EU Referendum: the TTIP leaks

Tuesday 3 May 2016  

We've not written a great deal on TTIP on the blog (although it is covered comprehensively in Flexcit) for one very good reason. I've never believed is will happen. Even if it is finally agreed (which I doubt), I would expect Congress to refuse to ratify it.

Now, it appears, it may not get even that far. The massive leak of hitherto restricted documents by Greenpeace Netherland is being widely reported – not least be the BBC as spelling the death-knell for any agreement.

But perhaps more interesting is that, after 13 negotiating rounds since the talks were formally launched in June 2013, several newspapers are reporting that the documents reveal there are "irreconcilable differences" in some areas of the draft treaty.

We've dipped into some of the documents to take a look, and it does seem that there are some quite substantial differences, even after nearly three years of negotiations, with the starting gun actually being fired in November 2011. This does not say much for any Brexit talks with the EU being concluded inside two years, where a settlement easily as complicated as TTIP might be expected.

Looking at the document headed: "Consolidated Proposed Customs and Trade Facilitation Text" gives a good illustration of the divide. Under "International Standards", the EU proposed text is this:
1. The Parties agree that their respective customs provisions and procedures shall be based upon international instruments and standards applicable in the area of customs and trade, including the substantive elements of the International Convention on the Simplification and Harmonization of Customs Procedures, the International Convention on the Harmonized Commodity Description and Coding System, the SAFE Framework of the WCO, the WCO Data Model and related WCO recommendations, and the WTO Agreement on Sanitary and Phytosanitary Measures.
By contrast, the US proposal is very different:
1. Each Party shall share relevant information, and best practices, on the implementation of international standards for import, export, or transit procedures as appropriate. The Parties shall, as appropriate, discuss specific standards for import, export, or transit procedures and whether they contribute to trade facilitation.

2. Each Party shall endeavour to implement common standards and elements for import and export data consistent with the World Customs Organization (WCO) Data Model.
One very interesting thing here is the extent to which the EU proposal adopts the globalisation agenda, calling for joint procedures to be based on standards developed and promulgated by global bodies.

If this was the extent of TTIP, and there was accord on the detail, one might ask why a separate agreement is necessary. Since both the EU (or its member states) and the US are already parties to the named agreements, they could work within the existing frameworks, without having to go to all this trouble.

However, the US is clearly not playing ball. All it wants to commit to is to "discuss specific standards" for import, etc., procedures, calling for each party to "endeavour" to implement common standards and elements, "consistent with" the WCO Data Model.

This is a very much weaker, anodyne proposal, and demonstrates an all too-typical reluctance of the US to work within the frameworks set by global bodies. Despite Mr Obama wanting us to hand the UK on a plate to the EU, the US is very jealous of its sovereignty and tends to hold international bodies at arms length.

Another example of this is seen in the document on "Sanitary and Phytosanitary (SPS) Measures". While the EU proposal is couched in terms of furthering the WTO SPS Agreement, the US simply states that each Party recognises that achieving an equivalent level of sanitary or phytosanitary protection as its own SPS measures "can facilitate trade between the Parties".

A clinical assessment of the leaked papers might suggest that the EU is actually making the running, with the US a reluctant partner, very much dragging its heels.

However, with the addition by the US of a long section on risk assessment, Greenpeace and others are complaining that EU standards on the environment and public health risk being undermined by compromises with the US.

Here, the green NGOs may be protesting too much, especially as the US does not challenge any existing international standards. What concerns them though, is the absence of any reference to the "precautionary principle" which has enabled European activists to block progress on GMOs and some pesticides.

But what is likely to prove an additional (and perhaps absolute) blockage is the dispute settlement mechanism. This is the notorious Investor-State Dispute Settlement (ISDS) and, although there is clearly agreement in principle, there are significant differences between the Parties on details, and many obvious areas of disagreement.

This agreement was supposed to have been settled before the end of 2015 and there is now some concern to get it finalised before November, before Obama leaves office. Even if it gets a Presidential signature though, there is still Congress to confront.

There may also be greater obstacles on the European side. Although trade is an exclusive competence of the EU, which is empowered to sign trade deals in its own name, TTIP is likely to be what is known as a "mixed agreement" which will require unanimous ratification by all Member States. Given the widespread opposition throughout Europe, this cannot be taken for granted.

Looking at the agreement in the round, though, there does not seem to be a great deal there that could not be pursued on a multilateral basis, using existing agreements, working with global bodies already in place.

The advantage of a bilateral treaty seems mainly to fall with the Americans, who can leverage the need to conclude an agreement against concessions in particular sectors. Thus see the US demanding greater access to the European market for agricultural goods, in exchange for concessions on the motor vehicle market.

In essence, this is the last of the great dinosaurs – and the only sure way to prevent the UK being saddled with it is to vote leave in the June referendum. It seems to offer nothing that we could not leverage through existing agreements and institutions, while standing outside it would avoid us having to make concessions on dispute settlement and other matters, which are unlikely to be to our advantage.

Therein lies the real irony, as the green NGOs are largely in favour of continued British membership of the EU. If they really want to block our participation in TTIP, though, they are going to have to join the "leave" camp.

Yet, if we told them that we feel their pain, there is a distinct possibility that we might be greeted with some scepticism – if we're able to hear their words though the growing volume of sniggering. It is so sad that the greens should be caught thus – but at least the can vote in private.

For their reference, all we need to do is remind them that the cross goes on the bottom box.

Richard North 03/05/2016 link

EU Referendum: "the fear of God"

Monday 2 May 2016  

Guest post by Mary-Ellen Synon

For anyone who still believes that after a "leave" vote the UK could quickly secure as good a deal on trade as the one it would have as an EU or EEA-EFTA member, I offer these lessons from the former Greek finance minister, Yanis Varoufakis.

In his new book, And the weak suffer what they must? - about the origins of the Eurozone collapse - Varoufakis recounts a meeting he had in Brussels a few years ago.

"I was discussing the latest twists and turns of the crisis with one of the European Commission's high priests", Varoufakis says, when he asked an "almost impertinent" question. "Why is the Commission pushing Portugal to increase indirect taxes at a time of collapsing demand? (Would such tax hikes not push sales and, by extension, the state's sales tax revenues down? So too with the doubling of taxes on heating fuel in Greece)".

"Why", he asked, "are you pushing for this? Don't you see that people will simply not heat their homes and that government revenues from the fuel tax will fall?"

