The EU is right – our government is wrong!

Shock horror! Can a Brexit supporter honestly utter such a phrase as the above?

Sadly, yes, especially when the subjects include cooperation in security and criminal justice matters. These two issues powerfully illustrate the illusory nature of our government’s approach to Brexit. It still wants to have its cake and eat it. Reality is dawning that this isn’t possible on the trade front, but somehow that reality has not spread to other areas where some sort of future cooperation is needed. Be it trade, criminal justice or military cooperation, the EU is concerned at all costs to preserve its integrity. In voting to leave, we dealt it a massive blow. Obviously, it recognises that some form of cooperation will be necessary but it does not seek a warm and cosy “deep and special” relationship with us. Yes, we were once part of the club, but we won’t be after March 29th next year. We made the decision to leave and we must accept the consequences.

To any Brexit supporter, this is perfect common sense. We knew what we were doing when we voted Brexit.  Among the many issues which we highlighted as a reason to leave the EU were concerns about the flaws of the criminal justice system in some EU member states and the need to disentangle ourselves from the EU’s military and security aspirations.

So yes, if the EU says we cannot participate in its flawed European Arrest Warrant scheme after Brexit, great! That’s what we voted for. Likewise, the EU’s disdain for Mrs May’s “ambitious future security partnership” with the EU won’t cause many Brexit supporters much lost sleep.  As a Third Country, we would no longer participate in several EU security data bases which hold intelligence and help track criminals. However, there are other means of cooperation over these matters. We have Interpol as well as Europol. The procedure may be more complex but at least UK citizens will be one step further removed from the EU’s interference with our daily lives. We don’t want the EU to give us special treatment. What is more, is Europol reliable? One report suggest that its statistics distort the truth about terrorist threats in the EU, with more emphasis being placed on monitoring so-called “separatists” than those who pose the biggest threat to ordinary people.

On a different note, we heard recently that Olly Robbins, who has more or less pushed David Davis into the sidelines and has become the de facto chief negotiator, has been told by the EU that there is no chance of a bespoke trade deal with the EU.  It will either be a very loose trading arrangement or what has been described as a “Norway-type deal”. There are strong opponents of both these options and even among her cabinet, Mrs May will have her work cut out to square the circle.

She has not, however, signed a letter promising a second referendum, Two separate copies have been sent to me, one by a very concerned Brexit supporter who feared Mrs May was about to  cave in to the remainiacs. If anyone has come across this spoof letter, try to find an example of the PM’s real signature. You will then see that it does not match the signature on this letter.

Observant readers may have noticed that we have said little about the latest EU council meeting. This is not because we were unaware of it but rather because it has been a foregone conclusion that nothing was going to be said to indicate any progress with the Brexit talks. We did pass a milestone last week when the European Union (Withdrawal) Bill became law. It paves the way fro the 1972 Accession Treaty to be repealed when we leave the EU in March next year, but as far as what our future relationship with the EU is going ot look like,  we are still none the wiser.

Is the single market expanding?

With Mrs May having decided to leave the Single Market (and wider European Economic Area, EEA), it could be critical to know if it poses a long term existential threat to our future as a global trading nation.  Whilst in a formal sense the EEA will contract after Brexit, it actually wields considerable informal influence over much global trade. Ignore its ramifications at your peril.  Could then Mrs May’s government, having decided to leave on somewhat disingenuous grounds, that the four freedoms are indivisible, be unaware of this less obvious consequence?

What is the Single Market (or wider EEA)?

The Single Market provides a common mandatory regulatory framework of European Union (EU) directives (laws), standards, compliance or conformity assessment and market surveillance for many products under a centralised legalistic bureaucratic framework. Thus the quality, safety, environmental impact, energy consumption, and integration with other products can meet common (harmonised) criteria; commonly known as Essential Requirements in directives based on the New or Global Approach.  Failure to demonstrate compliance with the Essential Requirements or acceptable (harmonised) standards can prevent a product being placed on the market (in the Single Market or wider EEA) or cause it to be withdrawn.   Demonstrating compliance may require independent conformity assessment and certification; typically carried out by independent test houses and qualified notified bodies (Nobos) which in turn are regulated ultimately by the European Commission (or designated agency).  (Further information on the EEA see here, here and associated links)

What is a product or service?

