Brexit: that "holy cripes!" moment

Thursday 25 August 2016  

Generally, I'm happiest when I've sorted the topic for the blog by about midday, and am able to start writing by about nine pm. To still be researching the subject at one am, though, with not a word written, is not good news.

For several days now, I've been working on the latest Monograph, which has taken me into a re-evaluation of the beginnings of the EEA, which has huge relevance to our exit negotiations.

One of the points to emerge is that, as the negotiations were proceeding, the Berlin Wall came down, followed by the collapse of the Soviet Union. One response to that was an expectation that the former Soviet satellites would join the Efta states in what was to become the EEA.

That is reflected in the December 1991 cartoon by Hans Geisen, who is illustrating Switzerland's mistrust of the policy of European integration and "emphasising the fact that, unlike the other European states, the country does not wish to take part in the European Union enlargement process".

The point was that the "enlargement" was not as we currently know it, but the creation of an all-embracing European Economic Space, in which the EU, the Efta states and the Eastern European states were to be "houses" in a "European village",with common decision-making rights.

What that didn't happen, and what happened instead, is the subject of my current research, with a totally unexpected twist at the end, which led me to one of those "cripes" moments – more like "clucking bells" – complete amazement at what did happen.

At this time in the morning, I can't possibly do justice to the subject, so I'll pick it up in the morning, when I've had some sleep. But at least I know what my next blogpost is going to be about.

Richard North 25/08/2016 link

Brexit: waivers and safeguards

Wednesday 24 August 2016  

Picking up on Monograph 8 on "WTO schedules of concessions", and my blogpost on the same subject, I have since been able to acquire a copy of a book mentioned in the text, a racy little number called The Law and Politics of WTO Waivers: Stability and Flexibility in Public International Law by Isabel Feichtner.

Feichtner is Assistant Professor of Law and Economics at Goethe University Frankfurt am Main but, despite that, she seems to know what she is talking about, on a subject which is of great importance even to the average Brexiteer – the "waiver" as a concept in international law.

The value of this stems from the very nature of international law, which in being the province of national executives, often lies outside the democratic law-making processes.

As such, says Feichtner, there is tension between international governance and domestic government, in particular between, on the one hand, the constant flux of societal preferences and realities and, on the other hand, the rigidity of traditional international law-making instruments, in particular international treaties.

The role of the WTO waiver – i.e. the power of the WTO Ministerial Conference to suspend any legal obligation of the WTO Agreement or the annexed Multilateral Trade Agreements – is thus vital.

It may be used to "flexibilise" international law and thus address the tensions between domestic needs and international requirements, defusing potential conflict by suspending the law before the tensions escalate to the point where nations may be forced to choose between one or the other.

What makes the waiver so special, though, is that it is a binding legal act which formally suspends legal obligations and thus allows for non-compliance without putting into question the law's validity. Effectively, it is a legal way of breaking the law.

In light of these characteristics, Feichtner observes, it is surprising that the waiver power and waiver decisions to date have not received much attention in the literature on the WTO and public international law in general. This is even more surprising, she adds, since the practice of granting waivers is extensive.

And there's the rub. The "waiver" is not an obscure corner of the WTO domain but a (relatively) frequently used instrument, employed to resolve tensions that might otherwise destroy the legitimacy of the WTO agreement, and force members to leave it.

It is in effect a pressure relief valve, applicable when all else fails and just as important to the functioning of a treaty as the real thing might be to a steam engine. And, although called by a different name, the waiver performs much the same function in a treaty as safeguard measures. These also exist in WTO law and have been subjected to a degree of scrutiny.

But where they have come under particular scrutiny is in relation to the EEA Agreement, where the safeguard measures can be used to suspend free movement provisions, and thereby provide exactly the role of the pressure relief valve.

Arguably, this was precisely the sort of thing that Mr Cameron was seeking in his "renegotiations", which were concluded on 18-19 February of this year. And had he been able to come up with something more convincing that marginal changes to benefits payable to immigrants, history may well have been different – as we've already observed.