"Of course", replied the official. "But we are only pushing for higher sales and fuel taxes as a deterrent. The point is to demonstrate to Rome what it has coming its way if they do not comply with our demands for greater austerity there".

Varoufakis continued: "More recently, when I was negotiating on the Greek government’s behalf with the Commission, the ECB and the IMF, I came up against exactly the same rationale".

An interlocutor was then questioned on the exorbitant sales tax rates he was trying to push down the throat of the Greek people. Would improve our state's tax revenue, he was asked. He freely admitted that they would not. "So why do you insist upon them?" Varoufakis asked. The answer? "Someone whose views matter here wants to demonstrate to Paris what is in store for France if they refuse to enact structural reforms".

Varoufakis does not identify who it was "whose views matter here", but much later in the book he says something that indicates it could have been the German finance minister Wolfgang Schäuble: "Greece was to be the sacrificial goat that would put the fear of God in France's elites, eliciting their consent to Dr Schauble's version of political union".

If Britain votes to leave, the first job of European Commission "high priests" in negotiations will not be to ensure commercial benefit for the remaining member states by keeping trade with the UK easy.

Rather, their first job will be to ensure that any deal they negotiate with the UK is punishing enough to act as a deterrent to the Netherlands, Denmark and any other member state whose people want to follow the British out of the union.

The deal must, as the Greek finance minister found out, "put the fear of God" into the elites of those countries.

Richard North 02/05/2016 link

EU Referendum: why is Vote Leave trying to lose?

Monday 2 May 2016  

Although described by one commentator as "the most craven, pathetic campaign I have ever seen", maybe there's something I've missed. Perhaps, buried away in the secret recesses of the Vote Leave playbook is a secret document penned by unknown geniuses which affirms that basing your campaign on a lie is a wining strategy.

If there is this document, though, it must be one of a kind. Nowhere else in the histories of free-fought election and referendum campaigns can I recall the core theme being based on an open and clearly demonstrable lie, with a promise that is so obviously undeliverable.

I refer to, of course, the claim that we send £350 million a week to the EU, with the absurd proposition (now at the head of the Vote Leave Twitter account) that we should give this amount to the NHS.

The latest in the long list of those pointing put the fatuity of this proposition is Times columnist David Smith. Under the heading, "there's no pot of gold at the end of Brexit rainbow", he tells us to expunge that £350 million figure from our minds, "because it is wrong".

Smith also tells us to ignore any politician who says we send £350m a week to the EU, and to tear up any leaflet that makes that claim. But he also urges us to reject what he calls the crude accountancy approach to Britain's contribution to the EU budget.

The effect on our public finances, or for that matter the balance of payments, he says, will be dwarfed by the wider effects of a decision to leave the EU. The analogy is not perfect, but it is a bit like deciding whether or not to buy an expensive car on the basis of the cost of replacing the wiper blades. There is a lot more to it than that.

In fact, that's not a bad way of putting it. There is a whole new world of opportunity out there, with huge gains to be made from full participation in the global order, and Vote Leave is dickering about the windscreen wipers.

To counter, we had Dominic Cummings, the escapee from the secure facility, aver that we would save so much money from scrapping EU laws that we could have enough to meet all the commitments Vote Leave has so generously set out.

But even at its most expansive, the Vote Leave "vision" betrays only its narrow perspective and its extreme poverty of ambition. It is basically a negative "little England" agenda, achieved (if at all) by saving money from not doing some things on a domestic stage. It owes nothing to the more positive idea of making the world a better place.

The point here is a simple one. We rely for our prosperity on international trade, yet the improvements in global trade have stalled. Despite the technical advances in containerisation and shipping, and the expansion of air freight, the huge benefits from reducing tariffs through GATT and WTO have been wiped out by the growing scourge of non-tariff barriers.

Thus, while pre-GATT tariffs were estimated at about 22 percent, recently the Atlantic Council reported the cost of non-tariff barriers (NTBs) to the US automotive trade was 25.5 percent.

For sure, a single, global figure for NTBs is almost impossible to compute and there is no agreed methodology for calculating such a figure. Furthermore, a single value is probably not relevant as there are huge regional and sectoral differences. 

The range varies considerably, from a few percent to as high as 45 percent, growing to 73 percent in some sectors. The World Bank estimates NTB costs in Africa average 40 percent. Nevertheless, what is known as the "ad valorem tariff equivalent" (AVE) - the average value - for NTBs is variously estimated at around 20 percent. It has wiped out all the gains from tariff reductions. 

Enter the Bali trade facilitation agreement under the aegis of the WTO in December 2013. As we reported at the time, and has been remarked upon since, the impact could be huge. When fully implemented, it was said that it could increase global GDP by almost $1 trillion.

That is probably an under-estimate. The World Bank offers even higher figures. If all countries reduced supply chain barriers halfway to global best practice, global GDP could increase by 4.7 percent or $2.6 trillion, potentially worth about $60 billion a year to the UK, far outstripping the illusory value of any savings from leaving the EU

Furthermore, world trade overall would increase by 14.5 percent, or $1.6 trillion, this figure itself far outweighing the benefits from the elimination of all import tariffs.

In terms of detail, we have seen reports that agreement on a global tyre specification for passenger vehicles could save $40 billion a year. An ostensibly simple thing like standardising nomenclature for existing pharmaceutical products could save $20 billion. Adopting electronic documentation for the air cargo industry could yield $12 billion in annual savings, and prevent 70-80 percent of paperwork-related delays.

These savings, though, will not happen spontaneously. Nor will they happen without a great deal of work – and leadership. And it is there, in that latter category, that the EU is not delivering.

While the WTO agreement is a celebration of multilateralism in world trade, the EU obsession with regional trade agreements (such as TTIP) is diverting attention from policy interventions which could give a far higher rate of return.

As it stands, the two megalithic trading blocs of the US and the EU are at loggerheads over TTIP, each seeking to gain advantages for themselves, to the detriment of the rest of the global community. Attempting then to group disparate products in a single "big bang" trade deal simple creates new tensions which could be resolved by "unbundling".

And it is here that an independent Britain could have a remarkable effect. By forging ad hoc alliances, it could balance the US and EU and put the global interest back on the agenda. Breaking away from self-centred and restrictive regional trade agreements, it could instead give priority to multilateral trade facilitation. Far from being weaker, its skilful exercise of leverage could make it far stronger. Its intervention could have a galvanising effect on world trade.

