Brexit: the Mills file

27/08/2016  


Over three days earlier this weeks I have had a long and detailed exchange of e-mail correspondence with John Mills, chairman of Labour Leave, the exchange initiated by him. His main objective, according to his later e-mail, was to try to draw on my knowledge and experience to help those on his extensive e-mail list: "establish whether the Brexit negotiating position which I think most of us would favour is feasible".

This is a lengthy exchange, but I believe it to be an important illustration of the state of the debate in certain quarters. I have, therefore, reproduced it here in full for the public record, with John's permission. Initially, I had proposed making this anonymous, but Mr Mills preferred to be named. I have made minor corrections and improved the paragraph spacing, but otherwise it is unchanged apart from third party references, which have been obscured.

In the very near future, I will post a critical analysis of this exchange, which starts here:


22 August 2016

Dear Richard

In strict confidence, please find below an exchange of e-mails from influential people who, I am sure you will think, are taking much too simplistic a view about the process of disengaging ourselves from the EU.

All the same, I am sure they are right in saying that the more we can keep the negotiations simple, the better. What it seems to me we need out of all this is as short and clear a guide as possible to the simplest way as possible of achieving both of the following objectives, treated as alternatives, or why they cannot be achieved if there are compelling reasons why this is the case:
1. Your preferred choice of the UK being in the EEA, at least on a temporary basis, and thus with free trade with the EU, but out of the Single Market as far as possible. What realistically would we then be able to do about border control, payments to the EU and justiciable obligations generally?

2. Being completely outside the Single Market but with free trade with the EU at least on goods and hopefully on services, which is where I think most people in favour of Leave would like us to be - including me if it is achievable.
Would you be able to get a Monograph produced to cover these two options, cutting to the quick and keeping it as simple as possible? I think it would be greatly appreciated if you could do this.

Very best wishes,

John

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22 August 2016

John

Look at an old Bakelite telephone from the 1940s and now look at an i-Phone. If simplicity was the ultimate objective, then we should scrap our i-Phones and return to those clunking black telephones, which we used to keep in the hall.

The thing is that, just as telecommunications have become more complex, so has governance (not least you need some pretty sophisticated international governance to run the telecommunications system). If you try to simplify, you lose functionality. If you look to simplify our exit negotiations, then we risk conceding issues which, had we fought for them, we would have got a better deal.

Essentially, there isn't a quick and simple way out. The EU project is nearly 70 years old, and the UK has been undergoing the process of political and economic integration for 43 years. The EU systems are intertwined with our own to such a huge extent that it is quite impossible to extract ourselves quickly without causing damage.

Thus, my central thesis is that we plan a phased withdrawal. We extract ourselves step-by-step, in much the same way we went in. And this is the reason for electing to go for the Efta/EEA option as a first step. It was treated as a half-way house for those countries wanting to join. In my view, it has equal utility as a half-way house for those wanting to leave. It is Phase 1 of a six-point programme.

To stay in the EEA is to stay in the Single Market. The EEA is the Single Market. But it takes us outside the EU and, therefore, outside the jurisdiction of the ECJ. We will have to pay some money to continue cooperating with the EU. But then international cooperation costs money.

As to the Single Market, I am getting exceedingly weary with the likes of XXXXXXX bleating about it. Since he was first involved, we've had the conclusion of the Uruguay Round, the formation of the WTO and a huge surge in globalisation.

There are now more international regulatory/standards bodies in existence on the planet than there ever have been in the history of mankind. The Single Market is being globalised - we need to be part of that. Far from withdrawing from it, we need to be extending it, completing the globalisation process and wresting control of the Single Market from Brussels. We need to take ownership and manage it on an intergovernmental basis.

In this context, "free trade" and the negotiation of a free trade agreement with the EU to cover the longer term is an irrelevance. FTAs are dinosaur agreements with no relevance to the 21st Century. Most of "your" people are locked in the last Century. We need to move on ... until we can, there is no progress.

Best

Richard

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23 August 2016

Dear Richard

Thanks for your e-mail. I understand your frustration but if the key people are going to be won round to your point of view they need to be persuaded to do so rather than just being told that whatever they think is wrong. I agree with you that there is not a simple and quick way out but, whatever the constraints may be, the quicker and the simpler our approach is, it seems to me the more successful it is likely to be.

I know you want a phased withdrawal and maybe that is what we will finish up by having but to get there the other options – involving a cleaner, earlier break - need to be considered. If they really are not feasible, clear persuasive arguments showing that this is the case need to be advanced. Is it possible for you to set these out?

Take the WTO option, for example. I know this is not an ideal outcome but is it really impossible to envisage it being implemented, given at least two years to put whatever administrative arrangements might be necessary in place?

If WTO is possible, it seems to me that this puts us in a much stronger position to negotiate the UK being outside the Single Market – and thus no longer bound by free movement of people, our current level of contributions and justiciable by the Luxemburg court – but with free trade on goods and some sort of deal on services.

This is what I think most people want. What, in your view, would stop this happening? Of course there would be difficulties along the way but what would be the game stoppers? Are there any which, with the best will in the world, simply could not be negotiated away?

Very best wishes,

John

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23 August 2016

John

I think, before anything else, two things are needed: clarity, and (intellectual) honesty. Without both, it is not possible to have a sensible debate.

In terms of our exit, I have sketched out three broad options. These are the generally accepted "industry standard" if you like. No serious commentator disputes them, although some break down the primary categories into sub-divisions. The three options are: (1) the "unilateral" or WTO option; (2) the "bilateral" or Swiss Option; and (3) the Efta/EEA option.

In Monograph 2, I have defined the WTO Option. This is taken to be a scenario where, for whatever reason, the UK eschews any form of directly negotiated trading agreement with the EU and trades solely and exclusively within the framework set by the diverse WTO Agreements.

That is the baseline. The definition is distilled from countless papers and public pronouncements, and it the basis of my further analysis. If you change the definition (as was the effect of Mr XXXXX's comments), then the calculus changes. However, as I remarked, if you take the WTO framework as a baseline and then negotiate agreements around it, to make it more workable, it is no longer the WTO option. It becomes something different. It becomes a (weak) version of the "bilateral" or Swiss Option.

Sticking strictly to the definition, I have written Monograph 2, to demonstrate that the WTO option (as defined) is a non-starter. I am not alone arguing this, although I have perhaps written at greater length and with more clarity as to why this should be.

As regards persuading people, I am reminded of the homily: you can take a horse to water but you cannot make it drink. If like Mr XXXXX, you ignore my definition and change the framework of the discussion, then it is not possible to have a sensible argument - we end up with a debate over "chalk and cheese" that takes us nowhere.

Thus to reiterate. The WTO option (as defined) is a non-starter. Furthermore, we know already that HMG is not deliberately going to embrace it. The most likely (and probably only) scenario is that it happens by accident. My Monograph was written partly to warn people of the consequences, in the hope that this will help prevent it from happening.

Having thus completed that task, I see myself has having provided the water. I have led the horse to that water and invited him to drink. If that "horse" cares not to drink, then there is nothing I can do about it. The horse will die of thirst. Meanwhile, as I see it, I have much more water to dispense, and to more willing horses. I have neither the energy nor the inclination to waste my time on recalcitrant horses.

Very best

Richard

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23 August 2016

Dear Richard

I am probably a good deal more sympathetic to your point of view than many other people on the circulation list which you have seen but I – and I think lots of other people - still do not really understand why it is possible for China, the USA, Australia, Japan, etc., all to be able to sell product to the EU on WTO terms but it would be impossible for us to do so. I am not saying that this is the ideal option. Nor am I suggesting that there would not be difficulties, for example over recognition of standards, which would need to be overcome. The issue is whether it would be possible. Can you help me?

Very best wishes,

John

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23 August 2016

John

I've written multiple posts on the blog, and then summed up and cross-referenced the arguments in Monograph 2. I've further elaborated on the arguments in Monographs 5 and Monograph 7. The works separately and collectively point out that there is more to trade than the traditional Free Trade Agreement. For many reasons, some nations (China, USA, etc) prefer to order their trade relations using forms of agreement different to the traditional Free Trade Agreement.

When it comes to China and the USA, the networks of trade agreements are complex and extensive, relying on the interaction between the bilateral and the multilateral, with constructive and imaginative use of coordinated unilateralism as an overlay. This I have made especially clear in Monograph 7, to the extent of pointing out that the traditional FTA is obsolescent and largely redundant.

It is the case, therefore, that none of these nations rely on the WTO option. For us to enjoy the same trading relationships with the EU as are enjoyed by the US and China, we would have to see replicated exactly the same complex combinations of unilateralism, bilateralism and multilateralism. Complex, they are and poorly understood, but that does not mean these arrangements do not exist. They do.

If people do not want to entertain the notion that such arrangements do exist, and insist on arguing that the likes of China and the US trade under WTO rules, without the benefit of these complex trade agreements, then all I can do is refer them to the already published Monographs. If they are not prepared to invest the time reading them, then once again we are in "horse and water" territory.

The facts are that trade systems are extremely complex (and intricate) networks of different types of agreement, all of which - in their totality - interact to produce their current effects. They are not static, but very much dynamic, always changing and evolving.

One of the latest (although not entirely recent) changes is the inter-institutional agreement that does not, in the first instance, even involve national governments. Nevertheless, these are having a profound effect on the trading relations between nations, and have to be factored into the discussion as well.

Overall, understanding these systems requires an investment in time, and a willingness to set aside often dearly-held preconceptions. Most of what the current public debate is covering is twenty years old or more, with no recognition of how much the world has changed in the interim.

That said, we cannot have a sensible debate if those involved will not step out of their comfort zones and refuse to update their knowledge base. So far, I've written eight Monographs. The ninth is in production. People need to read them. They are based on extraordinarily detailed research and analysis by one of the best in the business.

If people don't read (and then seek to understand) the material I send them, I can’t help them. I can't help people who are intent on refusing help.

Very best

Richard

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23 August 2016

Dear Richard

Thank you for your e-mail. I have carefully read all your Monographs and it is clear from the responses which I have received from other people on the distribution list that they have done so too. I understand also that for the UK to move to trading with the rest of the EU on WTO terms would not be anything like as simple as many people seem to imagine that it would be.

What I don’t understand is why it would be impossible. Clearly there are obstacles. What I - and I think many other people - would like to have is a list of what these obstacles are and what can or can't be done to overcome them. So far, I know that you have listed mutual recognition of standards and a variety of different protocols and agreement on detailed procedures which need to be observed. These do not appear to me to be impossible to deal with. Can you please let us know what else stands in the way? I really want to know!

Very best wishes,

John

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23 August 2016

John

I have listed a number of obstacles - that's the subject of Monograph 5. Clearly, those obstacles can be overcome. That is what trade agreements are for. We overcome them by negotiating trade deals - issue, by issue, sector by sector. The point though is that the moment you start negotiating trade deals, you are no longer relying on the WTO option. You are moving into the "bilateral" option. You would no longer be trading on WTO terms.

In other words, it is impossible to trade under the WTO option, because of the huge barriers involved. The moment you start negotiating your way around the barriers, your WTO option ceases to be the WTO option and is transformed into a bilateral agreement(s).

Thus, what you are actually talking about is making a bilateral trade deal with the EU ... the so-called Swiss Option. The point then about bilateral deals is that they are as long as a piece of string. You have the Turkish deal at 55 pages and the Canadian deal at 1,598 pages. The precise nature of the obstacles depends on the scope of the agreement, and the degree of market access required.

However, we can add to this with a few other observations. Firstly, bespoke market access (bilateral) deals take a long time to finalise. It would be extremely optimistic to expect a comprehensive agreement to be concluded within five years. Since the chances of getting a time extension are slight - and there would be a political penalty to pay - the bilateral route is hazardous and uncertain. That leaves the off-the-shelf Efta/EEA option.

However, if we chose the bilateral route, there are certain basic components. Firstly, we will have to agree the scope of the agreement - the range of goods and services to be traded. Secondly, in terms of the goods and services traded, we will have to agree to match EU standards or come to an agreement on equivalence. Thirdly, we will have to come to an agreement on a verifiable system for ensuring regulatory convergence in maintained. Fourthly, we will have to agree a mutually acceptable agreement on conformity assessment. Fifth, we will have to harmonise customs procedures and/or agree on mutual recognition. Sixth, we will have to agree a market surveillance/complaints system, to monitor the functioning of the agreement. Seventh, there will have to be a dispute settlement procedure.

These are the bones of a trade agreement, none of which are dealt with in the WTO agreements. And that does not include the "peripherals" which in the UK-EU relationship, would be considerable.

Very best

Richard

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23 August 2016

Dear Richard

Many thanks for your very helpful response. To make sure that I understand what you are saying, can I please ask you to answer some additional questions?

1. I understand that the UK would not be able to fall back on the WTO option without at least some co-operation from the other EU members. Would there, however, have to be any more co-operation than there is with, say, China or the USA? If so, which of the points enumerated in your penultimate paragraph applies to the Chinese and the Americans, with which we would also have to comply?

2. I understand why the deals between the EU and Turkey (which at 55 pages sounds quite short to me) and Canada involve relatively complicated agreements but, if we are prepared to come right out of the Single Market, why would we need to have any more complicated agreement than whatever subsists between the EU and China and the USA?

3. Accepting that we may well not get the passporting deal which the City wants – although I understand that this is going to be overtaken by the "equivalence" regime in 2018 – and that we will not get full access to the Single Market on services, what obstacles do you think there are which would prevent us having access to the EU market on the same sort of terms as China and the USA which we would be unlikely to be able to overcome given a two year negotiation period?