What we didn't realise at the time was how closely the European Commission agreed with the British government that a safety valve was needed. What we missed in the European Council statement (tucked away on p.34) was a declaration from the European Commission.

Remarkably, this stated that the "proposed safeguard mechanism" was intended to cover "the type of exceptional situation" which exists in the United Kingdom today and, accordingly, "the United Kingdom would be justified in triggering the mechanism in the full expectation of obtaining approval".

This was a proposal to amend Regulation (EU) No 492/2011 on freedom of movement for workers within the Union, "to provide for an alert and safeguard mechanism that responds to situations of inflow of workers from other Member States of an exceptional magnitude over an extended period of time, including as a result of past policies following previous EU enlargements".

For some strange reason, neither the Commission nor the Council referred to the safeguard measures set out in Article 112 of the EEA treaty, although these ready-made provisions could have been used off-the-shelf, without waiting to amend Regulation 492/2011.

Perhaps the Commission had forgotten about the use of safeguard measures in treaties, too embarrassed to admit that such measures are common to most treaties. There had even been such measures in the Treaty of Rome (Article 115), surviving right through to the Nice Treaty (as Article 134), to be removed only by the Lisbon Treaty.

So it is that the "colleagues" have made a serious mistake (one of their many), locking members into a treaty without a safety valve, failing to realise the importance of such a provision. And, in its absence, the UK has opted for the exit.

Feichtner, therefore, has done us a favour – possibly unwittingly – in highlighting the value of these provisions which, until very recently, were virtually unknown to us. More common than we could have begun to imagine, they could play a vital role in the coming Brexit negotiations. 

Certainly, any exit settlement we agree with the EU will require its own safeguard measures, as did our original accession treaty.

Richard North 24/08/2016 link

Brexit: retreat into nostalgia

Tuesday 23 August 2016  

Whenever the "colleagues" are in trouble, it seems, they return to their roots. They've been back to Verdun several times, they went to Messina in 1995 and now they've just been to Ventotene, the small island off Naples, home to Altiero Spinelli in 1941 when he wrote the Ventotene Manifesto for a "free and united Europe".

But this was hubris rather than a learning experience. In a response to the UK's referendum, Italian Prime Minister Matteo Renzi told reporters: "Many thought the EU was finished after Brexit but that is not the case".

He was welcoming François Hollande and Angela Merkel aboard the Guiseppe Garibaldi light aircraft carrier, and went on to say: "We respect the choice made by the citizens of Britain but we want to write a future chapter. Europe after Brexit will relaunch the powerful ideals of unity and peace, freedom and dreams".

This brave new world, however, is nothing more than a rehash of tired old themes, with the "colleagues" pledging to bolster EU security, boost economic growth and give the continent's youth a future. This, they believe, amounts to a "revival".

Just for once, the Mail seems to have got it right. "Instead of such lofty idealism", it reported, leaders of Germany, France and Italy faced the grim reality of a growing backlash to their handling of the migration crisis and terrorism – and disagreements over how to proceed.

Merkel recalled that European integration was the consequence of dark times in European history, but then seemed to confine herself to calling for more information sharing between European intelligence agencies. Inspirational, this was not.

What was clearly lacking – from the public pronouncements at least – was any sense of a greater vision, a rallying cry to pull together a damaged Union and bring it together, or give it a new direction. This reflects a failure to agree on the fundamentals, and bodes poorly for the future.

Following the referendum, it has been very obvious that the UK government is not offering any great vision for a post-Brexit Britain. But the Europeans, it seems, have similar problems, failing to recognise that Brexit is as much a problem for the EU as it is the UK.

Immediately after the referendum, Merkel did seem to recognise the gravity of the situation, saying: "There is no point beating around the bush. This is a blow to Europe, a blow to the European process of integration".

The EU is in the process of losing a major member, with no candidate country of equivalent status that can replace it. In many respects, Brexit represents the high water mark of European political integration – the end of the dream of a United States of Europe, "a dream that has not been able to force its way into the real world".

