Daniel Hannan and EFTA

Daniel Hannan has long been a trenchant spokesman for independence from the EU . His speeches on returning to our constitutional parliamentary traditions have enlivened and inspired many meetings of activists over the years, so we felt that his views, excerpted from his Sunday Comment column would be of interest.

“…. The UK has indicated that it is prepared to be helpful but only as part of an amicable  overall settlement.  We’re plainly not going to pony up until we know what we are getting in return.

There are three slugs of money at stake. First, Britain’s legal obligations, paying the pensions of its Brussels officials, for example. That part is uncontroversial. Britain is not the sort of country to walk away from its debts.

Second there are EU programmes with which we may wish to remain involved , as many other non-members do.  The EU’s educational exchange scheme, Erasmus, covers countries from Norway to Turkey. Its scientific research fund, Horizon 2020, includes Armenia and Israel. Obviously, if we stay in such projects, we’ll cover our share of the costs.

Third there is the question of contributions over and above what is legally required.  This is what David Davis means when he talks about a settlement “in accordance with the law and the spirit of the UK’s continuing partnership with the EU”.

The four members of the European Free Trade Association (EFTA), namely Norway, Iceland, Liechtenstein and Switzerland, for example, pay to upgrade the infrastructure in the EU’s ex communist countries , in exchange (though the linkage is not official) for preferential deals in other areas. They do so unfussily and in a spirit of hard-headed transaction. Cherry picking is fine as long as you pay for the cherries.

If there is no deal, the question of assets and liabilities will go to international arbitration and the EU will get only the first and smallest of the three chunks.

Logic points to a trade-off. Britain should  aim to keep some institutional links with the EU and pay accordingly, while taking back control of its laws.  Apart from anything else, such a deal would reflect the narrowness of the referendum result.

The trouble is, human beings are not always logical. Some Eurocrats still believe, because they want to believe, that if the talks go badly enough, Britain will change its mind…….Some Remainers see failure as their way back into the EU. Some Leavers grumpily oppose any compromise.

How can we improve the mood ? Perhaps by convincing the EU that we want to build something rather than simply to dismantle something. One option is to seek to lead other nearby countries that either won’t join the EU or don’t meet its criteria, but which want friendly trade links with it.

Of the 47 states in the Council of Europe, 19 are outside the EU, and many are happy that way. Public opinion in the EFTA countries, for example, is overwhelmingly against joining. Britain, whose economy is larger than that of those 19 states combined, might aim to organise an outer tier, linked to the EU through a common market, not a common government…..

….This idea of a market-only membership category was promoted by federalists in Brussels before the referendum and most EFTA  governments expected Britain to pursue it afterwards.  According to all opinion polls, it is popular here too. Now is the moment to dust it off.”

(These extracts from the original article were reproduced with permission of the author.)

A Customs Union with the EU is a daft idea

The latest pronouncements from Michel Barnier, the EU’s Chief Negotiator, provide little comfort to those of us seeking reassurance that the Government knows how to fulfil its declared aim of leaving the EU in 18 months’ time while avoiding a “cliff edge” for business.

Essentially, the rather tired “having cake and eating it” analogy sums up what Barnier sees as the root of the problem. He talked of a “nostalgia” for the Single Market and made it clear that you cannot be outside the Single Market while continuing to enjoy its benefits.  “This is simply impossible”, he said.

There is a wide range of views among Brexit supporters regarding whether or not we should stay within the Single Market. If there is a non-single market option which could provide us with something as near as possible to the frictionless trade which Business is demanding, the Government is keeping very quiet about it. This in turn is resulting in a concern that our Brexit team – and perhaps the Government as a whole – still does not grasp what it means to be a “third country” for trade purposes.

When it comes to the EU’s Customs Union, however, there is no reason to support our continued membership. It is an open and shut issue. We certainly need a Customs arrangement with the EU or else a massive queue of lorries is going to build up on the M20 immediately after Midnight on March 29th 2019, but that is not the same as a Customs Union.