With many thanks for your patience, which I really appreciate. I am really trying to understand the position.

Very best wishes,

John

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23 August 2016

John

We can't fall back on the WTO option - full stop. If we devise a trading arrangement in cooperation with the EU (not other members - it has to be directly with the EU) then it is not the WTO option. It becomes a bilateral agreement.

As to China, the USA, they have extensive but still limited trade with EU member states. We could copy the US relationship, but it would take time. The current arrangements have matured over time since 1993. However, even the Canadian agreement would not approach the level of agreement reached within the EEA, and Canada took seven years to negotiate.

We would still only have limited access to the EU's markets. The loss of access would be quite considerable. We export over £220bn to the EU each year, in goods and services, compared with less than £20bn goods and services to China.

What you have to appreciate with the EEA is that the individual texts of the Regulations, etc, are appended to the EEA Agreement, as amendments. Effectively, that makes the EEA Agreement about 50,000 pages long. That is what is needed to give full access to the EU's markets.

If we sought a comprehensive trade agreement with the EU, we might expect it to take five years or more.

Very best

Richard

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24 August 2016

Dear Richard

I am in some difficulty because the e-mail above does not answer the questions which I put to you in the e-mail which I sent to you yesterday. I understand that, if some measure of co-operation is required by the other EU member states to make what would otherwise be the WTO option work, this entails some bilateralism.

What I don't understand is why you think that it would be impossible to get this organised within two years, if whatever had to be agreed was kept as simple as possible. Why is it possible for China, the USA, etc., to trade with the EU without being in the Single Market or the EEA, but not the UK?

Please let me have answers to these questions.

Very best wishes,

John 

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24 August 2016

John

What is so troublesome about this exchange is your seeming reluctance to abandon the notion of the WTO option as a working solution. Yet the WTO Option is a unilateral approach. That means that, if you adopt a bilateral approach, you cannot then argue that this is simply a way of making the WTO Option work, as you seem to be doing. We are talking about two different animals. For the life of me, I don't understand why you are having such difficulty with this idea.

You then ask me why a settlement which "entails some bilateralism" would be impossible to get organised within two years. The problem in giving you a simple answer to this is that you have already restricted the framing of the question. You talk about "some bilateralism", as if you could simply bolt-on a few additions to an agreement and call it a workable settlement. That cannot be the case.

If you want a high level of market access (far more than has the United States or China), then you have no option (short of adopting the Efta/EEA option) but to negotiate a comprehensive free trade agreement. In one of my previous e-mails, I set out the basic structure and requirements of such an agreement, comprising seven core points without taking into account the "peripherals".

Given the complexity of a comprehensive FTA, it should not require much imagination to realise that this will take some time. International agreements do take time. Based on current experience, it would be unreasonable to expect an agreement to be concluded in less than five years.

You then return to the premise that whatever is agreed should be "kept as simple as possible". Yet I have already addressed this issue. A settlement with the EU, undoing 43 years of economic and political integration, and forging an agreement which will give a similar level of market access to that which we currently enjoy, is not going to be simple. This will be one of the most detailed and complex negotiations ever undertaken with the EU. To expect it to be concluded inside two years is risible.

Turning to the next issue, you then ask "why it [is] possible for China, the USA, etc., to trade with the EU without being in the Single Market or the EEA, but not the UK?" Yet the answer to that has in part already been given, and you should have no trouble answering the point yourself. It is a question of the degree of access.

Within the Single Market, the UK has an unparalleled degree of access to the markets of EU Member States. China, the US and other countries have very limited access to EU markets. Volumes of trading may be high, but penetration is narrow. For instance, by far the bulk of Chinese exports to the EU is focused on in manufactured goods. The more complex and diverse economy of the UK exports a much wider range of goods and services, and needs much wider access to the European markets.

If you wish to restrict yourself to the limited degree of access enjoyed by the US and China, then the consequence would be a savage curtailment of trade. You would have some trade, but nothing like the £220bn in current levels of goods and services. That is the crunch point ... access is graduated. You can have partial, very limited access, right through to full access. If you want a "quick and simple" agreement, the price will be limited access.

Very best

Richard

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24 August 2016

Dear Richard

Let me try once more to explain. The vast majority of the Brexit people who are on my mailing list would like us to be outside the Single Market, outside the EEA but with an agreement in place which leaves conditions for trade in both goods and services between the UK and the rest of the EU on the same basis as they are at the moment or as close as we can reasonably get to it.

They understand that there will be obstacles to getting this done and they therefore want to have an alternative available in case it proves impossible to get what might, for short, be called a free trade deal with the rest of the EU within the two year A.50 time frame. Having an alternative would be a way of putting pressure on the EU to get an agreement in place reasonably quickly and on reasonable terms.

We all know that you do not think this is the best way to proceed but it makes a big difference in terms of persuading people to your point of view if you are able to show that the alternative which nearly all of them favour is not just worse than your solution – on which there might well be a reasonable debate – but impossible.

The alternative would be to trade with the EU on WTO terms, accepting that this would involve at least some co-operation from the other EU members, so call it WTO+.

The key issue is then whether there are good reasons for believing that the WTO+ terms which the UK could reasonably be expected to negotiate would be different from and worse than those enjoyed by, say, China and the USA to such an extent that no reasonable person would go along with them It may well be the case that WTO+ terms would reduce the amount of trade the UK does with the EU – although presumably the reverse would also apply – and let us assume for the moment that this is a price which everyone would be prepared to pay.

My question to you, therefore, is not whether you think that WTO+ is a better option than staying in the EEA (we know you don’t think so) or whether it is better or worse than anything else (which may or may not be the case, and we know your views on this too) but whether it would be possible for the UK to have the same amount of access as China and the USA, and, if not, why not.

Please let me have answers on these points.

Many thanks

John

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24 August 2016

John

I would like to have the exclusive franchise for Lunar Green Cheese, with a quota of 1000 tons a week, beamed down directly from the Sea of Tranquillity by a matter transporter.

The point, of course, is that that is not possible – any more than it is possible to settle a deal inside two years that has us "outside the Single Market, outside the EEA but with an agreement in place which leaves conditions for trade in both goods and services between the UK and the rest of the EU on the same basis as they are at the moment".

It is not that there are "obstacles to getting this done" – it is impossible. There is no case in the real world where we could negotiate this within a two-year time frame.

What you have to confront, therefore – if you want to stay outside the Single Market, outside the EEA, is a severely limited agreement which will probably give us a fraction of the access that we currently have. I am not even sure that it is possible to conclude a coherent agreement within that time frame.

The nearest equivalent is the timeframe for the EEA Agreement negotiations. The process formally started with the Luxembourg Declaration of 1984 and the Agreement was signed in 1992. It came into force in 1994. The Swiss Agreements took 16 years.

The point therefore, is you are asking the impossible. It is simply not possible to get an agreement in place "reasonably quickly and on reasonable terms". If you seek speed, then you have to concede access.

You then suggest that having an alternative would be a way of putting pressure on the EU. But it wouldn't put pressure on the EU. Why would it? How could it? It is for the UK to present its proposals – the EU will then respond. The pressure is on the UK, as the price of failure impacts on the UK not the EU.

However, "you tell me that the alternative would be to trade with the EU on WTO terms, accepting that this would involve at least some co-operation from the other EU members, so call it WTO+."

Yet, in my last e-mail I wrote to you saying that the WTO option was not an alternative. I've also stated that you can't simply bolt on bits to this option and expect it to work – and nor can you call it WTO+. That name is already taken. I've also explained why the China and US schemes would not work … we have different trade structures and need wider access.

As to your next point, I have also written about the issue of asymmetric discrimination. We can open our markets to EU products, but that does not mean to say that the EU can or will reciprocate.

Thus, you conclude with the question as to whether it would be possible for the UK to have the same amount of access as China and the USA, to which you have already had an answer. I doubt, ab initio, whether it would be possible to replicate the China arrangements or indeed the US arrangements – both of which have evolved over the last 20 years. And even if we could, they would not meet our needs. Our trade structure is different – we need different agreements.

To make a final point, I am not alone in this. No end of quite sensible people have said that leaving the EU will be a complex procedure. In fact, it is not only complex, but unique. Never before has something of this scale been attempted, and nothing even close has been considered within the insanely short timescale.

For that very reason, I came the conclusion that there are very few options left to us.

Very best

Richard

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24 August 2016

Dear Richard

With the best will in the world, I just don't seem to be able to get straight answers from you to some fairly simple questions. Can I please try once more:
1. What obstacles would need to be overcome to enable us to trade with the EU on no worse terms than China or the USA, accepting that this may well leave us with less access to the EU markets than we have at the moment?

2. Which of these obstacles are so onerous and difficult that it would, in your view, be impossible to negotiate a settlement on them within a two year period?

3. After the Norway referendum in 1972, when there was a "no" vote, I am told that it took just under eight months for the Norwegians to negotiate a trade agreement with the EU. If the intention was to leave everything as it is as much as possible, but accepting that there are some things which might have to be left as loose ends for the time being, why do you think it would be not easy but impossible for a deal between the UK and the rest of the EU to be struck within two years – especially if there was a less attractive but realistic alternative for us to turn to, thus providing an incentive for everyone to come to a deal as quickly as possible. Even if we could not get an agreement on nearly everything, would it be impossible, in your view, for us to be able to secure one at least on major elements of our current trade with the EU, such as on motor vehicles.
I am not trying to trip you up or to persuade you to adopt objectives with which you disagree. I just need to understand what the problems are, what may be difficult but is not impossible and what really is impossible. I need this so that I can pass on to the mailing list clear and persuasive information which hopefully they will accept. Just telling people things are impossible – as opposed to being difficult - without explaining clearly why this is the case will just leave them unpersuaded. Please help me!

Very best wishes,

John

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24 August 2016

John

I am not being difficult – the very reverse. I've answered your questions honestly, in depth. Let me repeat. 

1. What obstacles would need to be overcome to enable us to trade with the EU on no worse terms than China or the USA, accepting that this may well leave us with less access to the EU markets than we have at the moment?

As framed, this question is unanswerable. You are trying to compare chalk and cheese. The structure of the UK economy, and its trade composition, are very different to those of China and the US. Therefore, the terms on which China and the US trade with the EU are irrelevant to the UK. Even if we could replicate their complex deals (which is almost certainly not possible), they would be of little value to us.

2. Which of these obstacles are so onerous and difficult that it would, in your view, be impossible to negotiate a settlement on them within a two year period?

If you seek to negotiate a bilateral, comprehensive trade deal with the EU, it will demand that the negotiations conform to a basic structure. I've already set this out. For convenience, the elements are numbered below. We will have to:
(1) set out the scope of the agreement - the range of goods and services to be traded.
(2) agree to match EU standards or come to an agreement on equivalence.
(3) agree a verifiable system for ensuring regulatory convergence is maintained.
(4) agree a mutual recognition on conformity assessment.
(5) harmonise customs procedures and/or agree on mutual recognition.
(6) agree a market surveillance/complaints system, to monitor the functioning of the agreement.
(7) agree a dispute settlement procedure.
Potentially, each of these could be an obstacle. It is impossible to predict, up front, which might prove onerous. That is the nature of negotiations. Often, until you are face-to-face, you can have no idea of how the other side it going to react to your proposals. This is especially so when you are dealing simultaneously with 27 other countries, each of which many have their own agendas.

Obviously, though, the greater the scope that you aim for, the more difficult and protracted. The list of products for which you may seek access runs to over 900 pages.

You can seek an en bloc agreement, which is fine if the EU accepts that. If they wish to go through the list, line-by-line, you are going to be there forever. Alternatively, you can go for a de minimis list – but that means huge sacrifices in terms of access.

Agreeing to match standards should be straightforward, as we already have a high degree of convergence. But the system we agree for ensuring continued convergence is one of the most contentious areas, and extremely difficult to satisfy. This may limit the scope of the agreement.

Mutual recognition of conformity assessment is done product by product, sector by sector. The more products you include, the longer it takes. It could take several years.

Harmonisation of customs procedures should be relatively uncontentious, as long as the UK is prepared to conform with EU systems. Drafting is a long and complex job. I can't think of any developed country which has had to do it from scratch. We will have to – we can't use the EU's procedures because we are not a Customs Union.

Market surveillance is complex – and we have to buy into EU systems. The dispute procedure is one of the most complex and contentious areas of all.

All this, however, is just the basics. You have all the peripherals and then there is likely to be considerable conditionality. Until that is spelt out, you cannot even begin to estimate how we might respond.

3. After the Norway referendum in 1972, when there was a "no" vote, I am told that it took just under eight months for the Norwegians to negotiate a trade agreement with the EU.

The 1973 Norwegian trade agreement was 113 pages long, including schedules. The substantive treaty was six pages. It was a very basic treaty, dealing with a very limited range of products, concerning tariff reductions. The treaty was replaced in 1994 by the EEA Agreement. That took from 1984 to 1992 to agree. The way that treaty is structured is that each "EEA relevant" EU law is added to the treaty as a treaty amendment. In approximate terms, that makes the Agreement, with Protocols and Annexes, about 50,000 pages.

If the intention was to leave everything as it is as much as possible, but accepting that there are some things which might have to be left as loose ends for the time being, why do you think it would be not easy but impossible for a deal between the UK and the rest of the EU to be struck within two years – especially if there was a less attractive but realistic alternative for us to turn to, thus providing an incentive for everyone to come to a deal as quickly as possible.

I really do not understand that question.