Unsurprisingly any product and service is much more than just a collection of parts with some kind of functionality. Those parts, materials comprising those parts, associated services, design, production, testing and inspection processes all have to comply with recognisable and authoritative standards.  Whether it is an automobile or safety shoes, there will be standards and reliable means to ensure their compliance, often with some form of mandatory regulation or control.  The alternative to these arrangements is very much the Caveat Emptor principle and an inability to benefit from the accumulated experience of producers, regulators and users.  Costs can also be higher because of a lack of standardisation.

Not all export markets are the same

Some export markets and customers for certain products and services can be very sophisticated, featuring well-developed regulatory frameworks, facilities and knowledgeable, competent, in-house resources. Then it is a matter of complying with their requirements, their specified standards and their regulatory framework.  To offer non-compliant alternatives in the hope that they will be acceptable is to court losing the work to fully-compliant competitors.   However, some exports markets and customers need to rely on external resources and guidance from larger and well-refined markets.  This reliance can be very subtle and render otherwise generally acceptable suppliers and products uncompetitive, or exclude them completely from the market.

The March of Global Standards and the Single Market

Globally accepted standards are great facilitators of international trade.  Where a product is quite complex it certainly helps to know that is complies with standards that you (or the local regulatory authorities) are already familiar with and can trust.   In reality many standards are produced by international bodies and are the same in the UK, Japan or Germany, with perhaps minor national variations. There is also considerable interchange between European Standards (Euronorms) and International Standards.  Hence the expansion of International Standards effectively to supersede national standards and fill obvious needs.

Somewhat less obvious, mandatory regulation is also expanding and effectively following the lead of the more advanced practices.  The Single Market (and wider EEA) is the home of many businesses which are well versed in working to International and European Standards and which follow well-refined conformity and regulatory practices, thus making it somewhat of a low risk trend-setter.  The European Commission is also happy if others (particularly individual non-EU countries) follow its lead (The Brussels Effect), while for those planning to join the EU, it is necessary to do so.  Also, there can be formal agreements which effectively extend the EU’s mandatory regulatory practices into particular products and markets outside the EEA. In summary, it is a complex, ever evolving subject.

World-leading product but still  excluded from an export market

It is not surprising, therefore, to be confronted in an export market with a plethora of well-known European and/or International Standards, along with conformity assessment or regulation modelled on EU/EEA practices.  Such imitation can extend as far as using documentation that in part has clearly been re-badged from previous use inside the EEA; it keeps the costs and risks of preparation down.  It can also be advantageous to reputable organisations to point out that they vigorously follow these often high and demanding, standards and practices, while at the same time being  ‘outside the loop’ can be detrimental to other companies.

Vendors/Suppliers don’t argue with potential customers in export markets

Being ‘unfairly’ excluded from profitable business rarely leads to robust or legal challenges against the potential customer by the unsuccessful vendor; as a minimum, very deep pockets are needed which  small enterprises obviously do not possess.  It is even rarer for unsuccessful vendors eventually to win the work after having caused delays, bad feeling and extra costs.  Once excluded because of non-conformity it is difficult and costly for a company to get back into its given export market again. This is especially the case with capital goods or complex products; re-design, re-testing and conformity re-assessment don’t come cheap.

The Invisible Competitor

The subtle influence of the Single Market (and wider EEA) extends far beyond the borders of its Member States.  This extent of that influence is impossible to determine. Even knowing it is there usually requires considerable perception, industry knowledge and exposure to the export markets involved.  Yet this influence can make it more difficult or even impossible for organisations (especially smaller enterprises) that don’t follow the EEA’s standards, conformity assessment and regulatory practices to do business in some export markets.

In future, unless there is a re-think of the Government’s Brexit policy,  the UK may face problems in accessing some highly attractive export markets outside mainland Europe because of the reach of the Single Market and EEA.

No deal is not an option

Could food, medicines and petrol run out in the event of a no deal scenario? The short answer is yes, absolutely. It only takes a small disruption to sophisticated supply chains for things to grind to a halt.