There are some who would argue that it was the colleagues' lack of vision that pushed the UK out of the EU – on the basis that if they had been more imaginative in supporting Mr Cameron's "renegotiations", history might have been different.

But now the UK is in the throes of leaving the EU, the remaining Member States need to realise that Brexit is their problem as well as ours. Hollande speaks of the EU facing "fragmentation and division", needing a "new momentum", but he too is unable to offer anything inspirational.

Ironically, it would seem, the UK and "Europe" have never been more united, albeit in their inability to offer a coherent response to one of the most important political events of the Century so far. Where there is a difference, it is in the UK Government going AWOL, while the colleagues do what they always do and retreat into nostalgia.

Richard North 23/08/2016 link

Brexit: Monograph 8 - WTO schedules and concessions

Monday 22 August 2016  

The latest Monograph is now available, published here, the eighth in the series. It brings me close to my personal but undeclared target of ten by the end of the month.

As with some others, this one started off as a blogpost, reaffirming the relationship between the blog and my research work, the one being a platform for the other. I believe it's the interaction between the two, with the input from the comments, which gives the work the edge and ensures that it is focused on issues of relevance.

Needless to say, the work is going to be largely ignored by the media – and totally ignored by the intellectual desert of the London think-tank scene (on both sides of the divide). Unless it can steal it, it will simply pretend it doesn't exist.

This creates a certain ambivalence. One writes work to be read – that is the purpose of it, and for most writers, the larger the audience the better. But in this case, the writing is for those who appreciate it. If it is a small, select audience, so be it.

On the other hand, there are those who say they're interested in Brexit yet avoid this site like the plague, justifying in all sorts of ways – if pressed – their refusal to read material from one of the foremost experts in this field. They do me no favours by reading the material, and I'm entirely indifferent to their reasons for not coming here. If they don't read these Monographs, that is their problem – their loss. 

One person I'm pretty sure won't be reading this particular Monograph, which is on WTO schedules and concessions, is Charles Grant, director of the Centre for European Reform. He has made a complete fool of himself on this issue, having made some fundamental errors that would shame even a novice.

He argues that Britain is currently "a member [of the WTO] via the EU" and thus asserts that the UK would have to undergo the WTO accession process on leaving the EU in order to attain full membership.

How people of Grant's supposed status can make such basic mistakes is a puzzle to me, especially as the reality is so easily demonstrable from the WTO website. Perhaps the answer is here in my own earlier comments. If I made such an error on this blog, there would be any number of people, friends and foes, who would be quick to tell me. The mistake would be corrected.

With the Charles Grants of this world, however, they are above the fray – far too grand to admit to their mistakes and totally impervious to correction. They live in their secure bubbles, where they hear only adulation. The tragedy for them (and, indirectly, for us) is that they have robbed themselves of the opportunity to learn from their mistakes.

Another person who will probably be avoiding this blog (if he has ever heard of it – which is unlikely), is former WTO press officer Peter Ungphakorn. He has attracted many plaudits for his analyses and his suggestions for resolving the issues which could arise from Brexit in relation to our WTO membership.

Mr Ungphakorn, by virtue of his former employment, is one of those fortunate to enjoy an amount of prestige when it comes to taking about the WTO, although one wonders why. Whenever, in a professional capacity, one needs to contact press officers, it is invariably to get access to someone who knows what they are talking about. One does not naturally expect information from press officers.

Interested readers, however, are entitled to be irritated by the efforts of Mr Ungphakorn and, for that matter, Charles Grant. Having invested the effort of reading their work, they have a right to expect to come away from it better informed. But from neither do we get any reliable picture as to what the situation might be.

What are lacking are certain essential points, hard won from the research which went into the current Monograph, without which it is not possible to make any sense of what might happen.

Firstly, one must appreciate the key difference between the EU and the WTO. In the former, compliance with treaty provisions is an end in itself and non-conformity is actionable. In the latter, intervention is predicated on there being evidence of harm. Once this is appreciated, most of the complications attendant on the UK having to regularise its relationship with the WTO fall away, and become of very little importance.