Even if we could not get an agreement on nearly everything, would it be impossible, in your view, for us to be able to secure one at least on major elements of our current trade with the EU, such as on motor vehicles.

It would not be impossible, but it would be up to the EU to decide, on the basis of a proposal we put to it. The EU might, or might not, accept a limited deal. We can't know unless we ask them.

I am not trying to trip you up or to persuade you to adopt objectives with which you disagree. I just need to understand what the problems are, what may be difficult but is not impossible and what really is impossible. I need this so that I can pass on to the mailing list clear and persuasive information which hopefully they will accept. Just telling people things are impossible – as opposed to being difficult - without explaining clearly why this is the case will just leave them unpersuaded. Please help me!

I have not said anything is impossible, without explaining why. I have explained why the WTO option is impossible. I have explained why it is virtually impossible to agree a comprehensive bilateral deal within two years. We could seek a truncated deal, but we would not know how limited it would have to be until we had put our proposals to the EU and got their responses. The cost could be politically unacceptable.

Even the Efta/EEA agreement could be very tight, in two years. We could even find ourselves having to seek an extension of time.

This has to be the last communication on this. I've spent hours answering your questions, and we seem to be no further forward than when we started.

Best

Richard

******

At the conclusion of the exchange, this was Mills's position:

1. Despite what Richard says, I just do not believe that it would be that difficult, within a two year period, to put in place whatever agreements were necessary over mutual recognition of procedures, etc., to enable the UK to trade with the EU at least on goods on no more disadvantageous terms than apply to, say, China and the USA. I accept that there may be more difficulty on some, although not all, services.

I cannot, therefore, see why the WTO option would be impossible to implement event though Richard may be right in saying, post Brexit, that the total volume of trade done between the UK and the rest of the EU would be lower than it would be without Brexit, but this would not necessarily be to our disadvantage, because of the very large trade deficit which we have with the EU.

2. I think that we have to accept that negotiating every detail of a free trade agreement with the EU with the UK outside the Single Market might be difficult within the two year Article 50 period, although perhaps not impossible if both sides were determined to keep as much as possible of existing arrangements in place. It might therefore be necessary to exclude some areas to enable most of what needs to be in place within two years.

3. I am sure that Richard is right in saying that a lot will depend on how helpful and co-operative both the UK and the EU are in the forthcoming negotiations. If both sides are determined to make the negotiations successful and mutually fruitful, this will obviously be a big help. If not, we need the WTO option as a fall-back to avoid the negotiations being dragged out to a point where we might be forced into a bad deal by time pressures and lack of progress.

I hope you will find these comments helpful. I would also like to thank Richard for the very large amount of time that he has put into providing information to us and for all the care and trouble he has taken in doing so. I am sorry if he feels upset about the fact that there are still differences between us.

Best wishes,

John Mills



Richard North 27/08/2016 link

Brexit: Monograph 8 - WTO schedules and concessions

22/08/2016  


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 EUReferendum.com 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

Norway's PM softens stance?

20/08/2016  


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: Monograph 7 – trade agreements

17/08/2016  

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: Booker's glimmer of light

14/08/2016  

000a Brexit-014.jpg

Having been writing for so long about how complex and involved the process of extracting ourselves will be – taking in the process a great deal of flak from a wide range of leavers – I do find is vaguely offensive to find the likes of Simon Nixon telling us: "What is becoming clear is that the UK is much more entangled with the EU than Brexiters realised or understood...".

This is a man who has quite evidently given the process of Brexit no more than a few nanoseconds of thought, remaining years behind the curve, yet somehow feels qualified to lecture us about leaving the EU. If anything, though, he's typical of his ilk, feeding off the intellectual desert that comprises the London bubble, in which the paucity of ideas makes anyone with anything approaching sentience look like a genius.

However, at least Booker is banging the drum for the Efta/EEA option, noting that one of the few glimmers of light in the murky fog which now surrounds our leaving of the EU was the news last week that David Davis, our lead negotiator, may soon be visiting Norway.

Until now, Booker writes, Davis and his fellow lead "Brexiteers" have poured scorn on the only sensible and practical way for us to leave, which is to go for the off-the-shelf solution whereby we remain in the European Economic Area and apply to join Norway in the European Free Trade Area.

All other suggested alternatives, we are told, are out of the question, because only this can ensure that we can continue to trade with the single market just as we do now - which is what the vast majority of British people want, including most of the 48 percent who voted for us to remain in the EU.

Concludes Booker, we can only hope that, as advised by his more clued-up civil servants and by our seemingly sensible new Prime Minister Theresa May, it is precisely this which Mr Davis will be discussing with the Norwegians.

In due course, when they've finally got to grips with that concept, we can gently tutor them in the Liechtenstein/EEA solution, and then introduce them to the idea that continued EEA membership is only an interim option.

At some stage, we then have to feed into the system a clearer picture of what the end game for trade and cooperation in Europe should look like, although they are probably not ready for ideas on re-orientating the EU's Single Market and turning it into a genuine, Europe-wide single market, based on inter-governmental cooperation.

Then, of course, we have to look at the global situation, and break away from the sterile obsession with negotiating free trade agreements with our global trading partners. We need a much more sophisticated understanding of the options available to us – which will form the core of Monograph 7. This is under preparation.

Currently, I'm rather intrigued with a possibilities afforded by multi-stage coordinated unilateralism – which is actually driving some of the trade liberalisation in China. But there are many other mechanisms which need to be used, all of which make the idea of free trade areas somewhat old hat. No doubt, though, as we develop the ideas, we will always have the likes of Simon Nixon ready to tell us all how complicated it all is, and how lucky we are to have him tell us so.



Richard North 14/08/2016 link

Brexit: the disappearing option

13/08/2016  


The Times has picked up an intriguing news story from Liam Fox's Department of International Trade (above). And two features stand out. First, the content is a nightmare, illustrating an alarming lack of grip of the issues relating to Brexit. But the second perhaps compensates for that. The news story has been deleted from the website, leaving only the cached version available. 

Ostensibly addressed to businesses, with a view reassuring them about the effects of Brexit, it succeeds only in doing the exact opposite.

The outcome of future negotiations, it says, can't be predicted but, it adds, "nothing changes until the UK has exited from the European Single Market". And if it is assurance that is wanted, the Department goes on to tell us that this "won't happen until at least two years after the UK has invoked Article 50, which formally withdraws the UK from the EU".

The reassurance, however, it there, as we are told that "exporters will only be affected if the UK exits the European Single Market as well as the EU", thus offering official recognition of the difference between the two, and the prospect that we might be staying in the former.

Until then, we are assured, goods and people will continue to move freely between the UK and other EU member states and the UK is still considered part of the EU when trading with countries that have a trade deal with the EU.

But what gets really worrying is that we are then blithely informed that, if the UK does exit the European Single Market, "it will be governed by World Trade Organization (WTO) rules until any new trade deals are negotiated". Yet the Department asserts that:
We'll remain a competitive player on the global stage because all major economies and most minor ones are members of the WTO. The WTO requires each member to charge the others the same tariffs and grant them "most favoured nation" market access.
In this utterly bizarre statement, we are actually seeing the Department totally oblivious to the implications of dropping out of the Single Market and relying solely on WTO rules. There is not the slightest hint of the chaos that could be caused, and no indication that the concerns expressed in Brexit Monograph 2 have any traction at all.

But if there is disarray in Whitehall, officials are at least getting some sympathy from Simon Nixon, writing in The Times.

But his analysis is the same pedestrian series of options upon which the media and the idea-free London think-tanks are relying. Nixon thus tells us that our options are "likely to involve the UK making politically difficult trade-offs between the degree of access to EU markets and its willingness to accept continuing EU obligations such as budget payments and the right of EU citizens to live and work in the UK".

One would like to think that the Liechtenstein/EEA solution has at least percolated as far as the Times, but apparently not. Nixon remains firmly rooted two years of so behind the curve. Perhaps he might benefit from watching Newsnight (provisionally set for Tuesday), when the Monograph is definitely on the agenda.

For Nixon, though, simplicity is the vogue. His solution is: "...for the UK to agree to a deal close to what it has already in terms of market access and obligations, in the form of a Norway-style membership of the European Economic Area". He isn't even up to speed enough to steal the "interim option" from us.

The alternative, he says - with tedious predictability - is a new free-trade agreement with the EU that would have to be agreed sector by sector, a process that could take years. "Only then would the UK be in a position to negotiate the ambitious deal with the rest of the world that many Brexiteers claim is the real prize of quitting the EU".

All of this is so un-new that we wonder why Nixon bothers. But, all of a sudden, it occurs to me what's going on. Either they're hoping our heads will explode with frustration, or they're trying to kill us off with boredom. One wonders, though, how much longer we can survive this torture.



Richard North 13/08/2016 link

Brexit: the price of failure

11/08/2016  


If Britain crashes out of the European single market for goods and services in the wake of the Brexit, the country could be permanently poorer by 4 percent of GDP, according to estimates from the Institute for Fiscal Studies.

This was carried by the Independent yesterday – one the many papers to carry the news, alongside the BBC. The Institute has obviously got past the "stupid" filter, boosted by its prestige, which helps it get an altogether unremarkable conclusion into the public domain.

We are being told that signals from Theresa May's government in recent weeks suggest the Norway option is "politically impossible" and that ministers are preparing to leave the single market and attempt to generate some kind of free trade agreement with the rest of the bloc.

That, of course, cannot and will not happen and, if a free trade agreement is not agreed, as we've already said dozens of times on this blog, the IFS acknowledges that the UK would default to World Trade Organisation (WTO) rules. After all this time, the message is beginning to break through. As we frequently observe, they get there eventually.

But what has not yet penetrated is the scale of the problem. According to World Bank figures, currently (2015), 27.4 percent of the UK GDP is attributable to the exports of goods and services. Of that, the EU contribution makes up around 12 percent.

Now here's the rub. If we drop into the WTO option, our export trade with the EU collapses. We've set this out abundantly clearly in Brexit Monograph 2. That means we don't just see a 4 percent hit to the economy. It's more like 12 percent – and that's assuming that imports are not affected.

Effectively, the IFS – like so many – is grossly under estimating the problem. I suppose the sheer enormity of the problem is stopping people coming to grips with it. But there is also a fundamental lack of understanding of the nature of the Single Market and how it works.

For too long, people have been obsessed with tariffs, and seem unable to cope with the idea that the Single Market's main hurdles are non-tariff barriers. Neither do they understand that every single developed country in the world has build up their own networks of agreements with the EU, dealing not only with tariffs, but also the non-tariff barriers and vital things like customs cooperation.

As it stands, all our systems have been absorbed into the EU so, if we leave without agreeing replacements (such as the continuation of the EEA Agreement), then we start with a blank piece of paper.

The point here is that this is a unique situation. In peacetime, there are no parallels – no instances where a country has so completely broken off long-established relations with its trading partners. We are in virgin territory.

This is, of course, why this is never going to happen - it can't be allowed to happen. But it would help if think-tanks such as the IFS would call it straight. At least, though, they're in the ball park, which is more than you can say for some fantasists. They would have us wreck our economy.



Richard North 11/08/2016 link

Brexit: Norway considers UK rejoining Efta

10/08/2016  


The good news is, according to the Guardian, senior Norwegian government members are to hold talks with David Davis in the next few weeks. They have agreed to find a mutually convenient meeting date to discuss matters as soon as possible.That would suggest, at the very least, that the Government is considering the possibility of the Efta/EEA option.

The bad news is – according to the same source – that Norway could block the UK if it tries to rejoin the Efta. But then, that was always possible and is simply a statement of fact, despite the attempt of the Independent to turn it into a scary headline. But if the worst happens, that's why we have a multi-layer fallback in Flexcit. Not being able to rejoin Efta would be a setback, but not a disaster.

Interestingly, the Guardian's own source is the Norwegian newspaper, Aftenposten. It tells us that the British Government is not alone. The Norwegians too have established a special group to consider the effects of Brexit, but specifically for Norway.

And, although the Guardian. as one might expect, indulges in the negative prospects, the purpose of this "special group" is to advise its Government on whether Norway should accept the UK into Efta. This is not a done deal by any means. It could go either way.

The Minister responsible for the group is EEA minister Elisabeth Vik Aspaker, working from the Foreign Ministry. So far, she says, there have been no signals of interest from the UK about joining the EEA.

What Aspaker does say, though, is not particularly encouraging. Referring to the prospects of opt-outs from the EU's free movement provisions, she is dismissive, stating that it cannot be allowed. On that basis, she thinks, the EEA Agreement is unsuitable for the British, "if one is to judge by the referendum campaign".

Nevertheless, she is not ruling out UK membership, saying that "time will tell" what the British themselves decide. So far, she says, "we do not know what it is the British wish".

However, she cannot guarantee that the Norwegian government response to the UK will be positive. To allow such a large country to join Efta could change the balance of the organisation. This will not necessarily be in Norway's interests.

Aspaker also confirms that to join Efta required unanimous agreement of all its four member states, with Norway, Iceland, Liechtenstein and Switzerland each having a veto.

The Guardian is keen to tell us that, by opposing a UK return to Efta, Norway would in effect block our chances of staying in the Single Market via the EEA, but there is a long way to go before we see anything conclusive.

If push comes to shove, and the EU itself decides that the way forward is for the UK to be accommodated in an EEA-type agreement, and found Efta members intransigent, it could even collapse the EEA Agreement (which it could do by asking all the 28 EU members to withdraw from it). Then it could re-establish an identical treaty and invite all Efta members and the UK to join.

