Paved with good intentions?

If Mrs May hoped that her speech in Florence would unblock the Brexit talks, she must be feeling somewhat disappointed. Yesterday, Donald Tusk, the President of the EU Council politely welcomed its “constructive and more realistic tone” but then went on to say, “As you know, we will discuss our future relations with the United Kingdom once there is so-called ‘sufficient progress’. The two sides are working hard at it. But if you asked me and if today Member States asked me, I would say there is no ‘sufficient progress’ yet.”

Mrs May’s speech, as we mentioned recently, was  optimistic in tone and stated very clearly that the EU had never really worked for us. It “never felt to us like an integral part of our national story” although she stressed her enthusiasm to work closely with it once we leave.

But what exactly would this new partnership look like? “The question is then how we get there: how we build a bridge from where we are now to where we want to be,” said the Prime Minister. Unfortunately, she failed to answer her own question, apart from stating that a transitional period would be needed and ruling out ongoing membership of the European Economic Area, even in the short term.

The speech encapsulated the problem with which the Government is struggling. Like Boris Johnson, Mrs May sounded very hopeful about the UK’s prospects post-Brexit. She is right to do so. We potentially have a great future as an independent nation. The problem is reaching this point with our economy intact. Daniel Hannan has recently joined in the trade debate. enthusing about the prospects for free trade once we’re out of the EU, but we keep coming back to the same question:- how are we going to leave?

It isn’t helping that our team, led by David Davis, accepted the EU’s preconditions that discussions on a wider future relationship, including trade, cannot begin until “sufficient progress” has been made on the Irish border issue,  the “divorce bill” and the rights of EU citizens currently living in the UK. Mrs May stressed that the EU needed to “be creative” in working out its future relationship with the EU, while David Davis insisted that there should be  “no excuses for standing in the way of progress”.

But even if the outstanding issues are resolved, and there is little sign of any meaningful agreement as yet, what sort of agreement exactly does the UK want? Michel Barnier, the EU’s chief negotiator, has called  for  “a moment of clarity” from the UK’s side. He is quite right to ask this question as there are plenty of us this side of the Channel who can’t wait to see the UK safely out of the EU but at the same time are in a quandary regarding how the Government proposes to  get us there. The hints in Mrs May’s speech about the sort of transitional arrangement she would like suggest somehow more or less staying in the EU but somehow not being subject to the European Court of Justice – in other words, still in “having cake and eating it ” territory and thus unacceptable to the EU.

Scan through our website and read the comments on earlier articles and you will find a few people doubting if Brexit will ever happen and fearful that Mrs May is going to betray us and call the whole thing off.  While fully appreciating the anxiety of such people, I do not believe this to be remotely possible. The slightest hint of back-pedalling on Brexit and Mrs May would immediately face a leadership challenge. What is more, the Tories garnered much of the leave vote in last June’s  General Election because they promised to deliver on Brexit. Following the better-than-expected showing by Labour under Jeremy Corbyn, a botched or half-baked Brexit means electoral meltdown for the Tories and they know it.

Mrs May and her team are therefore under great pressure. There is no turning back, whatever some sections of the press may say – or indeed, secretly wish for. One possible scenario is that Mrs May and David Davis may pull out of the talks, blaming EU intransigence and falling back on the “no deal is better than a bad deal” position – in other words, the so-called WTO option. Iain Duncan Smith, among others, has been urging the government to prepare for no deal.

It probably won’t come to this, but we can expect a rocky road ahead in the next few weeks, especially as much of the business world does not share the optimism of Mr Duncan Smith or Professor Patrick Minford that the WTO option, coupled with a more or less total elimination of tariffs, is going to be beneficial. In the long term it may be, but the shock it would deliver to UK businesses in the immediate post-Brexit period would be immense with, among other things,  the likelihood of a massive stack of lorries on the M20 building up the moment we leave, unable to clear French customs due to a lack of the necessary paperwork.

So the Brexit clock keeps ticking and M. Barnier keeps reminding us that we will become a “Third Country” in just over 18 months time. Given it’s now more than 15 months since the Brexit vote, we are only six weeks or so away from the halfway point between the referendum and the result we sought. We can but hope that some sort of clarification or change of tack will take place soon or the dream for which so many of us campaigned for so long may turn out, in the short term at least, to be more of a nightmare. The road to Hell, they say, is paved with good intentions. The road to Brexit may turn out to be very similar.

 

Plenty of mood music but little of substance

Prime Minister Theresa May delivered her long-awaited Brexit speech in Florence last Friday. By now, many of our readers will have had ample opportunity to read both the text of the speech itself and the verdict of all and sundry.

In summary, Mrs May gave a speech which attempted to reassert her leadership of the Brexit process. In the recent negotiations, David Davis has received far more coverage than the Prime Minister, while Boris Johnson’s article in the Sunday Telegraph a week ago was interpreted by some as a leadership bid and an attempt to upstage her. Reports of splits within the Cabinet over the shape of Brexit also made it imperative for the PM to stamp her authority and show to the world that she was not a lame duck presiding over a fractious, chaotic government.

So what did she say? That dreadful phrase “deep and special” which regrettably permeates so many government position papers, appeared twice. Was the speech written by the same person who devised the equally awful “strong and stable” mantra which  proved so unconvincing to the UK electorate last June?  Of course, particularly in a speech like this, a certain amount of diplomacy is necessary, but we are going through a divorce with the EU and the idea that divorcees are likely to want a “deep and special” relationship after ending an uncomfortable relationship stretching back more than forty years  is, quite frankly, ludicrous.