This is the positive agenda. By contrast, Vote Leave's petty, narrow focus on undeliverable savings simply shrieks of the "little England" pre-occupation, for which euroscepticism is rightly condemned.  Combine that with its persistence in attempting to sell a lie drags the entire "leave" campaign down. As Smith says, it is an insult to voters' intelligence.

In a world that is increasingly global, writes Lost Leonardo, EU Member States are surrendering their voice, vote and right of reservation to the supranational EU, which represents not their national interests but the "common position" of the EU-28.

With potentially $2.6 trillion at stake from improved global trading, the "world" is where we need to be - and it is where the world needs us to be. To ignore this, and instead to promote the lie, makes you wonder whether Vote Leave is trying to lose the referendum.

Richard North 02/05/2016 link

EU Referendum: the Booker beat

Sunday 1 May 2016  

Arguably the most appropriate response to President Obama, writes Booker, when he told us "no you can't" vote to leave the EU might have been to ask him to look again at his country’s Declaration of Independence in 1776.

After the bit about the right to "life, liberty and the pursuit of happiness", it goes on to say that, if a people finds itself ruled by a form of government it cannot otherwise change (a perfect description of how we are ruled by the government we have no power to change in Brussels), it is "their right and duty to throw off such a Government".

And if we get the impression that our American friends don't really have much clue as to the nature and workings of the form of government which has increasingly ruled us over the past 43 years, this may be explained by the statement on the US State Department's website that "the European Union was founded in 1948" and that it was only set up "to democratically legislate for matters of joint interest to participating countries".

Then, Booker turn to the main theme of his column, headed: "Brexiteers! We need an exit strategy and we need it now!". Here, he also picks up on the theme he had raised earlier this month, observing that "even more astonishing ignorance of the nature and rules of the EU" is that being displayed by the main players in our referendum battle, not least, alas, by those running the official "leave" campaign.

This begins with their amazing inability to recognise that the only possible legal way for any country to leave the EU is by invoking Article 50 of the Treaty on European Union, which derives from the insistence back in the Eighties of Altiero Spinelli, the "father of the European Union" that his Union must not be "a prison" from which no country could escape.

Again and again, when two very senior experts on EU law gave evidence to a House of Lords committee on 8 March, they emphasised that Article 50 is the only conceivable mechanism for a country to leave - all it seems falling on deaf ears to those who should know this before anything else.

The transcript of the oral evidence is here, with supplementary written evidence here. There is also written evidence from David Edward here. The crucial words are: "Article 50 is the only route for withdrawal consistent with the UK's legal obligations".

This makes even more terrifying, says Booker, the quite deliberate refusal of the Leave campaigners to come up with a convincing and coherent exit plan which could reassure voters that, by leaving the EU we would not be excluded from the European Economic Area, allowing us to continue trading in the single market just as we do now.

They claim that, if they proposed a specific exit plan, they would only be attacked for it – instead of which they are quite rightly and very dangerously attacked for not having one. Polls show that easily the most important factor influencing voting intentions on June 23 is "the economy", 47 percent (twice as high as concerns over immigration); and it is this above all which plays into the hands of David Cameron's "Project Fear".

The only obvious counter to almost everything the "Remainers" are arguing would be to show that there is one simple. off-the-shelf answer to all their scaremongering: that we should apply to join Norway and other members of the European Free Trade Area, which would not only give us access to the EEA but would also give us much more influence over the shaping of its trade rules than we have now as just one country among 28.

When the history of this referendum comes to be written, nothing will be seen as more responsible for the British people having voted, many very reluctantly, to stay in than the dismal failure of the Brexit campaigners to show that we could quite safely leave by adopting the one practical strategy they refuse to countenance.

We have just seven weeks left to come to our senses on this. Otherwise, as the old rhyme has it, but for the want of that crucial "horseshoe nail", the "kingdom was lost".

Photo: Andrew Wilkinson.

Richard North 01/05/2016 link

EU Referendum: Financial Times in denial

Saturday 30 April 2016  

A senior Financial Times journalist, who claims to have spent 40 years of his life "thinking and writing about the international economic order and particularly trade and finance" is denying that the EU is obliged to adopt standards from international bodies into its own legislation.

This is despite the journalist being shown Article 2.4 of the WTO Agreement on Technical Barriers to Trade, which states that: "Where technical regulations are required and relevant international standards exist or their completion is imminent, Members shall use them, or the relevant parts of them, as a basis for their technical regulations …".

Even though the EU is a party to this Agreement and thereby bound by it, the journalist – who cannot be named for legal reasons – claimed in an e-mail seen by this blog, "I really do know quite a bit about this. And I am telling you, you are just wrong. These international agreements are not delivered by God to Moses on Mount Sinai", he says.

Earlier, the same journalist, who claims to specialise in economics, had been given details of the WTO's Sanitary and Phytosanitary (SPS) Agreement, which contains similar provisions (Article 3.1). It requires members to "base their sanitary or phytosanitary measures on international standards, guidelines or recommendations, where they exist".

Neither of these provisions is voluntary or discretionary. Both use in their phrasing the word "shall", which clearly indicates that their requirements are mandatory. Despite this, the journalist remarked: "You seem to be arguing that somehow these international legal arrangements are dictated to the EU". He then insisted: "Nothing could be further from the truth".

As part of a package of additional material, the journalist had also been told of the 1991 Vienna and Dresden Agreements, made between the International Standards Organisation (ISO) and the European general standards organisation CEN, and the electrical standards-maker CENELEC and the International Electrotechnical Commission (IEC).

These afford primacy to the international organisations so that, where the produce technical standards, the European bodies – which produce many standards for adoption into EU law – are obliged to accept the international standards as their own.

These issues emerged in the first instance after the journalist had challenged the chart (illustrated above), taken from the Efta Bulletin of 2012, alongside the assertion made in Flexcit (p.198) that 80 percent of the EU's single market legislation falls with the ambit of international organisations.

The data used in the chart, which refer to the 2010 period, have since been updated. According to the EEA Lex website, the current total for the laws comprising the Single Market acquis now stands at 5,048.