In other words, there are plenty of possibilities beyond the limited vision of the Guardian. And even then, there is a distinct advantage to Norway in having the UK on board, as it strengthens its hand when it comes to renegotiating the EEA Agreement – a long-term objective of the Norwegian Left.

Thus we see Audun Lysbakken, leader of Norway's Socialist Left party arguing that the EEA agreement should be renegotiated, with the UK's help, saying countries "outside [the EU] need a better model for cooperation with the EU than the current EEA agreement".

He adds he is "amazed" that his government does not want to have an open debate about a new relationship with the EU, saying: "Throughout the spring, the government has been adamant that the EEA is not a good model and it is not something they would recommend to the British. Now they suddenly want to leave it as it is".

This adds an extra dimension to a situation which has the potential to make three-dimensional chess look like a game of draughts. Yet another player is Svein Roald Hansen, head of the Norwegian Parliament's Delegation to EFTA and the EEA Parliamentary Committee.

He is making encouraging noises about agreements between Norway and the UK, following Brexit. But the really interesting thing is that the Norwegian Efta Parliamentary Committee has already met to discuss the outcome of the UK referendum. This was on 27 June in Bern, and members invited a think tank from Geneva to provide insight into the possible consequences of Brexit for the EU and Efta.

Moreover, Efta's four national Ministers have talked about the situation in their twice-yearly forum, held in conjunction with Efta's ministerial meetings, and there is more to come.

Thus, there is plenty of activity and much to resolve. The negative headlines (not just those from the Guardian) are not an accurate reflection of the situation, which will remain fluid until a final decision has been made, one way or the other.

Specifically, the negativity on the trade-off between free movement and participation in the Single Market is not warranted. The Liechtenstein/EEA solution remains an option, built into the EEA Agreement. There is everything to play for.



Richard North 10/08/2016 link

Brexit: the kleptocracy of the IEA

09/08/2016  


As I was rather keen to point out at the time, not one of the IEA's six prizewinning entries in its €100,000 Brexit competition entertained the idea of the "Efta/EEA option" – often called the "Norway Option".

Still less did they accept the idea in my submission of Flexcit, the core feature of which was to go for Efta/EEA as an interim option, using it to buy time for further negotiations for a longer term solution for our trading arrangements with Europe.

I had written: "we are not advocating the 'Norway Option', per se, but something entirely original. In short, our solution to 'Brexit' is 'FLexCit' – FLexible response and Continuous development, a process rather than an event. That is the essence of our submission".

Had the IEA embraced Flexcit in early 2014, it would have have been ahead of the game as the only London-based think tank with a coherent view of how to leave the EU. Potentially, it could have dominated a generally fact-free referendum campaign.

Instead, it rejected anything which even offered an Efta/EEA solution. From nearly 150 entries and an initial shortlist of 17 papers, all six finalists submitted "EFTA-only" options. All of them, including the first prize entry, have disappeared without trace, contributing nothing to the current debate. The exercise was  – a complete waste of donors' contributions.

Having excluded itself from the pre-referendum debate, however, the IEA is now making up for lost time. It is engineering a salami-slicing bid to take ownership of Flexcit, the option it so contemptuously rejected back in 2014 but which is now emerging as the only workable option for a low-risk exit.

Even then, the IEA has been slow coming to the party. Having made a total mess of their Brexit competition, it was left to Philip Booth, their editorial and programme director, to salvage something from the wreckage with the publication in February 2015 of a book setting out four possible paths for Brexit.

Although Robert Oulds was recruited to write about the "Norway Option", the idea of using it as an interim solution had not yet penetrated the corporate brain. And, with nothing to offer of any great worth, this publication also disappeared without trace.

Lacking any corporate view on leaving or staying in the EU, the IEA was all over the place in the run-up to the referendum. In a contribution to the debate at the end of March 2016, it had Dalibor Rohac writing: "I used to be a eurosceptic. Here's why I changed my mind".

The world, he told us, appears to be a more dangerous place than at any other time in my memory. Brexit would shift the focus of British politics away from these strategic threats to parochial efforts aiming at reaching a decent trading and political settlement. That struck him as a risk that would require "a much more compelling justification than the one currently provided by the Leave campaign".

Nearly a month later, Diego Zuluaga gave his reasons "Why we must remain in the EU". Brexit, he said, offers the prospect of some marginal, but hardly compelling, improvements in trade and regulation. But, we were told, "this will likely come at the expense of deep commercial ties to Europe, a highly beneficial open immigration regime, and effective constitutional barriers against harmful economic policy". Taking these points into account, Zuluaga concluded, "leaving the EU is no longer an attractive proposition".

On 18 April, the IEA published a book by Patrick Minford & J R Shackleton entitled Breaking up is so hard to do. This had Minford arguing that the use of Article 50 was optional and that the UK should be prepared for a unilateral withdrawal, "setting up alternative international and regional treaty arrangements that do not involve the EU or require its consent".

In a footnote, Minford referred to suggestions that the UK would retain its membership of the EEA after EU exit or that it would revert to Efta membership it enjoyed before joining the EEC in 1973. "Both of these are misconceptions", he said, "without any legal foundation".

A few days later though, on 26 April, staff member Ryan Bourne was proclaiming: "Let's hear the positive economic case for Brexit", and suggesting that the impact of leaving had been greatly exaggerated. Dr Kristian Niemietz, head of the IEA's health and welfare unit, then took a hand, writing on 5 May 2016 of his own part in "Breaking up", under the heading of: "Brexit and Bremain: the devil and the deep blue sea.

In as somewhat incoherent intervention, Niemietz wrote of "inners" and "outers" talking about the EU when they really meant the EEA, or EFTA, or Schengen, or the Eurozone, or just international cooperation in general. As a result, he said, "the EU receives a great deal of praise, and a great deal of blame, for things which are not actually the result of the EU as such".

On 12 May, however, Niemietz was back, writing, "an unenthusiastic case for Brexit" in which he argued that, "Brexit will probably do no harm, but it may not do much good either". When in doubt, he wrote, "I err on the side of the smaller political unit, which is why I back Brexit nonetheless".

The day before the referendum, on 22 June, the IEA produced another book, this one entitled: "Making the Pieces Fit: Reforming Britain's relationship with the EU", by Philip Booth and Ryan Bourne.

Looking at the possibilities for leaving the EU, the pair observed that, joining the EEA would be one, apparently oblivious to the fact that the UK is already in the EEA. This, they said, brings with a repatriation of some powers, but does not fully restore control across a range of economic areas. Thus, they concluded: "To realise the true gains from Brexit, the EEA must, in these circumstances, be very much a transitional arrangement".

Thus, for the first time since Booth had been confronted with Flexcit nearly two years previously, two staff members were coming to the same conclusion: [continued] membership of the EEA must be "transitional" – it must be an interim option. There was, however, no acknowledgement that the IEA has already rejected this idea, with Booth having been on the judging panel. Still less was there any reference to Flexcit.

At this point, one might argue that the IEA is perfectly entitled to pursue the line of the EEA as an interim option, except that the idea did originate in Flexcit and it has subsequently been heavily promoted on the EU Referendum blog . They knew full well the source of the idea.

Furthermore, the idea of the Efta/EEA option as an interim solution doesn't stand alone. For it to be credible, it must be part of a phased exit plan, a process rather than an event, with an identified end point. This makes the idea an original concept, one that the IEA did not originate and did not own.

In a piece the day after the referendum, however, Kristian Niemietz told us that the work was just beginning. But he didn't mention the EEA at all. But then, on 29 June, Sophie Sandor wrote for the IEA saying that we must ensure we remain in the European Economic Area (EEA) only to have, a day later, Ryan Bourne tell us that EEA membership "is not a sustainable proposition".

Then, on 14 July, Niemietz intervened with a piece headed: "Saving Brexit from the Brexiteers: why free-market liberals should support the Efta/EEA option". With the irony meter needle bending against the stop, he asserted that Efta/EEA was the option that free-market liberals should now bang the drum for, "at least as a short-to-medium-term solution".

There was an active link in the sentence, which took the reader straight to Flexcit, although the plan was not named. Nevertheless, Niemitetz was finally acknowledging the source of the only definitive plan which is recommending Efta/EEA as an interim option.

The 18 July the saw Simon Barnett write for the IEA endorsing the Efta/EEA option, clearly borrowing research work from Flexcit to support his case, but without the courtesy of an acknowledgement. Lifting material from other people's work without attribution is, apparently, acceptable practice in the IEA.

In the meantime, the Adam Smith Institute was playing a similar game, lifting work from Flexcit in such a brazen manner that it was indistinguishable from plagiarism. Prime mover, Roland Smith, had a limited license from us to promote the idea of Flexcit without attribution of the source, but crossed the line by passing the work off as his own.

Now Kristian Niemietz lent his name to the plagiarism, claiming co-authorship of what amountrf to a badly-butchered version of Flexcit in an ASI Briefing Note. Another of the co-authors was Ben Kelly, a Leave Alliance blogger, who claimed he was not told his name would be added to the note.

Nevertheless, Ryan Bourne wasn't buying it the EEA pitch, arguing on the IEA blog on 20 July for unilateral free trade. To maintain current arrangements, he argued for "some (unspecified) sort of deal". This would be sub-optimal, he said, but may be politically sensible as a transitional arrangement.

But now the IEA had seduced Ben Kelly to take the role of useful fool, his turn to bang the Efta/EEA interim option drum. This was Flexcit in all but name. Kelly even lifted whole sentences directly from the Flexcit book, unchanged. In accordance with the IEA kleptocracy manual, though, there was no attribution.

Slowly, gradually, slice-by-slice, the very plan that the IEA had rejected is becoming one of its core possessions. Theirs is a classic example of how you steal intellectual property. First, you detach it from the originators. Then you get people used to the idea as a generic concept. Then you gradually assert it as your own, having your own writers pass themselves off as the originators.

The real irony is that the IEA could have had the work, gratis. But, too embarrassed to admit their errors and their gross mismanagement of the Brexit competition , they now have to steal the work to call it their own. That's the way things are done in the SW1 bubble. And whatever excuses they have for their behaviour, it's still theft.



Richard North 09/08/2016 link

Brexit: the "stupid" filter

08/08/2016  


There is not the slightest possibility of a British government abandoning negotiations with Brussels and "simply walking away" from the EU, as was advocated by Patrick Minford in the Express in its lead front-page story published on Saturday (pictured).

The immediate effects would be catastrophic and over the longer term would drive us into recession, from which we would struggle to emerge. Our international reputation would be in tatters and there would be scarcely a single country prepared to trust us with a trade deal.

This is not just a crude fantasy. The effects of "simply walking away" would be real, immediate and devastating, which is why no government could allow it to happen. So the question has to be asked, once again, why a supposedly responsible adult like Minford is even suggesting it, and why the Express is publishing it.

One could, of course, dismiss the story altogether as just another example of the Express bloviating, except that its story is based on an authored piece in the Telegraph from a few days ago, the writer enjoying the residual prestige of this now heavily tarnished newspaper.

There is in fact little to choose between this stupidity and the idiocy of Hannan in the Spectator, the effects of their advocacy being much the same. And between them, the "Article 50 now" zealots and the mindless advocates of a free trade agreement with the EU, they would drive us into perdition.

The startling thing about all this, though, is that only the crazies seem to be getting any attention: anything verging on a sensible discussion of the options available to us is being excluded from the legacy media. It is almost as if there is a filter that screens out anything that might be taken seriously – what could be called the "stupid" filter.

We see this filter in action again in the Telegraph over the weekend, which has it that the Treasury is looking at quitting the Single Market, against the entirely unsubstantiated claim that the "City" rejects Norway option.

In the context of the story, the "City" turns out to be the view of Mark Boleat, the City of London Corporation's policy chief, who has a distinctly chequered history when commenting on EU matters.

Mr Boleat is currently casting doubt over the UK's ability "to secure a Norway-style deal to remain in the single market" because, he says, "accepting free movement of people and paying large sums to Brussels while accepting its rules would not be politically acceptable".

Then, alongside Boleat is the British Bankers' Association (BBA) which, we are told, wants the UK to leave the Single Market, giving the UK control of its own regulations, but "retaining unimpeded access to EU markets".

While they're about it, the BBA might just as well put a bid in for unlimited quantities of Thames Water to be turned into wine as it comes out of the tap. Anything is possible if you ignore the constraints and go for the fantasy option.

As for Boleat, we have remarked before of this phenomenon where, the higher up the tree the pundits go, the less well informed they tend to be. The EEA/Liechtenstein solution is real, it is being considered and something like it may well be adopted to resolve the Swiss immigration impasse. But you don't expect "opinion formers" to know what they are talking about these days.

The interesting thing is, though, that the "stupid" filter doesn't only apply to the legacy media. It is installed and used heavily in academia and the (mostly) Europhile think-tanks which are trying to get to grips with the problems of Brexit.

The greater the prestige, it also seems, the more effective the filter, so that we have Professors Damian Chalmers and Anand Menon published by Open Europe coming up with a three-step Brexit solution.

This is another one that had the UK taking back control of EU laws and, "to secure access to the single market", a compromise is sought on free movement, where we "grant residence only to those who have an offer of a full time job and a new income threshold for those seeking to bring their families to the UK".

But there is absolutely no point in deconstructing this. If the authors can't see their own stupidity, no amount of counsel from lesser mortals such as myself is going to have the slightest effect.

On the same basis, we have Chatham House full of its own importance and thereby anxious to spread its ignorance to a wider band of readers, despite being roughly four years behind the curve.