This irritating phrase apart, the mood music was pretty good. Although Mrs May campaigned for the remain side, albeit with little enthusiasm, she articulated the reasons why we voted to leave very clearly and succinctly. “The strength of feeling that the British people have about this need for control and the direct accountability of their politicians is one reason why, throughout its membership, the United Kingdom has never totally felt at home being in the European Union.

And perhaps because of our history and geography, the European Union never felt to us like an integral part of our national story in the way it does to so many elsewhere in Europe…..So the British electorate made a choice. They chose the power of domestic democratic control over pooling that control, strengthening the role of the UK Parliament and the devolved Scottish Parliament, Welsh and Northern Ireland Assemblies in deciding our laws. That is our choice.

Absolutely. All the same, even those – including some within Mrs May’s own Parliamentary party – whose loathing for the EU goes so deep that they hope it will collapse, cannot escape the fact that we cannot and should not cut ourselves off from our neighbours on the continent. “But what we do want – and what we hope that you, our European friends, want too – is to stay as partners who carry on working together for our mutual benefit.

All well and good, but when it came to the details of how this partnership is to work, detail was very sketchy. Mrs May acknowledged the need for a two-year transition period, but didn’t say what sort of transitional arrangement she was seeking, except to rule out EEA membership:- “European Economic Area membership would mean the UK having to adopt at home – automatically and in their entirety – new EU rules. Rules over which, in future, we will have little influence and no vote. Such a loss of democratic control could not work for the British people.”

Not that accurate although at least consistent with earlier statements. This does pose the question as to what Mrs May is proposing instead. Richard North is quite correct to point out that whether you are talking about an interim deal or a permanent arrangement, there are only three options:- the “no agreement” (or WTO) route, EEA membership or a bespoke bilateral trade deal. The last appears to be the preferred choice for a long-term arrangement, even if Mrs May has ruled out using the EU-Canada deal as a model, but if it can’t be concluded before March 2019, it doesn’t leave us with many options for the transitional deal. The only insight we have gained form this speech is that Mrs May seems to have recognised that any free trade agreement with the EU would require some sort of umpire or mutually acceptable superior authority – rather like the EFTA court.

The time factor is crucial in all this, especially as our team has agreed to the EU’s negotiating schedule, which insists that satisfactory progress must be made on the rights of EU citizens in the UK, the Irish border issue and the “Divorce bill” before trading arrangements can be discussed. Mrs May had hinted earlier in the week that an offer of at least €20 billion was likely to be on the table.  In her speech on Friday, she emphasized her commitment to securing a deal which will allow EU citizens currently residing in the UK to remain and added that as far as the Irish border issue was concerned,  “We and the EU have committed to protecting the Belfast Agreement and the Common Travel Area and, looking ahead, we have both stated explicitly that we will not accept any physical infrastructure at the border. We owe it to the people of Northern Ireland – and indeed to everyone on the island of Ireland – to see through these commitments.”

The conciliatory tone of the speech elicited some positive comment from senior EU figures, with Michel Barnier describing it as “a step forward” but highlighted the lack of detail. France’s President Macron welcomed the UK’s willingness to move forward, but he and other European figures joined Barnier in bemoaning the absence of clarity. Leo Varadkar, the Irish Taoiseach, sounded more positive after threatening to block the next stage of the Brexit talks a few days earlier.

Reaction from the UK has been varied. “Leave will effectively mean stay” said an unenthusiastic Dr Peter Mullen. Richard North  called the speech “Empty rhetoric” and poured scorn on her claim that “we can do better than this” following references to the EU/Canada deal and the EEA agreement. Richard Tice of Leave.eu said “I fear Theresa May has now given the EU no incentive to agree to anything”. Brian Monteith of Global Britain was somewhat more positive, insisting that “it is not the sellout that so many of her critics who are rushing to judge allege.”

The most telling comment,  though, comes from Michel Barnier in a speech which anticipated Mrs May’s. Just one short sentence:- “At midnight on 29 March 2019, the United Kingdom will leave the European Union and will become a third country.” That’s the rules. No special treatment. The treaties cease to apply and a new relationship of some kind or other will replace our membership of the EU. He went on to say “I would like to be very clear: if we are to extend for a limited period the acquis of the EU, with all its benefits, then logically “this would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply” as recalled in the mandate I received from the European Council, under the authority of President Donald Tusk.” In other words, the only sort of transition he could imagine taking Mrs May’s words at face value would, in effect, be a postponement of Brexit, which would clearly be unacceptable to many MPs in Mrs May’s own party, let alone the wider Brexit-supporting community.

In conclusion, while Mrs May’s speech was peppered with good intentions, its most disturbing feature is that it could easily have been made a year ago. What has been going on behind the scenes in the last few months? As M. Barnier has pointed out, the clock is ticking and Brexit day draws ever closer. There is a great deal of detail to clarify and precious little time in which to do it. We must not stay in, we cannot crash out and all the obvious alternatives have been rejected. What exactly, then, is the route which Mrs May, David Davis and their colleagues suggest we take in order to arrive safely on Brexit day still able fully to function as a country?  We would all love to know.

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……

Photo by Digital-Designs

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.