Of these, the largest single category comprises: "Technical Regulations, Standards, Testing and Certification", with 1,681 legal acts, or 33.3 percent of the acquis. At an international levels, these will mostly be generated by the ISO or IEC, or standards-setting bodies such as Codex, the OIE and IPPC. They may even originate from the UNECE or one of the many bodies involved in financial services regulation.

Then there is the specific category of: "Veterinary and Phytosanitary Matters". This comprises 1,409 legal acts, or 27.9 percent of the acquis. At international level, such standards will often be generated by the "three sisters" at FAO level - Codex, the OIE and the IPPC.

"Transport" is another category. It weighs in at 491 legal acts, accounting for 9.7 percent of the acquis. Here is implemented a variety of regional and global instruments, including those promulgated by the International Civil Aviation Organisation (IACO), the International Maritime Organisation (IMO), and agreements under the aegis of UNECE. These include rules for the transport of dangerous goods and the construction and safety of motor vehicles.

A smaller but still substantial category is "Environment", which accounts for 275 legal acts, or 5.4 percent of the total. At global level, standards are driven by UN bodies such as UNEP, UNECE, by the UNFCCC and a number of stand-alone conventions, including Ramsar, Aarhus, the Berne Convention and many others.

There is also a category under the lengthy title of: "Electronic Communication, Audiovisual Services and Information Society". It adopts measures promulgated by the International Telecommunication Union (ITU), the World Administrative Telegraph and Telephone Conference (WATTC) and the International Telegraph and Telephone Consultative Committee (CCITT).

The category itself accounts for only a relatively modest 140 measures, or 2.8 percent of the acquis. Yet this is substantially more than "Financial Services", implementing such provisions as the Basel III package developed by the Basel Committee on the Supervision of Banking, and many other important measures from international bodies. With the allied category of "Free Movement of Capital", this accounts for 100 measures, or 2.0 percent of the acquis.

This brings us to 81.1 percent of the total Single Market acquis, bringing us over the 80 percent level which we suggested lay within the ambit of international organisations. But to this, though, we can also bring in the category of "Procurement".

Although it only adds 31 measures, or another 0.6 percent, it is an interesting area for inclusion. In it, we see elements from the United Nations Commission on International Trade Law and its model law on public procurement and the WTO Agreement on Public Procurement. These "inform" the EU's Public Procurement Strategy which in turn feeds though to the Single Market acquis and the EEA.

All of this does not mean, and nor have we ever suggested, that 80 percent-plus of the Single Market acquis derives from regional or global international organisations. Simply, as labelled on the tin, the legislative categories identified (and more) fall within the ambit of international organisations, those categories covering the larger proportion of the acquis

From this, the direction of travel is clear. As the march of globalisation continues, the acquis itself will become more fully globalised. The European Union is on its way to becoming a law-taker, the middleman rather than the primary producer, ceding its legislative functions to global bodies. 

Whether Financial Times journalists can deal with that reality is neither here nor there. They can howl it down but globalisation is a fact, and it's writing the EU's redundancy notice. There is a global Single Market in the making, and we need to be part of it.

Richard North 30/04/2016 link

EU Referendum: wilful stupidity

Friday 29 April 2016  

Economists for Brexit have published a pamphlet with a briefing from each economist covering areas including regulation, trade, jobs and investment, immigration, the City, EU budget, EU funding and a comprehensive post-Brexit economic forecast.

Offering us his wisdom on the options for Brexit and trade is Patrick Minford, Professor of Economics at Cardiff University and former economics advisor to Margaret Thatcher. He asks, in a rhetorical fashion: "What would be the effect of simply 'walking away' from the EU?"

We should think of it, he writes, as abolishing the 1972 European Communities Act, not negotiating any new agreements with the EU or anyone else, and putting up no UK trade barriers at all. His detailed model calculations then show we would receive a welfare gain of four percent of GDP and consumer prices would fall eight percent.

From anyone else, this would doubtless be treated as the ravings of a lunatic, but this is not a lunatic. It is Minford, former advisor to Thatcher, and the doyen of the "free trade" claque which hovers around the IEA in London. Within the "bubble", he is treated with something akin to reverence.

Nonetheless, what's on offer from Minford and his associates is nothing short of lunatic. His scenario is based on what he calls his "Liverpool" or "Computable General equilibrium" (CGE) economic model. It is based on the assumption that when the UK leaves the EU, it abandons the EU's protected economy and reverts to world prices for both its exports and its imports.

The unilateral removal of all tariffs enables us to buy goods and services at "world prices". This supposedly gives us the eight percent drop in consumer prices. On the other hand, though, our exporters are no longer servicing a protected market and are forced to sell at world prices.

In this scenario, many of our manufacturing enterprises would no longer be competitive and would fall by the wayside. However, Minford would have it that the UK would make up for the loss of production by switching into higher value services. This miraculously produces a nation-wide productivity gain, which supposedly lifts GDP by the four percent he predicts.

The point to make here is that Minford is not pushing for Brexit, so much as what he calls "Breset", amounting to a complete – almost revolutionary – restructuring (or "re-set") of the UK productive economy. This, according to Minford, means that "Brexit is a shock – a good shock". He concedes that there may be some "short-term uncertainty", but reassures us that this "can be handled".

Yet this is all on the basis of a model that is, according to the Financial Times, by no means reliable. The four percent gain in GDP is pure speculation, relying entirely on the assumption that the UK manufacturing sector can smoothly transition from production to services, with the workforce redeployed and acquiring new skills.

From there, if it is at all possible, it gets worse. Asking what other trade agreements would be needed, Minford's advice is "none". We already sell all our non-EU exports and all our exports of services around the world under WTO rules, he says. "That accounts for about 70 percent of all our exports. Now the other 30 percent, to the EU, would join in".

Minford, however, is mistaken in assuming that the bulk of our trade is conducted under WTO rules. He makes the common error of believing in a non-existent binary structure for world trade. This is one in which international trade is regulated either via the mechanism of the preferential trade agreement (also known as the free trade agreement) or solely under WTO rules. In his book, there is nothing in between.

The truth is very different, as we point out in an earlier post: there are all manner of trade agreements, bilateral, plurilateral and multilateral, lying outside the WTO framework. These create complex networks of trade relations. So prevalent and important are these, it can be said that there is not a single advanced economy in the world that relies exclusively on WTO rules.