These are the people who blandly tell us that, while membership of the EEA (the "Norway option") could be negotiated relatively quickly and would continue to give Britain full, unfettered access to the Single Market, "it would require Britain's labour market remaining fully open to EU workers" and "would not appear to meet the popular or political mandate of the referendum result".

Other keen users of the "stupid" filter are the Centre for Economic Policy Research, one more outfit which sees prestige as an adequate substitute for sense.

This has one of their authors, without so much as a blush, telling us that one feasible Brexit option is for the UK to re-join the European Free Trade Association (Efta). Notwithstanding that Efta does not have a trade agreement with the EU (of any nature) so it can hardly be an option, we are gravely informed that: "This is similar to the EEA option, but with less access to the Single Market".

The Centre also allows authors Swati Dhingra and Thomas Sampson to tells us that another of the models available to the UK is to "join the European Economic Association and remain part of the Single Market", neglecting to tell us that we are already in the EEA but, to stay in it, we would have to re-join Efta.

In common with the rest of the "stupid" continuum, though, they claim that "EEA membership requires agreeing to free movement of labour with other EU and EEA countries". Even the terminology is clumsy. EEA countries include EU Member States – or perhaps the authors don't know that.

Here, I've been debating with myself whether to suggest that there is a two-stage filter. First the work has to pass through the "stupid" layer, and then has any usable information stripped from it as it passed through an "ignorance" filter. However, one could say that it is pretty stupid of anyone to go public and parade their ignorance in the way so many of these "prestigious" academics do.

One could, however, say that these people are so stupid that they don't even realise that they are stupid, except that that doesn't properly describe the phenomenon we're seeing.

Amongst academics, we have the intellectual equivalent of in-breeding, where there the discourse is confined to the same limited gene pool and any sources outside the pool are rigorously excluded. How else could one discuss the effect of globalisation on Brexit and not mention UNECE, Codex, the WTO TBT/SPS Agreements or even the FSB. Yet the Centre for Economic Policy Research manages to do precisely that.

Unfortunately, once the work has been through the filter, it is very difficult to put the sense back in. Thus you see an extraordinary amount of effort being devoted to excluding the influence of the wider world. You can see some of the authors tiptoeing around Flexcit, terrified to mention it in case it invites unfavourable comparisons.

As long as the in-breeders can keep the dialogue to themselves, however, the use of the "stupid" filter doesn't show too much. Only in the big, wide world, where us plebs are used to the unfiltered stuff, does the lack of substance show. But then we're only plebs, so we don't matter.



Richard North 08/08/2016 link

Brexit: those reckless Brexiteers

31/07/2016  


Booker in his column today picks up on the vibes that many of us are getting. "A fearful shadow is hanging over our impending Brexit negotiations with the EU", he writes. "It centres on the very people who were most vocal in calling for a referendum in the first place: those senior Tory eurosceptics, including the 'Three Brexiteers' now billed to play the lead roles in the negotiations".

What became painfully clear during the campaign was not just that the official "leavers" were unable to offer a coherent "exit plan", but that they also seemed to be woefully ignorant of the technical complexities involved in any process of leaving the EU.

Although they did not share any common strategy, the likes of Boris Johnson, David Davis, Liam Fox, Bill Cash and Co, came up with one naive suggestion after another, based on nothing more than wishful thinking.

In practical terms, they showed that they did not really have a clue what they were talking about. Some even imagined that we could leave simply by repealing the European Communities Act, under which EU law automatically becomes British law: not realising how flagrant a break this would be of international treaty law, as enshrined in Article 60 of the Vienna Convention on the Law of Treaties.

If these people have one thing in common it is their insistence that we cannot remain part of the EU's single market, because this would require us to accept uncontrolled immigration from within the EU under its freedom of movement rules.

These people thus sneer at any thought that we should go for the immediate off-the-shelf solution of remaining in the European Economic Area (EEA), while joining countries such as Norway in the European Free Trade Area (EFTA).

This would allow us to continue trading with the single market just as we do now. We would even gain a limited right to control our borders, and would also be free to strike trade deals with non-EU countries such as America and India.

What these "Brexiteers" all seem to imagine is that we could somehow reach a special, one-off trade deal with the EU, quite oblivious to the fact that any such deal, as on the EU-Canada model, would take far too long to negotiate, and would exclude us from key benefits of the internal market, such as our vital trade in financial services.

The most crucial gap in their knowledge, however, is their failure to understand that, because all arrangements governing trade are now solely a competence of the EU, we can legally carry on international trade only in accordance with the immensely complex procedures laid down in the EU Customs Code, a package that is 1,300 pages long.

Unless Theresa May takes a firm grip on what her ministers are up to, by insisting that they go for the simple option of remaining in the EEA, we could even face the ultimate disaster where the timetable for negotiations runs out.

In this case, as I have already reported, we don't just drop out of the EU without a settlement, but also out of its Customs Code on which all our current trading procedures depend. Overnight we would no longer have any system of law allowing us to continue trading at all. Not just with the EU, but with anyone else.

Thus we're beginning to see a glimpse of reality in a national newspaper, albeit in the Booker "ghetto". But the point is made. Playtime is over and Tory MP eurosceptics really do need to get their act together.

These are not ordinary people – their prestige gives them considerable authority which they are currently abusing. They should not be using their positions to indulge their fantasies. Their job is to keep the Government on track, not to create unnecessary obstacles which might force us down the wrong path.



Richard North 31/07/2016 link

Brexit: questions and consequences

30/07/2016  


A sign of childish immaturity is the willingness to promote or pursue a course of action with no regard to the consequences. A child will touch a red-hot surface, or put a metal pin in a live electrical socket, simply because they have no idea of the dangers.

So it is with the Spiked "Invoke Article 50 Now!" campaign – which I've ignored so far. These are children at play, sticking metal pins in live sockets.

There are two most likely outcomes of a premature Article 50 notification. The first is that, in starting before we are ready, we run out of time and have to negotiate under pressure, for a time extension. The price might be unacceptably high.

On the other hand, we fail to gain a time extension and, after two years, drop out of the EU Treaties. And, as we point out in this short report, the consequence is that we could end up unwittingly relying on the WTO Option. That would be catastrophic.

However, when consequences are borne by others, children can rely on their own ignorance to insulate themselves from them. They can hide from the reality, deny it or simply ignore it. And that's what the Spiked children are doing.

Fortunately, a (relatively) grown-up Prime Minister is not going to follow the clamour, or the stupidity of some of her Parliamentary colleagues. We still seem set for early next year before Article 50 is invoked. For tactical reasons, I would actually prefer it to be later, although I still have hopes of a pre-negotiation extension being agreed, taking the time constraints off the table.

Theresa May, however, doesn't seem to be helping the situation, with the Independent reporting that she is to appeal over the head of the European Commission to the leaders of the 27 EU nations in an attempt to secure a good exit deal for the UK.

The Prime Minister, we are told, will try to limit the influence of Commission President Jean-Claude Juncker and Michel Barnier, who is supposedly leading the Commission's negotiating team on Brexit.

This in itself is an odd situation as the Commission Press Release speaks of Article 50 as the legal base for the appointment of Barnier, with the decision having been made at the Informal Meeting in Brussels on 29 June 2016.

Yet the statement from the meeting (link here) declares that action will be taken only "Once the [Article 50] notification has been received". This actually makes Barnier's appointment premature and, strictly speaking, outside the framework of the Treaty.

The issue gets still murkier – at least according this Reuters report, which has suggesting that Britain "wants a bespoke model for its future ties with the European Union".

"We should be driven by what is in the best interests of the UK and what is going to work for the European Union, not by the models that already exist", she told a news conference in Bratislava, where the latest leg of her travels has taken her.

"We need to find a solution that addresses the concerns of the British people about free movement while getting the best possible deal on trade in goods and services", May then adds.

Reuters then rather unhelpfully offers what it thinks are details of the models it thinks have been proposed, telling us that these have included: "joining the European Economic Area or European Free Trade Association, forging a close partnership similar to those that Norway, Switzerland or Iceland have with the EU".

This is such a muddle that it's not even worth dissecting, but then there's not much out there apart from muddle. The Mirror, no great friend of the leave movement, takes the three Brexiteers to task, the ministers appointed by May to take the fall when Brexit goes wrong – or so we think.

Says the Mirror, "Our leaders don't know what Brexit means – and some of their ideas are laughable". As an indication of what the country's future might actually look like, and what sort of deals May's key negotiators might actually be seeking to do, there is no use looking around for a clearer picture of what the future might hold. Literally nobody knows.

Looking at what Oliver Letwin has to say, the Mirror is not wrong. Perhaps, therefore, it is better to stick to what we do know – and one thing we're totally certain of it that the WTO Option must be avoided at all costs. We are also fairly certain that an attempt to construct a bespoke agreement could end up in us unwittingly dropping into the WTO Option.

That, as always, leaves us with the Efta/EEA option as the least worst alternative, but that leaves open the problem of regulating freedom of movement. Nevertheless, we stand by our Liechtenstein/EEA solution as the best answer.

And there is possibly some room for optimism, with the Commission apparently prepared to do a deal with the Swiss on free movement. This initiative actually goes back to the end of last year and I had a look at it recently, with the Swiss looking to negotiate their own form of "safeguard measures".

If people started looking around them, and forgot their dogma, they would see that there are answers to be had. All we need to do is ask the right questions and accept that, whatever we do, there are consequences which cannot be ignored.



Richard North 30/07/2016 link

Brexit: an accidental crisis

29/07/2016  


It is generally held that there are three main options available to Brexit negotiators to settle our trading relations with the EU: the Efta/EEA Option (often known as the Norway Option); the bilateral free trade (or bespoke) option; and the so-called WTO Option.

Although we have looked at this WTO option and its potential consequences for the UK, many times, the complexity of the systems involved suggest we need to look at it in even more detail.

Firstly, though, it is necessary to define what is meant by the WTO Option. This is taken to be a scenario where, for whatever reason, the UK eschews any form of trading agreement with the EU and trades solely and exclusively within the framework set by the diverse WTO Agreements. This might occur by design (even though this is unlikely) with the UK deciding not to conduct negotiations with the EU, or by accident.

The accidental scenario is conceivable, arising in the event that the UK fails to secure a negotiated Article 50 settlement within the two years initially allowed by the Article, and then fails to get an extension of time. In this event, the EU Treaties cease to have an effect and the UK is forced to trade with the EU on the basis of WTO rules.

It must be said, and strongly emphasised in this context, that the WTO Option is an absolute. Some commentators advocate relying on the WTO rules to provide a basic framework, while additionally brokering side-agreements with the EU to cover areas of specific interest to the UK.

There may or may not be merit in such arrangements but point has to be made that these are not the WTO Option. Confusingly, some have used the description "WTO plus" – but this is already applied to new WTO entrants who are required to undertake Protocol commitments that are more stringent than those of original WTO Members. (known as WTO-plus commitments).

Others have suggested the term "beyond WTO" but, whether this or "WTO-plus" is considered, the essence – as Pascal Lammy has pointed out – is that in each bilateral free trade agreement we have the "WTO plus" provision". It is best therefore, when referring to the WTO Option, to use a definition that excludes any other form of agreement.

The acceptability of the WTO Option is often justified by reference to other nations which supposedly trade with the EU without the benefit of bilateral trade agreements. Often cited are the United States, Australia and China, which are assumed to be operating under WTO rules.

Such assumptions, however, are flawed – resting on an unduly narrow interpretation of a free trade agreement (or, technically, a regional trade agreement) as one which concerns tariff reduction and which are notified to the WTO and held on their databases. Trade agreements which do not deal specifically with tariffs are not notified to the WTO but are instead held on the United Nations treaty database.

Although regulatory cooperation forms a major part of any comprehensive free trade agreement, and the OECD identifies eleven categories of agreement involving what is known as "International Regulatory Cooperation" (IRC), only one encompasses the traditional trade agreement and is thus notified to the WTO.

The countries cited as having no trade agreements with the EU do in fact have multiple agreements with the EU – although none of them are notified to the WTO. They cannot in any respect be regarded as operating exclusively under WTO rules and cannot be held as examples of the WTO option.

This is especially the case with the United States which has its own State Department declare: "The United States and the 28 Member States of the EU share the largest and most complex economic relationship in the world". Transatlantic trade flows (goods and services trade plus earnings and payments on investment) averaged $4.3 billion each day of 2013.

On the European Commission's Europa website, there is the Treaties Office Database which boasts an advanced search facility. Search by "country" (United States of America) and "nature of agreement" (trade agreement) and the database will list 23 agreements. Under the category of "Agreement for trade and cooperation", there are a further eight agreements, in particular the 1976 Framework Agreement for commercial and economic cooperation between the European Communities and Canada.

This is described as a "non-preferential agreement" and the very first formal agreement of its kind between the EEC and an industrialised third country, under which the parties committed "to develop and diversify their reciprocal commercial exchanges and to foster economic co-operation".

With this and the categories, "agreement on Customs Matters" - an issue which is intimately trade-related - "Agreement on internal market matters", there are recorded 38 EU-US "trade deals", of which at least 20 are bilateral.

A similar exploration of China's status with the EU identifies multiple agreements - 65 over term, including 13 bilateral agreements, ranging from trade and economic co-operation to customs co-operation. None of these agreements are of the simple, tariff reduction variety, but collectively they have enabled China to become the EU's second largest trading partner, with trade valued at over €1 billion a day.

So many other countries have their own trade deals with the EU that it is difficult to identify countries which do trade solely under WTO rules – there are so few of them. One cannot even cite North Korea, ranking 182 as an EU trading partner, as this is not a WTO member. Altogether, the EU has 880 bilateral agreements with its trading partners, and there is no example of a developed nation trading with the EU solely by reference to WTO rules.

