Richard North, 29/07/2017  
 


With Theresa May on holiday, we get something of a feel of the mice playing while the cat's away – if Philip Hammond can in any sense be regarded as a mouse. I'm not sure what sort of animal I'd cast him as but, if limited to rodents, I'd put him down as a lean, sharp-toothed rat.

Anyhow, Mr Hammond has been making waves with his BBC interview in which he argues for a "transitional deal" in the period after Brexit, but suggests that it must end in time for the election in June 2022 – allowing just over three years.

The first thing to note is that, four years after we first worked up the idea and three years after we formally lodged the concept of an interim settlement, in our very first edition of Flexcit submitted for the IEA Brexit competition, the Chancellor of the Exchequer is at last putting it on the table, albeit in a less-developed form than we offered.

However, it is fair to say that, had the debased IEA run an honest competition, we might have been there sooner with the only logical response to the wholly unrealistic two-year Article 50 timetable.

This is a point that needs to be made time and time again. We've been round the houses with the Muppets arguing that Brexit was straightforward. The idiot Redwood argued that it could be settled in a morning in Brussels, while the feline Lilley even suggested it could be done in ten minutes.

Any dispassionate and halfway intelligent analysis will inevitably come to the conclusion that the two-year period is too short and, therefore (unless we were going to bid for extra time), we needed to arrange an interim or "transitional" plan.

While Flexcit currently argues for the Efta/EEA option, it should be remembered that we offered a menu of options. We allowed for the failure of the so-called Norway option, proposing in its stead the adoption of a "shadow EEA" plan, or even what we called the "Australian process", relying on political declarations rather than binding agreements – the ultimate in flexibility.

But there is a lot more to Flexcit than just a transitional phase. That is only phase one, dedicated to the procedural task of extracting us from the EU. Phase two deals with the important issue of immigration but the real meat of the plan – as far as Europe is concerned – is phase three.

This sets out ideas for a genuine European Single Market, constructed on intergovernmental lines and freed from the political integration agenda that Brussels has superimposed upon it. Relocated in Geneva, using the already established UNECE, the idea has the merit of mirroring the 1948 structure offered by Winston Churchill at The Hague conference, while working with the very latest developments in globalisation.

And while Hammond has just about got his brain around the concept of a transitional phase, no one in the mainstream has given any serious thought to what comes next, having told businesses he wants a "standstill" transition leaving companies with full access to the single market and customs union.

Hammond believes such a deal should allow people and businesses to "get on with their lives" without "massive disruption" where, in the immediate aftermath, goods would "continue to flow across the border between the UK and the EU in much the same way as they do now". Many things, he says, will look similar – including, it would appear, freedom of movement of persons.

That is an intelligent objective but, as I have pointed our many times, it is fundamentally flawed if, at the end of the process all we are going to have to show for our efforts is a free trade agreement (FTA). This will put us in a considerably less advantageous position than we have now, something which neither the nation in general nor business in particular is going to tolerate.

As Pete points out in a study that is far ahead of the field, the idea of an FTA is simply not a sensible option. We need drastically to rethink our trade policy, confronting a massive learning curve which should bring us finally to the realisation that FTAs are 19-20th Century solutions which are not appropriate for the needs of the 21st Century.

Remarkable, four years down the line, Allie Renison of the Institute of Directors wants us, for the sake of business, to phase in Brexit slowly.

She believes a "short spell" in the EEA "would certainly remove much of the potential for disruption to trade". And it would also give our regulatory agencies the time to build up capacity to take over functions from - and negotiate new relationships with - their European counterparts, who currently act as a one-stop shop for regulating our access to the EU market.

Nevertheless, she falls for the idea that we would need to renegotiate our way back into the EEA agreement once outside the EU, via rejoining Efta first, and then negotiate our exit from it later. She does not understand that it is possible to stay within the EEA without have to renegotiate entry.

But the ultimate flaw is the same lacuna we get from Hammond. Accepting that we will have a time-limited transition "for political reasons", her horizons stop at a free trade deal to replace our current arrangements. But, with nothing better than the EEA on offer, the danger is that the transitional becomes permanent.

In that, I have a great deal of sympathy with those who oppose the EEA because of the danger of it becoming permanent. Where I have less sympathy with these people is with their inability to come up with sensible alternatives that will give us something better.

And neither are we getting any realism on the timing. Hammond obviously wants to get Brexit out of the way before the next general election – just supposing the Conservative government lasts that long. But dropping out of the EEA into a less favourable position within an FTA is not going to confer any electoral advantages. It might be reasonable to expect that Labour is still in a mess by then, but if they are not, the Tories could struggle to get re-elected.

But then, Hammond doesn't seem to have thought through the mechanics of a transitional deal either. He may want goods to "continue to flow across the border between the UK and the EU in much the same way as they do now", but that is not going to be easy to arrange.

Within the terms of Article 50, the EU treaties cease to apply on Brexit, and the UK assumes the status of a "third country". For this to be any different, the "colleagues" will have selectively to re-apply treaty provisions to the UK, a process which necessarily constitutes changes to the existing treaties.

There is, of course, only one way that can happen, and that is through treaty change. It is a long-held principle in international law that the only way a treaty can be modified is with another treaty. For convenience's sake, we can call this a secession treaty, but whatever it is called, it will need the unanimous assent of all [28] parties, and ratification.

I've been thinking more and more about this, and especially the UK situation. When we arrive at Brexit, Article 50 cuts in and all the existing treaties fall away. If provisions are then to reapply, that means a new treaty must be agreed, one which actually undoes Article 50 and gives powers to the EU that it had just lost.

Under the terms of the European Union Act 2011, that seems to be a case of conferring new competences on the EU, in which case the "referendum lock" cuts in and we end up with another referendum. This is still in force, and although scheduled for repeal in the European Union (Withdrawal) Bill, it would still be in force when (if) any secession treaty has to be ratified. 

I'm not going to argue that this will necessarily be the case, but one cannot rule out someone might preempt the repeal and take the UK government to court (again) to fight out the legality of a transitional (aka secession) treaty. Any case would be fought on the basis that the treaties end with Article 50 and Brexit, so any transitional powers granted to the EU must be treated as new powers.

What we now have to confront is the prospect that what looks like progress, with Hammond's initiative, is nothing of the sort. Even if the Prime Minister endorses it, when she gets back from holiday, and the Cabinet lines up behind it, we are no closer to a workable Brexit settlement.

In fact, we are making a transition from nothing, and the overall plan is going nowhere.






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