Home Flexcit Impact Assessments Monographs Contact Archive

Flexcit: travesty at the IEA

2014-04-01 01:09:13

Autonomous Mind has noticed oddities about the final shortlist for the IEA "Brexit" prize. All those offering a distinctive EFTA/EEA solution (or variations thereof) have been blown out of the water while, amongst the remaining six, there is a distinct Commonwealth/Anglosphere bias.

One of the finalists, the Commonwealth Exchange, even goes so far as to say that it "does not take a position on whether the UK should remain in the EU" but feels it is important that plans are in place should it chose freely to leave. As a result, it has put forward a submission arguing that "the Commonwealth and wider Anglosphere should be at the forefront of any UK plans if it were to leave the union".

While we have yet to see the details of the final six, AM argues that the only possible explanation for the very obvious bias in the IEA judging panel is that it has abandoned any pretence of embracing wide-ranging and innovative solutions in an open minded fashion.

Instead, he says, it has "sought to advance entries that mirror their own pre-determined viewpoints". In short, the panel is only interested in entries that reinforce and confirm their own biases, which renders the whole IEA competition worthless.

You would hardly expect me to disagree with this, but there are very good, dispassionate reasons for suggesting that this is the case. Not least, as we pointed out in our earlier piece the political realities of any Article 50 negotiations are such that there will be great pressure to conclude an early agreement. Thus, while a Commonwealth or Anglosphere solution might sound superficially attractive, there is very little chance of settling all the issues involved in a de novo solution within a politically acceptable timeframe.

Additionally, we have the problem of fighting and winning an referendum campaign. Although the IEA set the scene with an Article 50 notification having already been made, I pointed out in my submission that any negotiations would have to take account of what had passed during the referendum campaign.

I then posited that, in order to overcome the FUD and actually succeed in gaining an "out" majority, there would have to be an unbreakable promise to safeguard our participation in the totemic Single Market. And that, to all intents and purposes, would require our re-joining the EEA.

While the IEA panel, in its patronising way thought this is an "intriguing" idea, what it will have to justify is the rejection of an interim solution in preference to something which may not (and almost certainly will not) work. Unless the panel have gone for another way of safeguarding our participation in the Single Market one equally as plausible one will be able to presume that it has not been guided by logic, or chosen the winner on the basis of merit.

When I looked at the competitors, during the writing of our submission, I concluded that any submission which suggested that the Commonwealth should be "at the forefront of any UK plans" would be so unrealistic that it could not possibly win. Although I allowed for better relations with Commonwealth countries, I did not place this prospect high up my list.

And apart from the fact that many Commonwealth countries have developed alternative markets and their own trading partnerships, there are very real technical reasons why the Commonwealth, as a bloc, could not form a stable or successful free trade area. In the modern age, says AM, the Commonwealth solution is no longer a realistic option.

Free trade blocs, he writes, require its members to have broadly similar standards and have similar levels of social development. There is such a difference in standards and social development between Britain and other members, including Uganda, Rwanda, Pakistan, India, Canada and New Zealand, that the notion of the bloc being a suitable wrapper for a free trade bloc just doesn't stand up.

The essence of a modern free trade area is a common rule book, setting out a wide range of standards, a reliable dispute system and, all importantly, uniform and effective enforcement.

Where there are major differences in social development, however, the introduction of common standards kicks in a phenomenon known as "regulatory hysteresis", explained in some detail in this paper.

What is absolutely necessary in a free trade area as between EU countries in the EEA is a convergence of regulatory systems, brought about by standardisation of law and uniform enforcement.

But what the paper illustrates is that imposing the same regulation in countries with different initial conditions can make countries diverge more, rather than move them closer together. This, it says, has important implications for global regulatory reform, but it also rules out any idea of the Commonwealth becoming a successful trading bloc.

For sure, as Empire, it could work, where the standards were determined in Westminster and enforced by British civil servants and colonial administrators under their supervision but, as independent countries, different conditions apply.

Between markedly different regulatory environments, hysteresis can negate beneficial effects of having a trading agreement, an effect which increases with time. Rather than go for a full-blown trading bloc, therefore, we need to assist the less developed countries with regulatory convergence, usually along limited sectoral lines, with the emphasis on improving enforcement.

This was one of the issues set out in my FLexCit submission, but the judges have given no indication that they have the capability to assess such effects, as indicated by the Bootle video (above).

Thus, AM has concluded that the IEA has ignored the real world in favour of a concept that would be unworkable and costly. It has pretended the politics of Brexit are irrelevant and that economics trumps all. As such, he writes, it cannot be taken seriously and any interventions it makes in the debate concerning the UK leaving the EU are likely to cause more harm than good.

Certainly, I will be looking very carefully at the winning entries to see whether the judges are indulging in nostalgic fantasies, or have taken account of real world conditions. As it stands, we have no reasons to be confident in either their grip of the issues or their impartiality.