For the UK to trade with the EU relying on the WTO Option would be unique for a developed nation, creating an unprecedented situation. Because it is a unique event, it is not possible accurately or completely to define the entire range of consequences arising from the UK dropping out of the EU Treaties, with no replacement agreements, relying solely on WTO rules. That is an issue in itself, as the prospect raises considerable uncertainties.

Of the known knowns, however, one significant fact is that the EU's Customs Union is an exclusive EU competence. This means that Customs law - which provides the legal base for, and defines, the procedures adopted by officials to regulate the flow of goods (and some services) in and out of this country - is framed exclusively by the European Union.

This law drives an EU-wide system that handles 17 percent of world trade – over two billion tonnes of goods a year with a value of €3.3 trillion. Between 2004 and 2010, despite the impact of the financial crisis, the value of EU external trade had grown by almost 50 percent.

The EU is at the centre of global trade and supply chain logistics, and is the number one trading partner for the United States, China and Russia. More than 90 percent (8.4 billion tons of merchandise) of global trade is carried by sea, of which more than 20 percent is unloaded in Europe.

The EU has over 250 international airports. The eastern land border runs to almost 10,000km with 133 commercial road and rail entry points. Taking into account the entire EU external border (land, air, sea) there are in total more than 1,000 customs offices of entry.

In 2011, EU Member State customs processed 36 million pre-arrival cargo declarations, 140 million import declarations, 96 million export declarations and 9 million transit declarations. These figures represent an average of 8.9 declarations per second handled by the Member States' customs administrations. They collected customs duties that contributed an estimated €16.6 billion the EU budget, i.e., approximately 13 percent of the total.

In settling for the WTO option, the UK will be, whether by accident on design, embarking on a course of action that will cause significant damage to this system, and render it inoperative in the UK.

As far as the UK goes, the problem would then be that there would be no Customs law at all.The entire body of law has been replaced by the EU acquis, known as the Union Customs Code (UCC) legal package. It comprises the Union Customs Code itself, adopted on 9 October 2013 as Regulation (EU) No 952/2013 of the European Parliament and of the Council. This entered into force on 30 October.2013 although most of its substantive provisions apply from 1 May 2016.

It also includes the UCC Delegated Act, which was adopted on 28 July 2015 as Commission Delegated Regulation No 2015/2446. It contains certain non-essential elements of the UCC. Then there is the UCC Implementing Act, adopted on 24 November 2015 as Commission Implementing Regulation No 2015/2447. This is required to ensure the existence of uniform conditions for the implementation of the UCC and a harmonised application of procedures by all Member States.

Two other measures then complete the basic package. One is the UCC Transitional Delegated Act, adopted on 17 December 2015 as Commission Delegated Regulation No 2016/341. It establishes transitional rules for operators and customs authorities pending the upgrading or the development of the relevant IT systems to create a fully electronic customs environment.

The other is the UCC Work Programme, adopted on 11 April 2016 as Commission Implementing Decision No 2016/578. It relates to the development and deployment of the electronic systems provided for in the UCC and is closely linked to the UCC Transitional Delegated Act.

The point to be made here is that this body of law has emerged in its present form over many decades since its inception in 1968 and currently comprises over 1,300 pages. As regulations and decisions, the law has direct effect but, with UK independence, would cease to have any legal effect in the UK. To rebuild a Customs code in the UK, the elements which were applicable to the UK (and within its jurisdiction) would have to be replaced, starting from scratch.

As an emergency fix, some of the EU law could be re-enacted. But considerable adaptation would be needed. This would be a complex and time-consuming process and, assuming that the UK had lost Union law as a result of the expiry of the Article 50 process, this would be an unplanned event, requiring officials to work at speed under less than optimal conditions.

No doubt a series of emergency orders could be rushed into place but, during the period when new legislation was being produced, there would be no legal code applying to UK Customs operations. Temporary measures aside, it is difficult to see how a comprehensive code could be quickly or easily replicated, even if there were the personnel available with the necessary skills and experience. 

This might be further complicated by certain aspects requiring Union and international recognition - especially the mutual recognition of Approved Economic Operators (AEOs) and the mutual recognition of conformity assessment.

Nor is it necessarily the case that the resultant system could be fully functional at an operational level. Without ongoing agreements to ensure continued cooperation, UK Customs authorities would be cut off from risk management and other databases, and previously shared systems for communication and information exchange.

On this basis alone, the result would inevitably be serious perturbation to the Customs system and the management of traffic flow at the borders and UK ports. As I have remarked before, within a week, Operation Stack could have reached Leeds, as the disruption spread.

This will not because anyone wanted it or intended it to happen. It will be in the nature of an accidental crisis, not so very different from the scenario which brought the First World War into being, where the troops were mobilised and there was no means of turning back.



Richard North 29/07/2016 link

Brexit: the Brexit dividend

27/07/2016  


Full immersion in the Brexit issue for the month since the referendum has not delivered anything like the euphoria that one might have expected. After all, the success of the "leave" proposition has not yet secured our exit from the EU and, Mrs May's assurances aside, until we are actually out, we are not in a position to count our chickens.

However, aided and abetted by the Express and others, there are those who are being rather precious about what constitutes leaving the EU, suggesting that continued membership of the EEA via the Efta – or "Brexit-lite" as it is sometimes called – is tantamount to staying within the EU.

Nothing, of course, could be further from the truth. Norway, Iceland and Liechtenstein are all fully paid-up members of the EEA Agreement yet, not by any measure, could they be considered to be part of the EU.

Nevertheless, we do understand the reservations about remaining in the EEA – although it is not always clear that people fully understand that we are already members. As a destination, or end point, the EEA is not optimal, although it has distinct advantages over full EU membership. We would have broken free from the drive to political integration and the jurisdiction of the ECJ, while staying in the Single Market.

As to freedom of movement, we have no doubts whatsoever that the Article 112 "safeguard measures" provide a mechanism which will enable us to resolve the issue of unrestricted immigration from EU Member States, at least for the short- to medium-term, creating space to engineer a lasting solution.

What then becomes essential though is that we define the end game. There is absolutely no point in bleating about the EEA being an "interim option", if the end game is defined in facile terms, such as a "free trade area". That cannot in any way compete with participation in the EEA/Single Market which is, after all, the largest and most comprehensive free trade agreement in the world – and certainly one of the most dynamic.

This is why, in Flexcit, we have gone to such trouble in phases three and five to set out the European alternative, and then the global dimensions which constitute the structures which are capable of delivering the Brexit dividend.

The problem we have is that the media and many of the pundits, having done little thinking over the last few years, are now focused on the immediate exit strategy, without in any way understanding that the Brexit opportunity lies not in the mechanics of securing an exit, but in the use we make of the freedom so gained.

Reviewing the elements of the Brexit dividend, the first and almost immediate gain is the ability to resume full participation in the global bodies of which we are members, casting our votes on our own behalf instead of being required to support the EU's "common position".

But what is not fully (or at all) appreciated is that, through the developments in globalisation – and in particular to TBT/SPS Agreements and the Vienna and Dresden agreements, we recover one of the most important legislative attributes which we have currently ceded to the European Commission – the right of initiative.

What in many ways makes EU membership so objectionable is precisely this right of initiative – the monopoly power to propose new laws and, because to repeal or remove a law requires a new law, the power to protect the acquis from dismantling.

Freed from the tyranny of right of initiative, the UK in concert with other states, can define the rule book at the global level and continental level. A remarkable example of this is the UNECE WP.6 Working Party on Regulatory Cooperation and Standardisation Policies.

Through this we have seen the development of the "International Model" of regulation, using the mechanisms of the Common Regulatory Objective (CRO) which achieves in a steady, unspectacular way the degree of regulatory convergence that agreements such as CETA and TTIP aim to achieve but somehow never actually deliver.

Then, through the TBT/SPS, etc., Agreements, the participating states are able to require the Commission to redefine the Single Market acquis, setting the rules for the market that the Commission must implement in preference to its own.

Over term, we have the ability completely to reshape the EU's Single Market, acquiring considerably more influence outside the EU than we have within it. The result will be the Holy Grail of European politics, an intergovernmental trading agreement created and managed by a community of equals.

But another huge element of the Brexit dividend is the ability to break away from the claustrophobic grip of the bilateral deals and the "big bang" regional trade agreements (the RTAs) which are actually holding back the expansion of global trade.

Instead, we can kick-start multilateralism and, in particular, concentrate on brokering narrowly-focused sectoral and product agreements which are easier and quicker to negotiate and yield more immediate cash benefits.

Then there is the issue of trade facilitation – the object of sneers from the trade deal "professionals" – which has the potential to deliver trillion-dollar annual dividends which relegate the modest gains from the likes of TTIP to the margins.

This, then, points to the way we should be framing Brexit – not as a sterile, mechanical process of extracting ourselves from the EU, but as a huge opportunity to redefine our position in Europe and the world. The key phrase is "Brexit dividend", the positive result of leaving and the reason we have worked so hard to achieve it.



Richard North 27/07/2016 link

Brexit: the consequences of failure

26/07/2016  


I was given sight of a draft paper recently in which it was argued that we should "exit" the Single Market and then negotiate a free trade agreement between the UK and the EU.

This is common enough fare, but when it came to how long this might take, the author averred that, after Norway had rejected EU membership in 1972, the Norwegians negotiated a trade deal with the EU in just under eight months.

We are advised that our agreement "might take rather longer than", but "with the prospect of German car manufacturers and French wine producers losing market share in the UK, the pressure to get a deal concluded within the two-year period allowed by the Lisbon Treaty would be substantial".

In the first instance, therefore, we are invited to accept that because Norway concluded a deal with the six Member States of the EEC, some 44 years ago, this provides some guidance as to how long an agreement between the EU and the UK might take during the expected negotiations.

However, if we look at the 1973 Norway Agreement, we find that the full dossier runs to 113 pages. The actual, substantive treaty runs to seven pages, and most of the rest deals with tariff reductions, the basis for which had already set by the GATT Agreement.

When we look to contemporary examples of free trade agreements, though, we see a rather different picture. The EU agreement with the Republic of Korea runs to 1,426 pages. This is accompanied by a 64-page framework agreement, with negotiations having started in 1993 and running on for 18 years before the agreements entered into force on 1 July 2011.

Another well-known treaty is the EU-Canada Comprehensive Economic and Trade Agreement (CETA) which runs to 1,598 pages. More than seven years after the main negotiations started, it is still not in force.

With this and much more, I think it is fair to say that the overwhelming balance of probability is that a comprehensive free trade agreement between the UK and the EU would take more than two years to negotiate. Almost certainly, it would be a "mixed agreement" so it would have to be ratified by all the 27 remaining EU Member States – which could present further problems.

Ratification aside, we are told that the" prospect of German car manufacturers and French wine producers losing market share in the UK" would create substantial pressure to get a deal concluded within the two-year period allowed by the Lisbon Treaty.

But, in fact, EU Member States does not need a trade deal to export to the UK, and neither can the UK impose any barriers to goods from the EU, without also imposing those self-same barriers on all other countries selling goods to the UK. This is part of WTO non-discrimination rules, where the UK acquires Most Favoured Nation (MFN) status.

On the other hand, the EU – as an established Regional Trade Agreement (RTA) – is allowed to impose discriminatory access rules to its members' markets, applying to nations defined as "third countries" a complex series of hurdles that make import difficult and expensive.

Since it is extremely unlikely that the UK would want to beggar its economy by erecting trade barriers (over and above those already in existence, and perhaps not even those), it is unlikely to impose any significant barriers to trade with the EU. By contrast though, EU barriers apply automatically to "third countries", built into the EU acquis.

Thus, the UK needs a trade agreement with the EU far more than it needs an agreement with us. And if the negotiations take us up to the two-year limit set by Article 50, that puts EU Member States in a very powerful position. They will be able to use an agreement to extend time as leverage to extract any number of unwelcome concessions.

Now, let's walk away from the land of fixed positions and their attendant certainties and ask how likely it is that we reach a full-blown free-trade agreement with the EU inside two years – not forgetting that it must be ratified and ready to come into force on the day we leave the EU?

If there is an element of uncertainty – and it is hard to argue that there isn't – then the next issue to address is the potential consequences if we fail to reach an agreement in the time, or the price demanded for a time extension is unacceptably high.

There are those who argue that the price of failure would be relatively modest – the imposition of the EU's common external tariff on a range of our products, which would render some of them less competitive, thereby reducing overall our exports to the EU-27 and increasing marginally our trade deficit.

This, however, neglects the impact of non-tariff barriers. Within the Single Market, most of these have been eliminated but, on exiting the market, many would re-emerge.

A small indication of the problems we would face are illustrated by this blogpost, illustrating the vital role of product certification as a requirement for access to Community markets. As we have discussed previously, this goes to recognition of conformity assessment. Outside the Single Market, existing arrangements lapse, as does mutual recognition of standards.

In the first weeks after we leave the EU, without any agreements in place, there is no doubt that importers attempting to bring goods from the UK into circulation within the Community would have a torrid time.

As the narrative to which I have linked above indicates, the crucial element of the EU system is that it is the importers' responsibility to ensure compliance of products presented to EU Member States ports, without evidence of which they cannot be released into circulation.

Without formal arrangements for testing and recognition of the associated documentation, consignments which were previously allowed through on the basis of documentation checks alone will have to be physically inspected. In many instances loads will have to be sampled and detained while testing is carried out.