That Minford would have us rely on the WTO creates a gap in his scenario of monumental proportions. Should we simply "walk away" from the EU, as he proposes, a range of non-tariff barriers – both regulatory and procedural – would take immediate effect. These would bring UK exports to the EU almost to a complete halt. By any measure, the WTO option would be a disaster.

As if this wasn't bad enough, Minford fails to recognise that the relationship with the EU is far more than one of trading partners. We engage in a huge range of shared enterprises – from research to air traffic control, and many other things – the continuation of which must be assured through negotiation prior to our formal withdrawal.

In this lies extreme peril. Far from "walking away" from the EU, the UK would be obliged to undertake a complex series of negotiations. Yet, under the Article 50 regime, negotiations are initially limited to a two year period, which can only be extended by unanimity. But not only would it be unwise for the UK to seek an extension – as the price demanded might be unacceptably high - Reuters yesterday was indicating that there was no appetite for granting any extension.

Yet, without we well-crafted exit plan, with substantial concessions to put on the table to expedite negotiations, it is extremely unlikely that any settlement could be concluded within the time period. Confirmed by Reuters, this means that Britain could be cut adrift without any preferential relationship with its biggest trade partner.

In fact, it is being suggested that the initial negotiation period would only be sufficient to allow us to deal with issues such as residual EU budget payments to and from Britain, the pensions of British EU civil servants and relocation of EU agencies based in the UK. On 1 July 2018, or thereabouts, Britain would become a "third country" in EU parlance.

What is so terribly dangerous is that people such as Minford seems completely unaware as to what that would entail. In one of his other publications, Minford talks about it being "highly unlikely" that the EU would raise trade and regulatory barriers against UK exporters in such an event.

What he does not understand is that the EU wouldn't "raise" these barriers, as such. They apply automatically to any "third country". Obeying the very WTO rules about which he is so keen, the EU could not apply a preferential regime to the UK. To do so would discriminate against others – something not permitted by those rules.

Additionally, the EU itself is facing an existential threat, in the Brexit could become the trigger for other member states to leave, thereby triggering a collapse of the Community – and especially so if any country can get a better deal outside the EU than in.

Under such circumstances, what Minford is proposing is potentially catastrophic - exactly the opposite of what we need in a referendum campaign. Where there is a crying need to de-risk Brexit in order to reassure voters that leaving is a safe option, he seems to be going out of his way to maximise risk and increase uncertainty.

This is unacceptable. Academics have no business being unaware of the consequences of their proposals. And someone relying on the prestige of his academic position and title has no excuse for not knowing the specifics of trade agreements, and their relevance to our exit options.

It is said of us all that ignorance of the law is no defence (in the commission of a crime). Similarly, ignorance of key issues in an academic promulgating exit scenarios is no excuse for getting it wrong. Minford should be applying academic rigour to his work. His failure to do so is more than just mere error. It is wilful stupidity.

Richard North 29/04/2016 link

EU Referendum: trapped in their own inconsistencies

Thursday 28 April 2016  

Watching Arron Banks and Richard Tice in front of the Treasury Committee yesterday, one wonders what point there is in perpetrating this parade of mutual ignorance – apart from the limited entertainment value.

No more so does this apply when Banks was challenged by Chris Philp, Conservative member for Croydon South on the "regulatory burden" of EU membership, whence we get a dissection of the same tired memes that have been churned over by generations of eurosceptics, with much noise and almost no understanding.

Leading into the subject, Philp asks Banks to estimate the cost of this "burden", whence he elicits the response that that this is "unknown". "What I do know", Banks avers, is that if you attempt to harmonise all products and services across the EU and legislate for that, I would be a "very large number".

Banks then points out that, if we export to the United States of America, we have to follow their rules, same with Japan, so the European regulation is an "added burden" that is put on us because it affects all businesses not just the businesses that export into Europe, which is just "not that many".

Richard Tice then pops up with the "classic" Open Europe study and offers the sum of £33 billion a year for the top 100 most expensive regulations. This is just what Philp is waiting for, the cue for his party trick of showing that he had read the website and seen the figure there.

He then goes on to say that Open Europe has revised its work and come to the (stunning) conclusion that, when we leave the EU, we would keep many of these regulations, so the costs would continue to apply. By some measure, it comes to the conclusion that the "maximum conceivable" saving is £24 billion.

Tice, however, still thinks that this is a massive sum, that can be saved by the "95 percent of businesses" that don't export to the EU and probably have no intentions of exporting to the EU.

Philp then latches on to the EU's Capital Requirements Directive (CRD), which is counted as a cost in the £33 billion, and remarks that the UK government has "voluntarily chosen" to impose higher capital requirements on banks than is required under EU regulation. Withdrawing from the EU would make no difference to the burden of capital requirements legislation.

We thus see Philps having completely fluffed to point. As we all know (and was pointed out in the previous Treasury session with Cummings), the CRD is implementing Basel III, which is of global origin (and application). With or without the EU, we would still be applying this regulation.

Here, though, Banks and Tice are compromised (as was Cummings). Having followed the idle Muppets from Open Europe instead of doing their own research, they have already attributed the cost of the CRD to the wicked EU. It is thus difficult to switch horses in mid-stream and then argue that the cost is not attributable to the EU after all.

In this case, however, Banks completely blows it, arguing that the (extra) capital requirement is not a regulatory cost. We then have to have a short intermission while Banks is given a "Banking 101", to bring him up to speed on financial services regulation.

That then leaves Tice to parade his own ignorance, arguing that leaving the EU would bring the legislation back within our control, to decide what the capital requirements would be. The international dimension, it appears, has completely passed him by.

Moving on to environmental and climate change legislation (to which Open Europe attributes a recurring annual cost of £3.4 billion), Philps again notes that the UK has chosen to go beyond what the EU requires – although he neglects to note that this is implementing the Climate Change Act. But he does refer to the Paris agreement, which is, of course, a global accord. Rightly, therefore, Philps asserts that there would be no savings should we leave the EU.

At this point, I must refer to Open Europe's first intervention in this field, back in October 2013, when I wrote a blogpost pointing all this out, and much more. The OE work was then spurious and, well over two years later, we have an obscure politician pointing this out to self-appointed leaders of the "leave" campaign.

This is actually stuff I've raised personally with Banks – and indeed I also told Cummings at some length. But such is the determination to exploit the "regulation card", that the information goes in one ear and out the other. These people are simply incapable of registering the reality.