A Customs Union is an area within which goods can circulate without restriction but which imposes a common external tariff on goods from outside.  The first Customs Union was the German Zollverein, established in 1834 and which gradually included most German states. Significantly, the economic union was followed by political union.

The Treaty of Rome, which established what has become the European Union, proposed the establishment of a Customs Union. By the time the UK joined, it was up and running and we had to impose the common external tariffs on all goods from outside, including those from our Commonwealth friends such as Australia and New Zealand. In other words, we surrendered the freedom to negotiate our own trade deals.

Shortly after the Treaty of Rome, the UK which at the time was not keen on joining the European project instead became one of the founder members of EFTA, the European Free Trade Association, which was not a Customs Union. It thus allowed members to negotiate their own trade agreements if they so desired, although EFTA also has negotiated free trade deals on behalf of all its constituent countries. Significantly, EFTA has never sought to create any sort of political union among its members. It was and is purely about trade.

Why then should a non-EU member want to be associated with the EU’s Customs Union? If you are a micro-state like San Marino or Monaco, you are unlikely to have the resources to negotiate your own trade deals and thus piggybacking on your larger neighbours is the best way of keeping trade flowing smoothy across your borders. This is not the case with Turkey, the only large non-EU country which has a customs union with it.

During last year’s Referendum debate, the so-called “Turkish option” received very little coverage. Being in a similar customs union with the EU was occasionally mentioned as one possible post-Brexit scenario but then almost immediately dismissed as being unsatisfactory. The Turks themselves don’t like it, which is one very good reason for rejecting it.

For starters, being a member of the Customs Union requires accepting the jurisdiction of the European Court of Justice. Turkey also may not negotiate trade agreements with non-EU countries but does not benefit from the EU’s Free Trade agreements. Countries who have signed a free trade agreement with the EU can export their goods into Turkey tariff free while imposing tariffs on Turkish goods.

One reason for Turkey accepting this unsatisfactory arrangement was its aspiration to join the EU. We are going in the opposite direction, so there is even less reason for us to adopt it, even as a transitional arrangement.

If further proof were needed of this argument, this article on the Kapikule Border crossing between Turkey and EU member state Bulgaria,  shows that a Customs Union with the EU does not result in quick and easy movement of goods across borders.  A Turkish lorry driver is quoted as saying that a mere 14-hour wait at the customs post constitutes a “good day”!

The article goes on to describe how “each driver clutches a sheaf of several dozen documents — an export declaration, a carnet from Turkish customs officers, invoices for the products they are hauling, insurance certificates and, when lucky, a transport permit for each EU nation they will drive through.”

No one in their right minds should be suggesting that any future UK-EU trading relationship be conducted along these lines.  Like it or loathe it, re-joining EFTA as an interim arrangement and thus accessing the Single Market along the same lines as Norway and Iceland would spare us this chaos. Maybe the Government has some better alternative up its sleeve, although if this is the case, it is playing its cards very close to its chest, but we can’t stay in the EU’s Customs Union if we’re not an EU member; we can only make a Customs Union agreement on Turkish lines and evidence strongly suggests it’s not worth the bother.

 

Photo by Peanut99

Going round in circles?

It’s now the third round of Brexit negotiations. Last week, we were given what amounted to an aspiration list – five “position papers” following on from two the previous week which went into very little detail as to how the UK negotiating team intended to go about achieving its desired objectives. The papers also made a number of assumptions about the EU’s negotiating position which do seem at first glance rather unrealistic. In short, it doesn’t seem very clear what the UK government actually wants. By contrast, the EU has made its position clear from the very start.

The EU’s Chief Negotiator, Michel Barnier, is understandably frustrated and warned about the clock ticking. He recently told the UK to “start negotiating seriously.” We are now less than 19 months to Brexit day; 14 have already elapsed with very little achieved except a foolish agreement to submit to the EU’s negotiating schedule whereby sufficient progress must be made on the divorce settlement, the rights of EU nationals and the Irish border before issues such as trade can be discussed. A helpful summary of the full areas of disagreement can be found in this article.