But then, as we see from further research which went into the Monograph, there is that essential element of the "waiver" which allows WTO rules to be suspended if a member has difficulty with compliance – a mechanism which would permit the UK to resolve problems in the short-term, deferring them until it has the time and resource to deal with them at its own convenience.

Despite the absolutely crucial nature of these elements, neither Ungphakorn nor Charles Grant mention them. Yet, to the specialist, neither is any great mystery. The "harm" trigger is fundamental to the way the WTO works, while there is even a 400-page book written on WTO waivers.

What we are seeing, therefore, are exaggerated accounts of the adverse consequences that might be experienced. This is evidence of a post-referendum phenomenon, whereby former "remain" supporters and others are tending to over-complicate the Brexit process, introducing needless complications. Some, and certainly Charles Grant, appear to be seeking to reverse the referendum decision.

Ironically, Grant is telling the Observer that some "very senior" people in the UK government are deeply ignorant about the single market, and adds that only now are the Brexit-backers beginning to grasp the difficulty of what faces them.

"I think that two months down the line the senior Brexiters are beginning to realise that the whole process is going to be a lot more complicated, time-consuming and boring than they had imagined before, when they had presented it all as black and white", he says. "They are beginning to realise that this will occupy most of the energies of government for the next five to 10 years".

This, though, is the same Charles Grant who so confidently tells us that the much-discussed "Norwegian model" is not viable. Norway, he says, "participates in the single market, but pays into the EU budget and has to accept free movement".

You begin to see a trend here. Grant ignores those aspects of the WTO rules which would militate against WTO schedules of commitments being a problem and then, when it comes to the Single Market, ignores the Liechtenstein/EEA solution.

But just the same is happening on the other side of the divide, with the Spectator airily telling us that, "Think tanks, websites and other groups should make the case for the clear, open version of Brexit that was described, and endorsed, at the referendum".

We don't even need to point out the irony of that, or the fact that the Spectator has been all at sea over an exit plan yet acts as if is invisible. For them, information only becomes visible or acceptable if it originates from an approved source, notwithstanding that the ability to cultivate selected ignorance is one of the most powerful tools of the propagandist.

For me personally, I can't quite pin down precisely when I lost interest in these sterile games. But I've decided that our only way forward is to concentrate on providing a consistent flow of high-quality information backed by the most thorough research of which we are capable.

The results so far are listed here, and accessible from the "Monograph" link on our top menu bar. Number 8 will soon be followed by another, and another. As the series expands, nobody will be able to say that the information isn't available. Whether they use it or not is entirely up to them.

Richard North 22/08/2016 link

Brexit: leaving could cost more than staying in

Sunday 21 August 2016  

Of all the ludicrous claims made by both sides in the EU referendum campaign, writes Booker, none was more bizarre than that blazoned on the side of Vote Leave's "Boris bus": that the "£350 million a week" we now give to the EU could be spent instead on the NHS.

The pretence, he says, that we could somehow spend on the NHS all the £17.8 billion a year we give to "EU institutions" was either absurdly ignorant or shamelessly dishonest.

Based largely on the figures in Monograph 3, Booker then goes on to tell us that leaving the EU could cost us more than we pay now. For a start, he writes, £4.9 billion of that £17.8 billion never leaves Britain, because it represents our EU budget rebate. So the amount we actually hand over is not £17.8 but only £12.9 billion.

Of this, as the Chancellor Philip Hammond has now confirmed, we shall continue to spend the further £4.5 billion that goes on subsidies to farming and regional funds. Equally guaranteed is the £1.5 billion which goes to private bodies such as universities for research.

We are also bound by UK law to continue spending the £1.2 billion of our aid budget currently administered by the EU. It would not be wise to discontinue spending most of the £2 billion we give to 27 EU agencies, such as that which regulates medicines, because it would be more costly for us to duplicate their work ourselves.

And if we are sensible enough to remain in the European Economic Area, giving us continued full access to the EU's single market, we would be bound to continue contributing the £2 billion a year we give through the EU to assisting the countries of the former Soviet bloc.