Oblivious to this, however, at this point in the Committee proceedings, Banks intervenes to suggest that Philps has raised a "very interesting point". Dimly remembering the North briefings, Banks tells the committee that a lot of the regulation now is "on a world basis" rather than a European basis. "So in fact", intones Banks, "the European Union is a wholly unnecessary middle man in the whole process".

What you're talking about, Banks tells Philps, is the regulations for banking are made "pretty much on an international, global basis and implemented by the European Union or the Bank of England". Again he repeats that the EU is a "middle man" in what is the implementation of a lot of global rules.

Says Philps in response, "if that view is correct" (and he believes it to be so), "then withdrawing from the European Union … would not deliver these amazing cost savings".

Banks is now comprehensively caught out, and can only respond by extending his display of ignorance. "These are high level things, discussed on an international basis", he says, "but we're talking about regulations imposed on small and medium-sized businesses", which has "nothing to do with any of the stuff you've just mentioned'.

Sailing clear over his head, therefore, are the effects of Codex Alimentarius, the OIE, the IPPC, UNECE and the other bodies which make up the bulk of the single market regulation, right down to the percentage of sugar that must be present in a preserve before it can be called jam.

Putting all these together, it is very much the case that, as Philps avers, that much of the regulatory costs attributed to the EU come from elsewhere. The cost-savings are illusory. But, while half recognising this, Banks and his sidekick Tice simply haven't connected the dots.

If, as Banks quite rightly says, the EU is a "middle man" implementing global regulation, then he can't have his cake and eat it. He cannot attribute the cost of this regulation to the EU, which is precisely what he has been doing – along with many others in the leave campaign.

Here, then, we see the campaign trapped in its own inconsistencies. On the one hand, we have a huge regulatory burden from EU law and, on the other hand, this is global regulation and not attributable to the EU. Which is it to be?

Richard North 28/04/2016 link

EU Referendum: leavers in denial

Thursday 28 April 2016  

Before going any further on this, I need to say that there is no intention on my part to give up. I intend to fight to the bitter end, and fight to win. And nor in any way do I concede that we are losing the battle. The EU referendum is still very much winnable.

That said, one can concede that the ever-more bizarre conduct of Vote Leave is causing serious concern. In particular, its refusal to offer a coherent exit plan is not backed by any intelligent argument which would support their stance.

Our best understanding of the situation is that Vote Leave does not wish to commit to a specific plan on the basis of arguments offered by Dominic Cummings in June of last year. "There is much to be gained by swerving the whole issue", he wrote - in a statement that has turned out to be the guiding principle of the official "leave" campaign.

The fatal weakness of "swerving the whole issue", however, is that if the leave campaign does not commit to a specific plan, they leave a vacuum for the naysayers to fill with any number of possibilities. And since these are not concerned with promoting the "leave" agenda, the scenarios presented will always be less than attractive.

Storming into this category comes yesterday's report from the OECD which paints a distinctly unflattering picture of a post-Brexit UK.

Specifically, the OECD sees the UK leaving without gaining unrestricted access to the Single Market and preferential access to 53 non-EU markets. It asserts that UK trade would be initially be governed by WTO rules, leading to higher tariffs for goods and to other barriers in accessing the Single Market, notably for financial services.

In their scenario, bilateral UK-EU trade would contract and by 2020, these effects could shave off over three percentage points of UK GDP, representing costs equivalent to £2,200 per household. Not until 2023 would a free trade agreement with the EU be concluded, similar to the one between the EU and Canada. It would provide a partial offset for UK trade but the costs of accessing the Single Market would still be higher than they are now.

The UK would also continue to face additional barriers on third-country markets to which preferential access was lost as a result of EU exit. Negotiating new trade treaties would take time. Longer term, therefore, Brexit would continue to generate substantial structural changes in the economy, reflecting the new relationship with the EU and new policies over 2024-30.

There are more details, many more, but they don't really matter. The point is that the scenarios on offer from the OECD are so far distant from what we suggest in Flexcit that, had this plan been officially on the table, we could have blown the OECD out of the water. We would simply say that the organisation did not represent anything we had suggested or could endorse.

That is the point that completely contradicts the Cummings "strategy". To counter spurious exit plans, dressed up as disaster movies, we need to have our own plan. To have one completely wrecks the current opposition game. Their substitute plans can no longer purport to represent anything other than attempts to sabotage the "leave" agenda.

At that point, however, the alternative Cummings thesis cuts in. And plan that the leavers produce, he says, becomes the target for all comers. He is worried that, as in the Scottish referendum, defects will be exposed which will destroy the leave case and wreck the campaign.

The weakness here is that Cummings had constructed this scenario before he had read Flexcit, and with a less than perfect knowledge of the EU. This is a man, after all, who asserts that the Commission tells us that the Single Market comprises the euro and the Schengen area, and that there still is in force a Clinical Trials directive.

What he hasn't factored in is that the process of globalisation is making the EU redundant. This makes Flexcit, with its highly developed globalisation agenda, a cast-iron plan that sets an impossible task for the remainers. They cannot deny that globalisation is happening, they cannot deny that global bodies are taking over the legislative agenda and they cannot deny that the EU is progressively ceding its powers to those global bodies.

Furthermore, they cannot fight is their own logic. If getting rid of 28 sets of regulations and replacing it with one is the justification for the European Single Market, then the advantages of replacing 160-odd sets of regulations with one, to develop a Global Single Market cannot be denied.

The barrier to Flexcit, therefore, is not the "remain" camp, but the "leavers". It is they who are wedded to the idea of getting rid of all the troublesome regulation. It is they who are failing to recognise that it is coming not from the EU but from the distant and largely anonymous globalisers - that by embracing global regulation we render the EU superfluous to requirements. Thus, it is leavers in denial who are creating the problem.

Nor indeed is this the extent of their denial. Their rejection of the need to retain for a temporary period the freedom of movement that comes with keeping the EEA as an interim option is also holding us back. Never mind that, as the globalisation agenda eventually leads to the abolition of the EEA, the institutionalised freedom of movement is also abolished. They can't think that far ahead.

And nor can the likes of Cummings cope with the inherent simplicity of a plan that can set out all the necessary detail in just over 400 pages. Back last June, the man was suggesting that "the sheer complexity of leaving would involve endless questions of detail that cannot be answered in such a plan even were it to be 20,000 pages long". And the longer it was, he wrote, "the more errors are likely".