The effects will be drastic. By comparison, the current delays in Dover are a minor disturbance, but they do show how quickly even small disruptions can turn into a crisis.

Nor have I even sketched the half of it. The inspection regime discussed applies to general goods, but for food and agricultural products, a different regime applies. Products from third countries - which the UK would become, without a trade agreement - must enter though specific ports, designated as Border Inspection Posts (BIPs). These are specific to each country.

Of course, there are no BIPs for the UK as we are in the Single Market. To equip a port (or ports) to function as a BIP capable of handling the traffic from the UK would require a major investment in infrastructure, personnel and systems. Exports of food to the EU-27 would cease, until facilities were made available.

No rational British Government would want this to happen. But under pressure from those who advocate exiting the Single Market, this Government with its slender majority could be forced into making a series of negotiating errors which could drive it down the path to disaster.

This becomes all the more relevant with a Daily Express poll which has 98 percent of respondents - 3,548 people – wanting immediate withdrawal from the EU. John Redwood, we are told, has come up with a plan to get Britain out of the EU "in just a matter of weeks". This "simple solution" involves repealing the 1972 European Communities Act and then informing the EU that the UK is no longer a member but intends to trade tariff free.

If the EU then decides to impose tariffs (which, of course, it would have to do under WTO rules) then Britain would respond. But because the UK has a trade deficit with the EU of almost £24 billion, Redwood has it that a trade war would be more damaging to European countries especially Germany which could lose its biggest car market.

There is no point in beating about the bush here. Such nostrums are insane - they drive a cart and horse through treaty and international law, and would precipitate a massive crisis in the UK, bringing EU trade almost immediately to a halt. Why, after the years of debate on exit strategies, is anyone even talking about immediate repeal of the ECA?

Handled properly, the benefits of Brexit for the UK could be huge, but there should be no illusions about the effects of a botched exit, based on this sort of insanity. We thus need people to stop playing fantasy Brexit and to focus on reality. We really cannot afford these games.



Richard North 26/07/2016 link

Brexit: mixed fortunes for May

24/07/2016  


Through the fog of political rhetoric, we get from French Finance Minister Michel Sapin a glimpse of the other side of the Brexit adventure, where the uncertainty is as damaging to the other Member States as it is to the United Kingdom.

Thus, while he is reflecting the realism stemming first from Angela Merkel and then his own boss, that the UK was unprepared for the outcome of the referendum to leave the European Union and so should be given time to respond, Sapin is also saying that, it should not take too long because of the damaging uncertainty, said.

"At the time, which is understandable given the shock and the lack of preparation of the British authorities, Britain needed a bit of time to organise itself and reflect on the way it should respond" Sapin tells Reuters.

He then adds: "But the time should not be indefinite, uncertainty is damaging, also economically, and in particular for Great Britain. So one needs to engage in negotiations as soon as possible. The talks cannot be done in bits".

The very last comment – on doing the talks in bit - is a little curious. If, for instance, we are staying in the EEA and rejoining Efta, than the only way the talks can be done is "in bits".

However, one should not run away with the idea that Sapin necessarily knows what he's talking about. Very often in politics, the higher up the tree you go, the less you know of what is going on around you. It would not be the first time that a Minister has been the last one in his own building to learn of important developments.

Nevertheless, the recognition that the UK will need to take a little time before it invokes Article 50 is at least seeping through the body politic, and that bodes well for the UK government, if it uses the time wisely.

On the other hand, nothing we're seeing indicates that the Government has in any way got as grip on the strategic aspects of Brexit, to the extent that it can define its strategic objectives.

Most likely, Mrs May – described by her detractors as a "belief-free zone" - doesn't have any strategic objectives. Rather, she is overly focused on the mechanics of leaving, without giving any thought to what we as a nation can achieve from the process.

All we have on offer of any substance comes from Mr Alexander (aka Boris) Johnson, temporarily on the other side of the Atlantic at the United Nations. He is saying that there is "absolutely no doubt that a balance can be struck" between access to the tariff-free market and the Single Market four freedoms.

But that is not pleasing back-benchers such as Bill Cash. He declares that the 1972 Act has to be repealed, whence he says, "Once we repeal the Act, we can't remain inside that market".

Although Cash has a reputation for being able to clear a room faster than the most strident of fire alarms, one should not under-estimate the mesmeric hold he has on the backbench group of Tory "eurosceptics". They treat him with a reverence normally reserved for minor deities. What Cash says, no "eurosceptic" Tory backbencher dare put asunder.

Thus, behind the scenes, his brooding presence poisons the well of discourse and the group cannot even agree publically on the basics, such as invoking Article 50. In the Land of Cash, to get out of the EU, we repeal the ECA and drop out of the Single Market.

Unsurprisingly, the Cash stance has been adopted by the European Research Group, and informal grouping of Tory eurosceptic MPs, formerly chaired by Chris Heaton-Harris, but now led by Steve Baker.

This is the same MP on the Treasury Committee who was so pressed for time that he couldn't hear my views on the need to stay in the Single Market. His group of MPs "do not trust" May to deliver on her pledge that "Brexit means Brexit" and have decided to insist on "total control of migration" as a "red line" in the Brexit negotiations, the scrapping of the ECA and severance of full links to the Single Market.

Baker says the MPs want to be "constructive" and "don't want to be oppositional ... at the moment", adding that if May sticks to her pledges, "all will be well". But he warns: "If we end up with the government doing things that don't end the supremacy of EU law, don’t leave us able to control our own migration policy and leave us in the EEA, then there will be a great deal of dissatisfaction".

May's position is said to be somewhere "between Canada and Norway", which means it might as well be on planet Zog where she can join Baker who, I guess, is not going to be terribly supportive of Flexcit in the Treasury Committee report.

With the Government limited to a working majority of 16, there are enough of these back-bench trouble-makers to bring down May if things don't go their way, and one MP warns of potential trouble, saying: "We showed under [David] Cameron that we can easily overturn that whenever we want to if we don't like the direction things are going in".

This puts May, potentially, in a difficult position. Seemingly lacking a coherent position of her own, she is also going to be pressured by a totally incoherent group of Tory backbenchers who are so far from reality that planet Zog, by comparison, is a garden suburb.

At a European level, though, May is being told that she cannot expect any special favours when the UK negotiates a new deal. A German government source warned that Merkel believes there will be, "tough times ahead" and that "we are entering a long and difficult process".

With her backbenchers playing hardball, the new Prime Minister may find herself having to rely on Opposition support to keep her agenda on track, with some serious squabbling to come when reality bites and deals have to be made with the "colleagues".

Perversely, that has the Independent forecasting that Mrs May will enjoy only the very briefest of honeymoons, following which she must expect trouble. I wonder at which point she might decide that becoming Prime Minister was a rather bad idea.



Richard North 24/07/2016 link

Brexit: unlimited dishonesty

20/07/2016  


A much-repeated tweet from Wolfgang Munchau has him complaining that the remain camp not only lost the referendum. "They are, he says, now losing the post-Brexit debate too".

The greatest irony of this is the suggestion that there is any kind of debate going on at all. What we mostly see are hermetically sealed groups, constantly repeating their entrenched positions without variation or deviation – entirely oblivious to the arguments of the competing factions.

As far as I can see, none of them read each other's work (or acknowledge that they have), and from their lofty heights the only thing they have in common is a sneery disdain for outsiders such as EUReferendum.com, the only sources from which new ideas and information are coming.

In his own article, Munchau thus cites one of his own group, John Springford, who writes a thoroughly dishonest piece under the label of the Centre for European Reform, purporting to inform us of the limited nature of Britain's exit options.

Springford's dishonesty is a classic of its kind. He relies on a mixture of half-truths and disinformation to build a straw man argument, which he then proceeds to demolish in a quite transparent attempt to control the agenda. But it is not a debate – it is simply a series of assertions which Springford wants you to believe, in lieu of the truth.

Interestingly, the main aim is an attempt to convince us that it is not possible to negotiate an exit deal with the EU which keeps us in the Single Market while allowing us to imposing quotas on the number of immigrants from the EU.

To make the case, Springford chooses to contrast two of the three Efta State members of the EEA, Liechtenstein and Norway, while ignoring Iceland. Norway and Liechtenstein, we are told, are full members of the single market, signing up to all rules and standards in goods, services and capital, as they are members of the European Economic Area (EEA). But, it is conceded, "they have different rules governing the free movement of workers".

And it is at this point that the lies, half-truths and deception start. Springford would have it that: "The EEA agreement allows Norway and Liechtenstein to restrict the flows of people if 'serious economic, societal or environmental difficulties of a sectoral or regional nature arise'".

But, in fact, that's not what the EEA Agreement says. The relevant part, Article 112, actually states:
If serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist are arising, a Contracting Party may unilaterally take appropriate measures under the conditions and procedures laid down in Article 113.
Three issues arise from this. Firstly, the provision applies to all contracting parties, not just Norway and Liechtenstein. Secondly, the scope is far wider than just the movement of people and, thirdly, the application is unilateral. The party taking action does not require the permission of the other parties.

The relevance of Article 112 applying to all contracting parties immediately becomes apparent when we see Springford claiming that "Norway has never used this 'safeguard clause'". That much is true. But the missing country, Iceland, has used the safeguard clause – twice – albeit not in respect of the free movement of persons. And one should also note that the European Commission has used the safeguard measures against Norway, to restrict the flow of farmed salmon.

Furthermore, when the EEA Agreement was first signed, two other signatories, Austria and Switzerland also invoked Article 112, the latter also in respect of free movement of persons. Crucially, once it is realised that safeguard measures are of general application and can be invoked unilaterally, the perspective changes somewhat. But this, Springford doesn't want to happen.

Instead, in Springford's little world, we move on to the lie direct. The reason, he claims, is that Norway didn't invoke safeguard measures is because "under the agreement, the EU may retaliate by restricting imports of goods or services from Norway".

And that really is a lie, at several levels. Firstly, we have to look at the Agreement – in this case Article 114 – which states:
If a safeguard measure taken by a Contracting Party creates an imbalance between the rights and obligations under this Agreement, any other Contracting Party may towards that Contracting Party take such proportionate rebalancing measures as are strictly necessary to remedy the imbalance. Priority shall be given to such measures as will least disturb the functioning of the EEA.
Even a lay interpretation will suffice here to tell the reader that "retaliation" is not an appropriate word. We are looking at "proportionate rebalancing measures", which would be of a limited extent and confined to like measure in respect of the free movement of persons. Such measures could not extend to the movement of goods and services.

The second lie is that Norway never intended to invoke Article 112 in respect of free movement of persons. This country's bigger problem is not immigration but under-population. Half as big again as the entire United Kingdom, it has a population of less than one-twelfth. And, as regards immigration, the major movements come from outside the EU, driven by the country's generous and liberal asylum policy.

Nevertheless, one can see how Springford is building the lies, as he then goes on to claim that: "Liechtenstein has been allowed to restrict free movement since 1998 by imposing quotas on the number of EEA nationals who could live and work in the country".

The key word here is "allowed" – in that, resides another lie. Liechtenstein unilaterally invoked Article 112. It wasn't "allowed" to invoke it. It invoked it as of right, calling in a treaty provision which had been agreed and ratified by all parties.

But then comes the lie indirect – the lie by omission. To understand the story properly, and to put it fully into context, one needs to know that Liechtenstein only briefly invoked the Article – in order then to broker amendments to the EEA Agreement which gave it a permanent solution (taking it outside the ambit of Article 112).

Furthermore, we must factor in Switzerland with its eight million population which, in signing up to the EEA Agreement in 1992, came under the same Protocol 15 which exempted Liechtenstein from the free movement of persons. Had Switzerland remained in the EEA, doubtless it too would be exempt from the full free movement of persons provisions.

Knowing this as we do, the next Springford lie has the transparency of the water in a summer Norwegian fjord. Says our man, the EU "tolerated" the Liechtenstein deal because "it is politically and economically insignificant, and its curbs on free movement do not threaten the integrity of the EU".

That is the lie Springford wants to sell you – one which the establishment is only too keen to perpetrate. Mostly likely, the Treasury Select Committee will buy it, relying on the ignorance of Monnet Professor Dougan, rather than my better researched paper, which they will either not publish or will hide away.

Just to be on the safe side, though, Wolfgang Munchau picks up the lie and runs with it, embellishing it on the way. Liechtenstein becomes a "a tiny city-state" (which it isn't), the outcome becomes "a cherry-picking deal" (which it isn't) and he calls it "an emergency brake on immigration" (which it isn't).

This is the way the game is played. We are fed a diet of lies and half-truths and then what passes for a debate is rigged, so that important information is kept from the people. Sources of alternative information are sneered at, denigrated or simply ignored. The truth will not out. The lies must prevail.



Richard North 20/07/2016 link

Booker: does Brexit mean Brexit?

17/07/2016  


In his column this week Booker starts with reminding us of the obvious – but oft' neglected point that there will be two sides to the forthcoming Brexit negotiations. Our own attention, he writes, has naturally been focused on the three "leavers" appointed to be chiefly responsible for the negotiations: Alexander (aka Boris) Johnson, David Davis and Liam Fox.

The main worry about these three is that they all suffer from the key problem which bedevilled the official Vote Leave campaign: showing little grasp of the tortuous technicalities involved, none of them are known to be "good on detail".

Each them are tapped in the mind-sapping delusion that the UK could negotiate a one-off trade deal, similar to that between the EU and Canada, which would allow us to continue trading freely with the Single Market, while also allowing us to "take control of our borders" and cut further migration from within the EU.

Davis and the rest of the trio even look on with equanimity the prospect of being forced to rely on WTO rules – clearly without having the first idea of the consequences of this option.