All of which adds up to £11.2 billion, leaving very little over from our current payments. But that is not the end of it. According to one estimate, the EU will be committed by 2027 to spending £300 billion on a whole range of programmes and projects to which the UK has already formally agreed.

Our share of this equates to some £5 billion a year, and any attempt by Britain to wriggle out of those commitments could become a highly contentious issue in the forthcoming negotiations. The EU would have much law on its side in arguing that we must meet those obligations.

Thus, Booker concludes, even if some compromise is reached, it seems quite possible that leaving the EU, however much many of us may wish it, could still be more costly to us than remaining. All that is certain is that it will not leave us with many pennies to spare for the NHS.

Richard North 21/08/2016 link

Norway's PM softens stance?

Saturday 20 August 2016  

Just as YouGov tells us that people prefer a Canadian-style deal to the "Norway option", we get Reuters reporting that Norwegian Prime Minister Erna Solberg sees "some advantages" from the UK joining Efta after leaving the EU.

This adds to the report ten days ago which had Norway saying it had an open mind on the issue, wrongly interpreted by the bulk of the legacy media which had the country poised to block UK entry. That, however, has created the opportunity for a report about a u-turn – which is about as accurate as the original report.

Solberg – a notorious Europhile - accepts that the UK's 65 million people would radically change Efta, currently with a combined population of just 14 million, but she also says that, "It's easy to see some advantages of British membership. It's a big country with a big economy".

Nevertheless, the downside is that the UK might demand conditions that would mainly help it - rather than its putative Efta partners - when negotiating trade deals. "Some countries will probably think it's fine to have a free trade deal with us (Efta), but won't necessarily think that it's equally simple to have a free trade deal with Britain", Solberg says.

She cites farming as one example of a possible conflict of interest. Britain exported food and drink worth £18 billion in 2015 while Norway imposes high import barriers to protect its farmers. As a result, she observes: "I don't think that the Efta path is necessarily the way Britain should be interested in going".

Yet, despite all that, her Conservative Party is in "continuous dialogue" with their peers across the North Sea, which means that the possibility of the "Norway Option" being adopted is still open.

This is especially the case as Solberg's comments are being seen as less sceptical about British membership than she was shortly after the referendum, when she was keen to stressed that it would "change the balance of power in Efta".

Conscious that all Efta states have a veto on the UK's entry, she adds: "It would be wrong to flag a veto or no veto now, and I believe anyway that we will find good solutions to these problems".

She said it was important for all countries to set out their national interests in the debate. "Then all must be prepared for anything, if it turns out that Britain joins Efta". Being "prepared for anything" doubtless also includes using what should more accurately be called the "Efta/EEA option" as an interim solution to the immediate problems of extracting ourselves from EU membership.

That's, of course, where the YouGov survey falls down, in that it offers a limited choice, with respondents favouring a Canadian-style deal, evidently without the first idea of what this entails. Therein lies the fundamental flaw with this type of survey. You can offer the unattainable and it might get the top score, but that doesn't make it any the more attainable.

Similarly, one sees a strong rejection of the idea that the UK should continue paying money to the EU, notwithstanding that payments have already been promised to fill the funding gap for CAP and regional policy, once we leave the EU.

Furthermore, it is inconceivable that we should walk away from the EU agencies and programmes or cease any form of cooperation – all of which carries a significant price tag.

What we are seeing, therefore, is the effects of a distorted debate, where so much of a premium has been put on illusory financial savings from leaving the EU. Come what may, we will be sending some money to Brussels for the foreseeable future – the only question is how much.

On top of that, once we have filled the funding gap, and adjusted our aid spending (while maintaining the 0.7 percent commitment), the amount the taxpayer will be shelling out will hardly diminish. The gain is that we are able to control the spending (most of it), but there are no worthwhile savings to be had.

All of this, though, points up a real problem for Mrs May, when she finally gets a grip with the realities of Brexit. Any sensible choices are not – initially at least – going to be the most popular. Not only does she have her work cut out devising the most appropriate solution, she is going to have a hard job selling it.

