

Basically, if the intention is to challenge the principle of Crown prerogative, then the Courts are the wrong forum. The place for these arguments is Parliament, and if the legislature is not up to the fight, then it is not for the Courts to stand in its place.

Not only is Article 50 "on trial", therefore, but the entire constitutional system – and the outcome could have ramifications which go far beyond this issue. But, bearing in mind that Parliament will have its say (and a vote) before any settlement takes effect, there is nothing at all that the Courts need do to defend people's statutory rights.

If anything – certainly in my view – this lacklustre Parliament has more involvement than it deserves – and far more power than it is capable of exercising effectively. It would not be helpful if the Courts gave more power to this thoroughly inadequate institution.

Richard North 14/10/2016 link

Brexit: they catch up … eventually

Thursday 13 October 2016  

From the school of, "it doesn't exist until it's been 'discovered' by the legacy media", we have on the front page of today's Financial Times the headline: "UK faces €20bn Brexit divorce bill in Brussels budget wrangle", with a pull-quote declaring: "We could actually end up paying more into the EU budget …".

Wonders will never cease. The Financial Times has discovered reste à liquider, telling us that, "with Britain's planned departure, it forces a financial reckoning that politicians had imagined would never be needed"- apart from the fact that I sent a note to the Treasury Committee (which they have so far ignored).

The story itself appeared on this blog in April, and was repeated in Monograph 3 in July. It was then aired by Booker in August, under the headline: "Leaving the EU could cost us even more than staying in" - whence it was also largely ignored.

There had been a brief flurry of interest in August when the German papers picked it up, but the issue didn't really catch. But now, when the mighty Financial Times "discovers" what we've known for many months, the coprophagic media rush in to copy the story.

We have the Telegraph (having taken no notice of the Booker story in August), running with: "Britain facing £18billion Brexit 'divorce bill'", and the Mail picking up a Press Association report, with the very similar headline: "The UK 'facing £18bn divorce bill for Brexit'".

The Statesman is in on the act, retailing the "hot news" we had six months ago, and doubtless others, such as the Guardian and the Independent dutifully following. All of this serves to underline the fact that, in the legacy media, news is not actually about news, but "prestige". Primarily, it's about who says what, not the content.

This is one of the reasons why the contemporary media so often fails. Locked in to prestige, it has shut itself off from the country and is no longer able to take the temperature of the nation. It has become the voice of its own "bubble".

Richard North 13/10/2016 link

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