But those who have done their homework, says Booker, point out that the trio's ideas are just dangerous wishful thinking. The Canada deal took seven years to negotiate, and would anyway exclude us from significant aspects of the single market, not least those crucial "passport" rights on financial services.

As for relying on "WTO rules" this could even land us in the absurd situation where EU countries could continue exporting to us while we no longer had the EU paperwork needed to sell to them.

This is something that those few pundits who actually think about such things have a great deal of difficulty – denying this possibility. And thereby we see a perpetuation of wishful thinking, bolstered by the profound ignorance which seems to characterise the "leaver" community.

It actually takes little effort to look up the WTO website and look up the rules for Regional Trade Areas and find that RTAs (of which the EU is an example) are partially exempted from discrimination rules, and are thus allowed to impose special conditions on "third countries" – which the UK would become if it left the EU without negotiating a trade deal.

Further explored here (at length – see p.479 et seq), the corollary of this is that the UK, bound by MFN anti-discrimination rules, cannot exclude imports of products from EU Member States, and certainly can't take retaliatory action.

The case, therefore, is exactly as Booker makes out. We could find ourselves in the absurd position where our goods are held up on entry at EU Member State ports, while goods from EU countries sail through customs here, with very little difficulty.

I must admit to getting seriously fed up with the vacuous optimists who so casually assure us that things will work out, without them displaying the least idea of how the EU rules actually work – especially when it comes to the "WTO option".

For goods to be placed on the "Community market" they must conform with the requirements of Decision No 768/2008/EC on a common framework for the marketing of products, with the provisions set out in more detail in the 144-page Blue Book.

Basically, this Decision presents three hurdles: the requirement is for "economic operators" to ensure that the goods to comply with "all applicable legislation", to ensure that all information they provide with regard to their products is accurate, complete and in compliance with Community rules, and that conformity assessment processes are carried out as appropriate.

It is this latter hurdle that presents so much of a problem for those who would have us rely on the WTO option, for there is no provision here for the automatic recognition of conformity assessment procedures. And without recognition, goods will not be permitted entry into the Community Market.

In all probability, there would be little difficulty in securing a Mutual Recognition Agreement (MRA) on conformity assessment, but the point is that the recognition does not come automatically. It must be negotiated.

Thus does Booker remark that it is now being increasingly realised on the continent that the simplest and most practical way for Britain to achieve what we want is to go for that off-the-shelf solution whereby we leave the EU but remain in the European Economic Area (EEA), where we already are, and join Norway in the European Free Trade Area.

Contrary to common misunderstanding, this would in fact give us more influence over the shaping of single market rules than we have as members of the EU. Furthermore, under Article 112 of the EEA agreement, we could unilaterally insist on limited opt-outs from the EU's "Four Freedoms", including free movement of people, exercising a legal right which has already been used a dozen times.

However, the answer to the "British question" that is now being actively discussed in Brussels (which is desperately keen not to see us, or indeed any other country which might wish to follow our example, leave the EU) is a "two-tier Europe", with the eurozone countries at its core, bent on greater political integration, and the rest, including Britain and Turkey, as "associate" or "outer ring" members.

On paper such a compromise might seem quite attractive. Indeed there are those who spoke privately to Mrs May before the referendum who think she might be among them.

But even if we had escaped from some of the political elements of full EU membership, including the European Court of Justice, we would still then belong to what is being called a "restructured Europe", with Brussels at its gravitational centre.

It is this, warns Booker, we need to keep our eye on in the treacherous months ahead. Because it would definitely be very different from the "Brexit" we thought we were voting for on 23 June. In the event, we could find ourselves trapped in a sort of EEA-plus which is very little different from what we would have ended up with had we stayed in the EU through the next treaty change.

The essence here is that concessions made would look so attractive – at a superficial level – that some would be tempted to treat the EEA as the destination rather than the way-station on the way to something better. We must, therefore, keep emphasising that the EEA (in whatever form offered) is only an interim solution.



Richard North 17/07/2016 link

Brexit: they haven't a clue

13/07/2016  


When Mr Cameron told us before the referendum that there was no "plan B", and there was no contingency planning being carried out in the Civil Service, it appears that he was not in any way exaggerating. As a result, there is no official view as to what should be done next.

But what is also emerging, as the weeks since the referendum drift by, is that the "remains" generally don't have a clue either.

A graphic example of this can be seen from last week's Treasury Select Committee hearing, when Monnet Professor Michael Dougan, Dr Robin Niblett, Director of Chatham House, Sir Emyr Jones Parry, former UK Permanent Representative to the United Nations, and Raoul Ruparel, Co-Director of Open Europe were brought together to offer Mr Andrew Tyrie (the Chair) and his team their views on the: "Future economic relationship with the European Union".

From the transcript which is now available, we see in the early part of the session a focus not on the future but on what should not or cannot be done. In a bid to change the tone of the meeting, we then get this remarkable exchange:
Chair: Rather than you giving us all the negatives all morning, we are really after what you think the preferred route should be.

Sir Emyr Jones Parry: I think a Commonwealth arrangement is an illusion. What can we do? We have to first identify what our real interests are and what we want. When we have done that we need to see how that fits into any of these arrangements and what price we would be prepared to pay for what we want. Only when you have done that and come up with a sui generis model for the UK.

Q146 Mark Garnier: What you are potentially suggesting is that there will be some parts of the UK economy that we might be prepared to sacrifice in order to benefit other parts which are more important to us.

Sir Emyr Jones Parry: I am not saying that. Judgments will have to be made about real interests, the importance of the Single Market, and whether we were talking just about services. That is the argument about Article 50. Until you have done that I do not see how you can jump in.

Q147 Chair: What is your view?

Sir Emyr Jones Parry: When you have done your homework you then try to devise—

Q148 Chair: What is your view about that homework? What is it?

Sir Emyr Jones Parry: We have to go for as much access to the Single Market as is possible consistent with not paying too high a price for it.

Chair: Okay, that is where we began the hearing a couple of hours ago. We are trying to put some flesh on that.

Sir Emyr Jones Parry: If the whole of Whitehall and the political class has not done its homework do not expect us now to give you a ready-made answer.

Chair: You are supposed to be a bit more alert than the political class to this stuff. After all you have been telling us all along how half-asleep we are.

Professor Dougan: Part of the difficulty why people like us struggle to articulate what comes next is because our position as a country has effectively been hobbled by distorted debates about immigration and about sovereignty. That means that we cannot just identify our national interest and say we want global influence and global leadership and economic prosperity, because a large part of what we would naturally want to do as a sensible, pragmatic country has been distorted and hobbled by these myths around immigration and sovereignty.

Chair: We have got that message pretty loud and clear.
Of all that, what particularly stands out is Sir Emyr Jones Parry saying: "If the whole of Whitehall and the political class has not done its homework do not expect us now to give you a readymade answer". In other words, they have spent so much time and energy telling us that Brexit would be a disaster that they haven't any thought at all to how we actually get out.

And that, it seems, runs across the board, from "remains" to "leavers". But it seems to me also that we have three categories. There are those such as last week's witnesses who were totally opposed to Brexit and so would not even dream of devising an exit plan. They can be categorised as the "negatives".

Then, in the middle are the vast tranche of (mainly) "leavers" who never gave a thought to how we should leave. But they did so because they thought an exit plan wasn't necessary and/or that it was someone else's problem – like the Civil Services. These are the "vacuous".

The third category, on the other hand, are those who think they know how we should leave but whose ideas are so off the wall that they are an embarrassment.

This group includes those who would have us repeal the ECA instead of invoking Article 50, those who opt for the WTO option, and those who believe we can wave a magic wand and wind up with an instant free trade agreement - despite Philip Hammond now telling us that it could take up to six years to complete Brexit.

I suppose we could call the wand-wavers the "disasters", not least because so many of them have absolutely no idea of the damage they seek to cause. And there we have it – basically three shades of ignorance: the "negatives", the "vacuous" and the "disasters". None of them have a clue.

Interestingly from the other side of the divide, we see the idea that "a new form of associate membership in the European Union could rise out of the ashes of the referendum".

This is from Der Spiegel, which tells us that many countries - like Norway and Switzerland, but also Ukraine and Turkey - aren't likely to ever be fully integrated into the European club. But it is in the EU's interest to have long-term relationships with them.

Europe, we are told, has to find a way of not losing Britain entirely in the coming years. The 48 percent on the island who voted to remain in the EU are still there. That's almost half the country who are disappointed in the other half and are now looking to Europe. The greatest mistake possible would be to abandon this part of Britain.

There lies the danger – the very great danger. So grossly unprepared is the establishment that we end up, for want of a plan, with a watered-down version of EU membership encompassing the worst of all possible worlds. We can only hope that the danger will be recognised, and sense will prevail.



Richard North 13/07/2016 link

Brexit: danger either way

06/07/2016  


With the first round of the Conservative Party leadership contest out of the way, we see Theresa May emerge with what should be an unassailable lead of 165, taking votes from exactly half of the 330 Conservative MPs.

Leadsom trailed badly with a mere 66 votes but beat Gove, with only 48 votes, to second place. Crabb took fourth place with 34 votes and Fox brought up the rear with a mere 16. These two have now pulled out, pledging their support to Mrs May for the next round, to be held on Thursday.

On the face of it, this should give Mrs May a commanding lead, but leave Leadsom still in the race, with the final decision to be put to the constituency members. Struck down by the "curse of the Tory frontrunner", we could then see Leadsom take the crown – and the keys to No 10.

However, we are dealing with what is slated to be one of the most sophisticated electorates in the world. In a bid to strengthen May's position out in the country, her supporters could transfer enough votes to Gove to assure him the second place, reducing to run-off to a contest between May and Gove the "Boris killer". In that scenario, May wins convincingly.

Should the more likely scenario arise, with a final contest between May and Leadsom, and Leadsom wins, we are faced with the great danger of having a woman as prime minister who has little understanding of what it takes to negotiate a successful withdrawal from the EU, and no capacity to develop that understanding.

On the other hand, if May is elected, we are faced with a danger just as great, in having a prime minister who brokers an exit plan which is so successful that we end up stuck with it, and in a position far worse than we are at present.

If this sounds perverse, it is. What we are seeing from the "remains" is a sudden enthusiasm for the Efta/EEA or "Norway option", an option which, prior to the referendum, they had all been falling over themselves to demolish.

This, as readers here well know, we support as an interim option, acknowledging that it would be completely untenable for the United Kingdom in the longer term. We thus look for a different end game, which then takes us out of the EEA – with other Efta members – leaving the Agreement to collapse.

Unfortunately, the opposition is wise to the flaws of the EEA option and, from the Robert Schuman Foundation, the intellectual heart of the EU, we see proposals to modify the EEA to such an extent that it will soften some of the worst features of the EEA, and thus weaken the pressure to move on.

What they have in mind are changes to Part VII of the EEA Agreement, addressing "the inability of the EEA States" (they mean Efta states) to take part in the vote over the internal market rules.

Instead of the Council of the European Union (formerly the Council of Ministers) taking the dominant role, the EEA Council would be the body charged with approving Single Market legislation, thereby giving Efta members some "say" in how the rules were made.

These decision-making powers might also be extended to the Union’s programmes in which the Efta states had chosen to participate, such as the research framework.

Similarly, the Foundation argues, it might be possible for the mixed EEA parliamentary committee to be transformed to include all Union parliamentarians and "European Members of Parliament" appointed by the non-EU EEA States. These EMPs would meet in Brussels and be able to take part in co-decision in the same way as the EEA Council.

As to freedom of movement, the Foundation acknowledges that it would continue to apply. But it notes that "the EEA Agreement provides safeguard mechanisms that can be activated unilaterally". Thus, far from trying to conceal or argue against the Liechtenstein solution, it seems possible that the UK could be offered this as a way out of the free movement impasse

The changes proposed, if implemented - plus the application of the Liechtenstein solution (which would perhaps involve some reciprocal restrictions) - would effectively formalise the creation of a multi-speed Europe. The UK would become part of the "outer circle" of a construct dominated by the eurozone, the result little different from the "associate membership" expected of a new treaty.

By this means, we could be on the way to becoming a "second-class citizen", locked in a Greater Europe whose appetite for the creation of a United States of Europe would be entirely undiminished. The only difference is that it would be disguised as membership of an enhanced EEA, possibly termed the "EEA-plus". We would be "out" but still in.

In the choice between May and Leadsom, therefore, we could find ourselves wedged between two undesirable outcomes – a choice between second-class membership in an enhanced EEA, or the chaos of a world outside the Single Market with no coherent replacement. In these choices, there is danger either way.

The obvious antidote is to create a third way, the idea set out in Flexcit, where the third phase offers the opportunity of creating a genuine Europe-wide single market, freed from the grip of Brussels. For that, we will probably have to look not to either of the leadership contender front runners, but to Parliament, which has the power to shape the exit settlement, if it chooses to use that power.

To that effect, as Flexcit nears 100,000 downloads, we have published a new edition, Version 7. This is the first written specifically for the post-referendum period. It is marginally shorter, despite additions which cover border issues in Ireland, EU budget contributions and the Liechtenstein solution, omitting some of the arguments relevant only to the referendum campaign.

Progressively, we will reshape the contents to put more emphasis on the end game, rather than on the mechanics of leaving the EU, in the hope of influencing the final outcome. For the moment, though, we must watch the ghastly charade of the leadership election, knowing that neither candidate is ideal, and that there is danger either way, irrespective of who is elected.



Richard North 06/07/2016 link
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