As far as the UK government is concerned, there has been a recognition that a long-term trade deal cannot be negotiated before March 2019 so some sort of interim arrangement will be needed. Even this is going to be a challenge as the rather nebulous statements from the government insist that the Single Market is not on the agenda, necessitating a bespoke deal (or a change of mind). Labour, however, seems to be moving round to supporting membership of the Single Market.  It now agrees with the Government that a transitional deal is necessary but disagrees with it not only on the Single Market but on the customs union too. As Dr Richard North points out, Keir Starmer, the shadow Brexit secretary, has advocated the Single Market without offering any hint of how we would access it – in other words, no mention of the European Economic Area or EFTA.

Professor George Yarrow from Oxford University, has argued that the default position for a newly-independent UK is that we would remain within the Single Market and would not need to rejoin EFTA to retain access. Not everyone is convinced by his arguments and if he is wrong, a bespoke deal allowing the UK to remain within the Single Market or the Customs Union would require a new treaty – a very challenging prospect within this increasingly tight timetable.

Of course, there are still some voices arguing against any sort of transitional agreement and claiming that a “hard” Brexit will bring economic benefit, such as Professor Patrick Minford of Cardiff Business School.  We have also highlighted the Bruges Group’s paper What will it look like? which claims that it is possible to agree a long-term trade deal within the Article 50 timeframe.  This paper has highlighted the key areas on which an agreement will be required, but if the Government is considering this route, the Position Papers offered us not the slightest hint that this is their preferred strategy.

So it looks like this week’s talks will be little more than going round in circles. We will, no doubt, be given a very upbeat assessment of the talks by David Davis, but little real progress will be made as the Government does not seem to be offering any sort of road map to arrive in the promised land of Brexit while Labour has little idea either. Meanwhile, as M. Barnier keeps reminding us, the clock is ticking away and the cliff edge is getting closer……

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Availability of goods: the latest government position paper

The third Government Brexit position paper was published on 21st August and covers the complex subject of the continuity in the availability of goods for the EU and the UK.

One of the main priorities of the Brexit negotiations is to ensure that trade between the UK and the EU continues with as little disruption as possible on Brexit day. The report identifies one particular issue which has hitherto received little attention:- what of goods that are in transit in some form or other when Independence Day dawns? To illustrate the point, suppose a customer in Germany or Poland orders an item from a UK company on 28th March 2019 and pays for it on line. On that day, we will still be an EU member state  and part of the Single Market. The UK-produced item will have been produced in compliance with EU standards. What will happen to this item if it arrives in Calais on 29th March 2019 or later? By this time, if there is no satisfactory deal, it could have to pass through an elaborate customs clearance process and if the item is to be used in the manufacture of something bigger, such as a component in a car or a washing machine, will it still be regarded as meeting the EU’s standards on compliance?

Unfortunately, having identified a very real problem, the position paper does not really go into any detail about how the government proposes to tackle it. No one could possibly argue with the first paragraph:-

Investors, businesses and citizens in the UK and across the EU need to be able to plan ahead with certainty. The UK wants to ensure a smooth and orderly exit that minimises disruption to citizens, consumers and businesses across Europe in terms of the availability of goods….

….but a first reading through of this paper left me none the wiser as to what the Government is proposing. The statistics about the volume of UK-EU trade in goods show why it is important to come to a deal on trade in goods. It is one thing to say, as per Paragraph 16 “The UK believes that all goods lawfully placed on the market before exit should continue to circulate freely, without additional requirements or restrictions, ” but quite another to explain what if anything, considering we become a Third Country as far as the EU is concerned on Brexit day,  will replace our Single Market access.

Essentially, we are faced with three options for trade with the EU in the immediate post-Brexit period:-

  • Change tack and seek to join EFTA so that the UK will remain within the European Economic Area – in other words, resurrect the Norway Option/Liechtenstein Compromise, albeit only as an interim position.
  • Revert to WTO rules, perhaps in conjunction with a zero tariff policy, as advocated recently in a paper by Professor Kevin Dowd, published by the Institute of Economic Affairs.
  • Seek a bespoke trade agreement. One paper published earlier this year by the Bruges Group has identified the main subjects on which agreement will need to be reached. The authors claim that if everything is handled competently on both sides, trade will continue to flow smoothly after Brexit.