Richard North 20/08/2016 link

Brexit: complicating our withdrawal

Friday 19 August 2016  

It's becoming clearer by the day that the remainers are not prepared to let go. They've not accepted the result of the referendum and are working consistently to overturn it. And, being helpful for once, we have the Financial Times giving Richard Thaler a platform to tell us what the "remain" strategy really is.

Basically, from a stance where they were telling us that we could not possibly leave – or that it would be a disaster if we did – they are now telling us that we can leave, but it is soooooo complicated that we'd better not even try.

This is what all this gloom and doom about the WTO "schedule of commitments" is all about – a subject I will be returning to, just as soon as I've completed work on the Monograph I'm writing on the subject. It will show us is how the remainers are needlessly complicating the withdrawal process, adding elements that are really of no great concern, or which can be resolved fairly easily.

What Thaler is after, though, is a sustained barrage of propaganda to show that the decision to leave was so complicated that the choice was "impossible to evaluate sensibly". But, as the problems are stacked up, and people begin to realise how unwise leaving is, they should "be given the opportunity to change their mind if the facts change - either via a vote of parliament or a second referendum". In short, says Thaler, "Brexit should not mean (an immediate) Brexit".

Sadly, on the other side of the divide, the leavers seems to be playing into the hands of their counterparts, pushing for a "hard" Brexit which will bring about precisely the disasters about which we are being warned. In parallel, they are rejecting the Efta/EEA interim option and the Liechtenstein solution, which could get us out of the hole.

With a media which seems incapable of reporting sensibly on the issues, or getting past laborious Janet and John repetition of poorly understood basics, we have a situation where both sides of the debate are conspiring to deter us from leaving – one unwittingly – while the media hasn't the first idea of what's really going on.

What troubles me at a very personal level is my own ignorance, over a vast array of matters. But while I expend time and effort filling in the details, expanding my knowledge into areas that I feel are essential to understand the issues, we are simply widening the gap between the "knows" and the "know nots".

Pete and I chewed over some of these matters on this audio clip, leaving us to despair at the poverty of the debate.

For a long while, I've been worried by the prospect of Article 50 negotiations that might fail, precipitating us into a disastrous "WTO option", almost by accident. But now, it looks equally possible that we could end up talking ourselves out of Brexit, simply because we've been unable to come up with a credible way of leaving.

The one hope we have is that we're only hearing white noise, and we'll not get any real politics until after the party conferences. But, unless by then the various actors are able to up their games, individually and collectively, there is not so much room for concern as good cause for screaming panic, with us rushing for the nearest exit. And that one doesn't get us out of the EU.

Sadly, though, nothing coming out of Whitehall gives us any confidence that we're going to see much improvement, in which case we need to be reserving places in the queue for that emergency exit. Before that, the greater peril might be that the sheer tedium of the debate will drive us to distraction. If we're going to get anywhere at all, something has to break.

Richard North 19/08/2016 link

Brexit: trading places

Thursday 18 August 2016  

Having for so many years been discussing the complexity of leaving the EU, it is intriguing now to see so many pundits doing the same thing - albeit for entirely different reasons.

One of the latest offerings comes from Ben Wright of the Telegraph although such is grip of media coprophagia that we are seeing something remarkably the similar from Jennifer Rankin in the Guardian.

By some strange coincidence, at the heart of their gripe is a tale of woe originated by Charles Grant published at the end of July by his Centre for European Reform. This followed on from an intervention prior to the referendum by WTO director-general, Roberto Azevêdo , who warned that talks over regularising the UK position with the WTO could be "long and difficult".

What emerges from this, which is gaining a great deal of traction, is the problematic relationship with the WTO, and the need to agree what are known as "schedules" of tariffs, quotas, subsidies and other concessions on market access with the WTO.

Currently, these "schedules" are held by the EU, so that the UK must negotiate with both the EU and the WTO as to its new national levels. And, with not a little glee, Grant recounts how negotiations could be stalled if, for example, Argentina or Russia wanted to create difficulties.