Leaving the EU without a deal means becoming a third country overnight. The status of having no formal trade relations. The UK would not exist as an entity anywhere inside the EU legal framework. We would be subject to third country customs controls without any of the single market product approvals or valid certification.

If you don’t have the valid paperwork for your goods to circulate freely in the market then you have to find a named importer and have your products re-certified inside the EU – at considerable cost. Some classes of foodstuffs must be diverted to border inspection posts.

So that means if we go from single market members to being a third country then overnight the ports back up, Operation Stack goes into effect and lorries are sat on the motorway for days. That takes trucks and drivers out of circulation. The normal flow of supply chains is interrupted.

Remember this works both ways for trucks coming in and out of the country. Meanwhile companies by law have to file declarations which our current system is not designed to cope with. For some suppliers there will be no point in trucks even leaving the depot.

With roads jammed with trucks, supply chains collapsing very rapidly we see rumours of shortages which leads to panic buying. It happens every time we get even a dusting of snow where Tesco runs out of bread and loo roll even if there is no actual shortage.

Those of you old enough to remember the fuel strikes will remember how perilously close the country came to grinding to a complete halt. This would be the same with fuel lorries trapped in traffic. The way the EU legal system works is that if there is no paperwork and there’s no tick in the box then there is no trade.

All the while keep in mind that we will have been ejected from the treaty system governing airways and flight-plans, and without legally valid flight-plans then aircraft are grounded. All rights in the EU airline market are rescinded.

There is nothing in WTO rules that compels the EU to breach its own rules even in an emergency. Driving licences wouldn’t be valid, nor would qualifications so there would be no mutual recognition of conformity assessment. Veterinary inspectors, drivers and pilots would be disqualified.

This is not “remoaner” speculation. Our own findings at The Leave Alliance paint a pretty grim picture of the WTO Option. This is a simple matter of law. If we have no formal relations with the EU then trade simply does not happen.

Longer term, as a third country, the costs of delays, inspections and re-registration make UK business uncompetitive in the EU. Costs go up, contracts are lost, deadlines are missed, tariffs kick in. This is what it means to be outside the European Economic Area.

All of this has been made clear in the EU’s Notices to Stakeholders. These are formal notifications based on the current law. This is no scaremongering or diplomatic threat. This is the business end of the EU.

We don’t know how long it would take to get the trucks rolling again. We’d have to revert to paper declarations because the current IT is not set to cope with the volumes of declarations nor is it mapped to a third country regime.

There are mid-term fixes in the form of bilateral agreements but these would take time and since the UK will have left without paying, the EU would not be in a rush to do us any favours. It will take years to rebuild a functioning customs and regulatory system.

In the meantime businesses cannot afford to wait. Suppliers to EU assembly lines will have no choice but to relocate. Delays will naturally mean production slowdowns and all the secondary suppliers will take the hit.

Trade is more than just movement of goods and there are far bigger worries than tariffs. By leaving without a deal all the otherwise manageable problems of exit happen overnight without the capacity to cope with them. We would be in very serious trouble.

Frictionless trade does not happen by accident. It is the product of thirty years of technical and regulatory collaboration and the result of several strands of agreements on everything from fishing to aviation. Without formal status in the system then UK trade collapses.

Additionally, it’s not just the immediate effects we must consider. It’s the ripple effect that passes through every supply chain, every regulatory system and anything that depends on licencing, certification and approvals. Nearly all of it has an EU dimension.

Without alternative arrangements a lot of our insurances become invalid, contracts voided and work will grind to a halt an major infrastructure programmes. It will simply be illegal to operate without valid insurances.

So deep and comprehensive is EU integration that there is no escaping the regulatory gravity of the EU without serious and lasting harm. It is therefore not remotely realistic to suggest that things can function without a formal framework for trade. Leaving without a deal simply is not an option.

The Customs Union – stupidity or sabotage?

Regular readers of this blog will know without a shadow of doubt that there is nothing to be gained by remaining in the EU’s Customs Union. Well, dear readers, you can pat yourselves on the back for you are clearly much wiser than 348 members of the Upper Chamber of our Parliament.