But, if we adopt an already existing template, in the form of the EEA, and then repatriate the acquis, there is no need to restate the detail. And there need be no concern about introducing errors. We simply take on that which already is. The 20,000 pages already exists. There is no need to rewrite them. 

On that basis, the few arguments that Vote Leave ever had against adopting a coherent exit plan fall by the wayside. Yet the very reasons for having an exit plan are getting stronger by the day. We see this in the OECD report, and this is by no means the last we will see of this tactic.

In my view, therefore, we are at a turning point in the campaign. If we are to win, Vote Leave must listen to its critics, concede it was wrong and move rapidly to publish a coherent exit plan - and then stand by it. If it does not, I don't see how we can win.

We perhaps have a window of two, maybe at the most three weeks for Vote Leave to deliver a sensible exit plan. If they do not, we will in any event be pushing Flexcit for all we are worth and such is its strength that maybe we could just about prevail on our own.

Frankly though, I would prefer to avoid the Kasserine Pass scenario where we have to fight through our own side to get at the enemy. We haven't got the time or the energy to defeat Vote Leave as well as the remains. We would prefer to win with them, rather than have them undermining our efforts.

Richard North 28/04/2016 link

EU Referendum: an intellectual quagmire

Wednesday 27 April 2016  

With less than two calendar months to go before polling day, it is nothing less than alarming to find that fundamental questions relating to Brexit are so far from being settled by Vote Leave that we're not even past first base.

This disturbing insight comes to us via Breitbart London, which has a copy of a letter from Bernard Jenkin MP, Vote Leave director.

Dated 21 April and addressed to a constituent, it rejects the use of Article 50 in the event that we vote for Brexit. Instead, Jenkin argues for negotiating with all the other 27 member states at government-to-government level. The result, he says, "could take the form of a new treaty, which would mean the UK would not need to resort to Article 50".

In the event that there is no agreement, Jenkin adds, "the UK Parliament can pass its own legislation to suspend the application of the EU treaties, but it would be preferable to do this after an agreement with the other EU member states has been reached".

Here, one would like to think that Mr Jenkin is applying the considered weight of legal advice and political experience, coming to a sound conclusion based on the facts on the ground, with due regard for EU treaty and international law.

However, there is no evidence that there is any legal weight behind these scenarios and nor is it possible to adduce any circumstances where they might realistically be applied.

In the first instance, Jenkin is making the same error (although perhaps unwittingly) that Mr Cameron has made in agreeing his supposed treaty. He has neglected the provisions of Article 61 of the Vienna Convention on the Law of Treaties, and the dictum res inter alios acta vel iudicata, aliis nec nocet nec prodocet, where two or more people cannot agree amongst each other to establish an obligation for a third party who was not involved in the agreement.

What these amounts to is that the member states, even if they agreed to carry out negotiations (which seems unlikely), would be acting inter-governmentally (which Jenkin acknowledges), which means they could not bind the European Union – which has its own, separate legal identity – to the terms of any agreement.

The inescapable bottom line, therefore, is that, if there is to be an exit settlement, the negotiations have to be with the EU. And that means working within the constraints of Article 50.

Jenkin, however, hasn't finished. In the event that the member states won't deal (which, of course, they can't), he would have Parliament pass its own legislation to suspend the application of the EU treaties.

Assuming the government would be mad enough to do this and that a Parliamentary majority could be gained, this would amount to a unilateral abrogation of the Treaties. The consequences of this would be so disastrous that one struggles to believe that an MP could even propose it.

What we have to take from this, therefore, is that the Jenkin scenarios are non-starters. There is no practical or legal alternative to Article 50. Yet, despite what should be an unarguable issue, and one settled long ago, Jenkin is not on his own. We have Gove, Lawson and Cummings all coming together to reject the Article.

Behind this, one suspects that Vote Leave officials are aware that the initial two-year duration of Article 50 negotiations makes agreement on a comprehensive free trade agreement impossible. David Cameron's jibes about the seven years taken to agree the Canada deal (which still hasn't been ratified) have hit home.

To get a deal inside the two-year period is going to require compromise – which Vote Leave cannot afford to give, as they haven't thought through the implications. Thus, to get them off the hook on which they have impaled themselves, they are constructing ever more phantasmagorical scenarios to release them from the reliance on Article 50.

Sadly, these are not the actions of adults. We are seeing an almost childish level of naïvety from a group of people who are demonstrating an increasing inability to deal with reality – all of which is creating an intellectual quagmire at the heart of the leave campaign that prevents it even beginning to present a coherent exit plan.

What is terrifying, though, is that this naivety is shared by most of the political class and, if their current work is any guide, the House of Commons Foreign Affairs Committee.

In an extraordinary shoddy and superficial report published yesterday, laughingly under the title: "Implications of the referendum on EU membership for the UK's role in the world", the MPs manage to offer an analysis of the "day after a vote to leave…" that would shame a reasonably bright fifth-former.

Recognising that two-year period immediately after the referendum would present "challenges", they then manage to elide the Norway and Swiss options, treating them as if they were essentially the same.

In exchange for access to the single market, the MPs say, "both the EEA states and Switzerland must pay into the EU budget and adopt a large proportion of EU law - including free movement of people - but they have no say in how those laws are made".

If this is as far as they have got, then the learning curve hasn't even started to lift off the horizontal, leading to a monumental parade of ignorance as they pontificate that: "From a UK perspective, these models would thus bring few benefits in terms of repatriating sovereignty over law-making and immigration, while still imposing many of the costs associated with the status quo".

Yet, having already recognised the "challenge" of the two-year period, they then go on to say that, "rather than following these existing templates, the UK ought therefore to opt to pursue a bespoke arrangement, including a comprehensive Free Trade Agreement (FTA)…".

Amazingly, bringing ignorance to new heights, they actually tell us that:
Detailed and possibly lengthy negotiations between the UK and the remainder of the EU would be required in order to achieve a deeper settlement than the terms of the European Free Trade Association (EFTA), which offers tariff-free trade on goods but - crucially, from a UK perspective - excludes services.
Seemingly, they are unaware that EFTA does not actually have a trade relationship with the EU. The deals are between the three EFTA states, Norway, Iceland and Liechtenstein, as in the EEA Agreement, and between Switzerland and the EU, agreements that were concluded outside the framework of EFTA.