Any one country could block the British schedules, in theory making it extremely difficult for the UK to normalise its WTO membership within the two years of the Article 50 negotiations. Wright lovingly dwells on this, as does Rankin, presenting this as yet another complication to add to all the other complications that Mr Grant has dreamed up for us.

The potential problems are explored in more detail by former WTO press officer Peter Ungphakorn who has attracted many plaudits for his analyses and his suggestions for resolving the issues which could arise. What is remarkable, however, is that so much is being made of what is actually a non-problem, of one of such small significance that it deserves only limited attention.

Keen readers of Flexcit - which excludes the entire corpus of the legacy media – will already have seen the entry in the Agriculture chapter, which illustrates precisely why the issue is of so little importance in the grander scheme of things.

In theory, problems arise if, after Brexit, the UK will be required to conform to the technical requirements relating its WTO membership. If by then it has not normalised its commitment and obligations, it could be in breach of those technical requirements.

However, the WTO is not the EU and different rules apply. Unlike the EU where a member state can be taken to the ECJ merely for infringement (or violation) of the rules, this is not the case with the WTO. Non-conformity with WTO rules, per se, is not an actionable event. Action is triggered only when there is perceived (or alleged) harm. The legal mode of the WTO's Dispute Settlement Understanding (DSU) is seen as a corrective which must be aimed at seeking to repair harm done rather then imposing conformity for the sake of it.

Thus, a peculiarity of the system is that for action to be taken against a member for violation of the rules, there must be demonstrated a prima facie case of "nullification or impairment". From this follows a presumption that a breach of the rules must have an adverse impact on another WTO member.

Ungphakorn himself argues that the UK can seek a resolution by not creating any new commitments but by working within the EU's apportionment – thereby maintaining the status quo. If, by the time we leave the EU, arrangements have not been formally settled, the UK might be technically in breach of WTO rules, but as longs as it is careful to maintain the status quo ante,  no party could claim "nullification or impairment". No action could be taken.

Then, even if there was a theoretical possibility of action being initiated, some consider that there would be a reluctance to invoke the dispute settlement mechanism. Resort to this mechanism is the exception rather than the rule.

Nevertheless, there is an issue arising from the 1995 Agreement on Agriculture, where payments of different types of agricultural subsidies are subject to agreed restrictions. For developed countries (which include the UK) certain types of subsidy, such as domestic production subsidies and export payments, are prohibited unless commitments have been made to reduce those subsidies, set out in formal "schedules of concessions and commitments".

Because schedules for EU member states have been agreed en bloc, in respect of all 28 members, this means that the UK, on withdrawal, could not automatically take with it any rights to EU agricultural subsidies and quotas. Theoretically, if the UK wished to pay subsidies, then the UK and the EU must present new proposals to all WTO members, the sum of which cannot exceed what they have already committed.

However, despite the current fuss, this is far less problematic than might at first appear. Restrictions apply only to trade-distorting subsidies, in what is called the "amber box". So-called "green box" and "blue box" subsidies are exempt. 

The "blue box" subsidies cover payments directly linked to acreage or animal numbers, but under schemes which also limit production by imposing production quotas or requiring farmers to set aside part of their land. "Green box" subsidies must not distort trade, or at most cause minimal distortion. They include environmental protection and regional development programmes.

Specifically, such subsidies have to be government-funded (not by charging consumers higher prices) and must not involve price support. Rather than directed at particular products, they tend to include direct income supports for farmers "decoupled" from current production levels or prices. These subsidies are allowed without limits.

Fortunately for the UK, of the subsidies paid under the current Multiannual Financial Framework (MFF) under the 2010 CAP reforms, 94 percent would accord with "green box" and other exempt categories. They could, therefore, continue to be paid by an independent UK without breaching WTO provisions.

Furthermore, although such a big deal is being made of the need to conclude a new agreement, the provisions for "rectifications and modifications" are actually relatively straightforward.