While each of these three approaches have their supporters and detractors, the people whose opinions really matter are the Government ministers and Civil Servants who will be at the sharp end of negotiations. The biggest disappointment on reading this position paper is that it offered no clue as to which of these three options it is seeking to take. In particular, if it is the third, the EU will have to agree to a lot of things which so far it has shown little inclination towards.

New research paper by Futurus – The negotiations will fail

The title of this latest publication from Futurus may appear provocative but the prospect of concluding a jointly agreed leaving process and a future relationship so it can come into effect, possibly with a transition period, by March 2019 seems very remote.

There have been faults on both sides and the UK government’s failure to set out what exactly it wants the outcome to be has been a particular problem.

The UK government need not have agreed to the EU’s proposed sequence of events – the settlement of the Irish border issue and the exit fee – before discussing trading arrangements. Under Article 50, it need not have done so.

A mutually-agreed pause in the negotiations looks likely or else failure looks highly probable.

The full paper can be downloaded here. PLEASE NOTE: The paper has been revised since this article  was first published.

Avoiding the cliff edge?

Brexit news has come thick and fast this past week. While we don’t see the need to comment on every twist and turn, some recent developments have been quite significant.

In particular, following reports of disagreements within Mrs May’s cabinet over how “hard” Brexit should be, we are now informed that the Cabinet is united over the need for a transitional deal pending full departure from the EU.  There has been considerable pressure from business leaders worried about the relatively short timescale to prepare for departing the EU. According to the Daily Mail, Mrs May told a group of senior figures from industry that she wanted to avoid a ‘cliff-edge’ exit from the EU.

The article also said that even David Davis, one of the ministers keenest to leave the EU as soon as possible, is reconciled to a transitional Brexit period lasting until 2022.

Of course, with 2022 is now the new date for the next General Election, this puts a great deal of pressure on the Government to make sure we’re through the transition period before voters go to the polls. A recent survey by YouGov studied the main reasons given by voters for supporting the two big parties in this year’s election. Among Tory voters, Brexit came top of the list with 21% citing it as their top concern. By contrast, Brexit (either supporting or opposing it) did not feature at all in the top 10 reasons why people voted Labour.  Achieving a successful Brexit looks like being essential for the Tories if they are to stand a chance of remaining in power next time round.

One big issue in many voters’ minds was immigration and it is possible from the snippets revealed by a government source that no attempt will be made to restrict migration from the EU during the transition period, although when the BBC reported on this topic, it merely used the term “might be” no restriction. If this is the case, it would confirm Mrs May’s statement earlier this week that whatever the transitional arrangement may be, it is not going to include remaining within the Single Market. If so, what will it include? A safer transitional option, the EEA/EFTA route, would enable us, via the Liechtenstein Solution, to start imposing restrictions  far sooner.

Opposition to housing development in greenfield sites and in small towns is not going to go away either, particularly as an increasing number of people are starting to make the obvious link between housing shortages, concreting over the countryside and immigration. This will only add further pressure on the Tories.

However, if voters may be concerned that the government is kicking its migration target further down  the road, the House of Lords Economic Affairs Committee thinks otherwise, noting that Brexit will encourage firms to replace cheap labour with robots. In a sense, this is nothing more than the House of Lords playing catch-up. Almost two years ago, Andy Haldane of the Bank of England said that millions of jobs would be replaced by robots in the next twenty years. Even allowing for exaggeration and/or technology not developing as fast as suggested by the headline report, if we start to become a world leader in artificial intelligence, we will be struggling to find work for the current immigrants and with the exception of top professionals, certainly won’t want any more.

As the summer recess begins, the government will not have an easy job to  keep everyone happy, be it the many shades of opinion among leave voters, the Business community or even the Cabinet. We are still woefully thin on detail about even its transitional plans, but at least we have now been told that the important players are not only talking to one another but listening and attempting to find common ground that will keep most leave voters and business people on side. That still leaves a lot of concerns unaddressed, but for this small mercy we must be thankful.

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