Nevertheless, they conclude that "it is difficult to predict with certainty the type and terms of the new relationship between the UK and EU after a decision to withdraw".

In their view, "it cannot be assumed that the UK would retain full or partial access to the single market if it left the EU, or that it would wish to do so given the restrictions and costs that such an arrangement could potentially incur".

However, it is probable that, "due to the strong economic imperative, the UK and EU would seek to negotiate some form of trade deal as quickly as possible in the light of the political climate".

Then, we are informed that: "the Government should recognise the probability of no mutual interest deal being concluded within the two-year notice period. If no deal could be concluded within the two-year notice period, the UK would move to standard WTO relationship terms and would then need to decide which of the 6,987 directly-applicable EU Regulations would need to be replaced by UK law".

And then, in a text that should be engraved on a brass plaque to mark the nadir of political intelligence in the Commons, the MPs gravely intone:
It is, however, a reasonable assumption that in the medium term a suitable mutual interest deal would be concluded. It is possible that the transition process could be fully co-operative and disruption minimised, but this would depend on how well EU countries respond to a perceived rebuff by the British electorate. As time heals, mutual interest will progressively trump any short-term hurt feelings and both the climate for, and interest in, agreement in the mutual interest would improve.
We are actually paying good money for this extruded verbal material, to achieve nothing but a further attestation of the capacity of our elected representatives to waste time and money.

Whether by MPs or the official campaign, we are so badly served in this referendum that the issues have been submerged in that self-same quagmire. Not for nothing does Mr Brexit argue that the political game playing and personality politics of the referendum campaign is snatching the goal away from us.

When this is all done and dusted, he says, there needs to be a reckoning. We could not even begin to disagree.

Richard North 27/04/2016 link

EU Referendum: downers and uppers

Tuesday 26 April 2016  

Owen Paterson yesterday delivered a speech on the Future of Europe, telling us that the aim behind the European Union is, and always has been, to achieve by a series of stealthy, incremental steps, the creation of a United States of Europe, with a single, supreme government in Brussels, to match the power of Washington and the United States.

This is a well documented vision. It is embedded in the idea that, in order to prevent the peoples of Europe slaughtering each other, its nations must be abolished and replaced by a single, federal structure to ensure that the horrors of 1914-1945 would never be repeated. However, we have reached a point in this process of integration where, the Eurozone is about to become a new country.

Said Paterson, you may not like the EU you have got now but you will like the new one even less as it seeks to overcome the fatal flaw in the eurozone.

The fragile Club Med economies cannot create wealth at the rate at which they joined the euro. This has had tragic consequences for a whole generation of young people. Thus, the EU must be able to transfer money to them from the wealth-creating areas such as southern Germany and Southern Holland. And, for that, there has to be a central budget, a tax raising capability and a central economic government.

This is a very clear direction of travel. With unaccustomed honesty and candour the European establishment in 2013 drew up a draft treaty, produced by the Spinelli Group. Then, on 22 June 2015 it published the Five Presidents' report on completing Economic and Monetary Union. This strategy was confirmed again in the Commission President's State of the European Union Report in September 2015, with the promise of a White Paper in the Spring of 2017.

Therefore, it is not a question of whether, but of when these changes are made. In short, the Five Presidents’ Report sets out an action plan for pooling sovereignty in the 19 Eurozone countries based on economic, financial, banking, fiscal, and capital markets union – with all of these unions taking place at once. This plan is underway now to finally move to "political union" at the latest by 2025. From then on, the EU will be new country, one which we cannot possibly join.

Despite this, Theresa May is arguing that we should stay in the EU. Her one concession is to leave the European Convention on Human Rights (ECHR), thereby exposing an inherent contradiction.

Currently, the ECHR is incorporated into the EU acquis by the Charter of Fundamental Rights, which is binding on EU institutions and enforced by the ECJ. On that basis, the only way completely to get clear of the ECHR is to leave the EU entirely. Mrs May is on the wrong side.

Another one on the wrong side is Dominic Raab. This man is supposedly a "leave" campaigner, yet is arguing that we could need a visa "or some other kind of check" to travel to continental Europe after Brexit.

He says the issue would be a matter for post-withdrawal negotiations with the EU, but could not be ruled out if Britain wanted more secure borders.

This reveals an inherent incoherence in the official "leave" campaign which fails to understand that freedom of movement pre-dates the EU. That, post-Brexit, we would need visas to travel to France and other European countries is doubtless unacceptable to the majority. The idea could be a deal breaker.

But the incoherence gets worse as Michael Gove in The Times comes up with something truly bizarre – even for Vote Leave.

After we vote to leave, he says, "we will need to discuss new arrangements between Britain and the EU". At that point, he argues, "The other countries will know that until a deal which suits us is reached we still retain a veto over their plans. So that gives us all the cards".

What he seems to have in mind is a weary variation of the Thatcher "handbag" ploy, where the UK attains its preferred deal by threatening to withhold consent for a new treaty.

This was precisely what David Cameron had in mind in the 2013 Bloomberg speech. But it didn't work then and it won't work now. Hugo Dixon suggests in the Telegraph that the EU would gang up against us, but there is an even more brutal fact than that.

Simply, the UK is caught in the two-year Article 50 period, in which it must either come to an agreement or seek the unanimous consent of the "colleagues" for extra time.

Says Dixon, it is politically fanciful to suppose that we could vote to leave and then sit in European meetings year after year trying to sabotage our partners' efforts. Once we had triggered Article 50, our backs would be against the wall and not until Brexit was complete would the EU begin the process of agreeing a new treaty, when the UK no longer had a vote, much less a veto.

After all the years we have been considering Brexit, therefore, it seems that the so-called "big hitters" are only now beginning to think of how to approach the issue, and going through all the tired old arguments, without beginning to address the real world problems. They are fumbling the pass, both sides totally out of their depths.

One bright point to emerge, though, is that Mr Obama's intervention seems to have been counter-productive. It seems 29 percent are less likely to vote for "remain", up 12 percent on the figure before the President intervened, against 22 percent more likely, down three percent. The majority, 49 percent, are unchanged.

Another small glimmer is that King's College has withdrawn an invitation to Alexander (aka Boris) Johnson from him to speak at the College – the right thing for almost certainly the wrong reasons. But any reduction in the opportunities this man gets to speak publicly can only be a good thing. 

We need to be grateful for those small mercies, however they come to us.

Richard North 26/04/2016 link

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