As the EU has only used €8.76 billion of the €72.2 billion ceiling agreed with the WTO in 2009/2010, a fraction of the allowable limit, re-apportioning subsidy concessions would be relatively uncomplicated. Even if there was no agreement in time, as long as there was overall parity in subsidies paid in the "amber box", any technical breaches in WTO would be unlikely to trigger a complaint procedure.

As to tariffs, establishing new schedules is by no means as problematical as it might seem. Members are allowed to modify or withdraw concessions from their schedule through negotiation and agreement with other Members. Article XXVIII of the GATT 1994 entitled "Modification of Schedules" is the main provision dealing with this. To date, at least 42 GATT Contracting Parties initiated roughly 300 renegotiations between 1951 and 1994. 

According to the WTO, there have been 39 requests to enter into renegotiations under GATT Article XXVIII since the establishment of the WTO in 1995. Five of those have been withdrawn, 14 have been concluded and formally certified, and eight have been concluded, but have not been certified for various reasons. The remaining 12 are in principle still on-going.

In other words, while there do indeed need to be negotiations, they are no big deal and there is no great problem if they are not concluded in time. The worry beads may be out for the media and the Charles Grants of this world, but on this, life is not as complicated as they want to make out. It is complicated, but not that complicated.

For once, I'm trading places.

Richard North 18/08/2016 link

Brexit: Monograph 7 – trade agreements

Wednesday 17 August 2016  

The 1973 agreement between the EEC and Norway, comprising 113 pages including schedules, is a free trade agreement. So is the 2010 EU-Republic of Korea agreement, but that runs to 1,432 pages. Furthermore, this agreement does not stand on its own. It runs in parallel with a framework agreement that runs to a further 64 pages.

On the other hand the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU, which has yet to come into force, takes 1,598 pages. But the EU-Chile Agreement, which came into force in 2005, is only 112 pages. The 1995 EU-Turkey Agreement, on forming a customs union – the so-called Ankara Agreement - is a mere 55 pages.

Even when agreements are roughly the same length, there are substantial differences in content, as to sectors which are covered and the various exclusions, rendering each a unique property.

Complicating the matter even further, there are a myriad of agreements which are dedicated to, and have the effect of, freeing up trade, which are not termed free trade agreements. Furthermore, to facilitate trade, some nations rely not on a single, comprehensive agreement, but a multiplicity of agreements, some of which do not even have the status of treaties. Often these are interwoven with multilateral treaties, the effects gained reflecting the interaction between a group of agreements (not all of them treaties), rather than on any single instrument.

Yet, in the post-referendum discourse, it is commonly asserted that the UK's trading relations with the EU can be settled by reference to a "free trade agreement", without advocates in any way specifying what they mean by the terms. This is unhelpful. They are using a portmanteau expression, its meaning generic rather than descriptive. It does not define sufficiently, if at all, the relationship we need with the EU.

If the debate on these matters is to progress, we need a great deal more precision and clarity as to the terms used.

In this Monograph, we look at the different arrangements that are entered into by disparate nations, how they apply and how, separately and in concert, they can achieve an effect. And, with a more precise vocabulary, we look anew at the arrangements which might be of value to the UK in resolving the Article 50 Brexit negotiations.

Richard North 17/08/2016 link

Brexit: Newsnight

Wednesday 17 August 2016  

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Liechtenstein on Newsnight - 22 minutes in. Helen Thomas, business editor, completely butchers the story in what was almost complete waste of time and money, thereby confirming the view that the legacy media is quite incapable of dealing with complex issues.

The only interesting thing that came out of the clip was the Liechtenstein prime minister, who said that it is unlikely that his country could, right now, broker the same deal - even though this is precisely what Switzerland is attempting to do right now, with some indications that it might be successful. It seems that Liechtenstein politicians are as ignorant as our own.

That said, I think this is the last time I ever do anything with the BBC. You spend time on the phone and internet briefing them. Then going to the studio and back takes an hour and they interview you for about 20 minutes - all for a 30-second clip, which is really too short to add anything of value. This is not a productive use of time. 

Richard North 17/08/2016 link

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