Lord Kerr of Kinlochard, speaking in the debate preceding the vote, said “I do not recall at the time of the referendum any debate about a customs union.” He was perfectly correct in saying this. Staying in the customs union is such a daft idea that no one felt the need to bring the subject up.  As Dr Richard North points out,  “A customs union does not in any way eliminate a border, as we see with the borders between Turkey and EU Member States.” it is therefore no help in solving the Irish border question. 

He also makes the point that, as usual, the Press are all over the place in their reporting of yesterday’s vote. It was not a “big defeat” for the government as the amendment supported by 348 peers only forced “the government to explain what it has done to pursue remaining in a customs union”. In other words, suppose that some degree of light finally dawned and the government realised that there was no point in remaining in a customs union, all this “big defeat” would require them to do would be to say to their Lordships “not much”. Hardly the sabotaging of Brexit which the headlines seem to suggest.

For people looking for a way to keep the flow of trade moving in the immediate post-Brexit period, both across the Irish border and through the Channel Tunnel, it makes for more sense to visit the invisible border between Sweden and Norway rather than Turkey’s version of “Operation Stack” at Kapikule on its border with EU member state Bulgaria. Norway is not in the customs union; Turkey is.  Need one say any more?

The Government should finally lay to rest all this nonsense about a customs union. It should also abandon the current plans for a transitional deal. Further evidence of its inadequacies emerged yesterday  when Cecilia Malmström, the EU’s trade commissioner, said that the UK would no longer be part of trade agreements negotiated by the EU with third countries  once we leave. Re-joining EFTA  as an interim arrangement would not only solve the Irish border issue but would address the issue of our trade with countries like South Korea and Mexico as EFTA has negotiated free trade agreements with virtually all the countries with which the EU has FTAs.

It remains a mystery to many observers why this sensible option isn’t being pursued. For all its well-known faults as a long-term relationship, as a stopgap arrangement it is far better than the arrangement currently being discussed with the EU. Adopting it would put to bed a number of issues which should have been dealt with well before now and thus enable the Brexit debate to move on after being stuck in the same groove for far too long

 

 

Brexit roundup – short-term problems; longer-term potential?

With Parliament  still in the Easter recess, things have been a bit quieter than usual on the Brexit front. However, the well-supported fishing protests last Sunday suggest that we are going to be entering a  period in which the Government will face ever-mounting pressure to try a different approach to securing some sort of workable short-term post Brexit arrangement.

The long term is not looking promising either. Given how readily Mrs May and David Davis rolled over, what is the likelihood of their resisting demands from Michel Barnier that the UK sign a “non-regression” clause in any long-term agreement, which would force the UK not to undercut EU standards on tax, health and the environment to poach investments. He has also insisted that access for EU fishing vessels must be included in any long-term deal. The “environment” issue is a red herring as many EU environmental laws owe their existence to UK influence, but why should we not determine who fishes in our waters? Why should we be denied the freedom to cut tax? The state in the UK is horrifically bloated, as in most other Western nations.  It needs to be shrunk drastically and were this to be undertaken, taxes would inevitably undercut those in many EU member states.

Going back to the transitional arrangements, a report from the House of Commons Brexit Committee has confirmed that if a “deep and special partnership” with the EU proved unsuccessful, EEA/Efta membership was an alternative that could be implemented quickly. Although the Committee is looking at EEA/Efta as a long-term solution (which it isn’t)  it would be a better alternative than the current proposals for the short term, which poses the question as to why Mrs May and her team are pursuing such a damaging alternative. Maybe they still believe that it’s worth enduring 21 months of humiliation because  there will be a marvellous deal at the end – a hope which is unlikely to be fulfilled. Barnier’s comments make it clear that he wants to deny us as much long-term freedom as possible.

A number of Commonwealth countries have been discussing a future trade relationship with the EU. The Canadian Prime Minister Justin Trudeau has said that it would be “fairly easy” to negotiate “an improved approach on trade between Canada and the UK” after Brexit. The same article claimed that India is becoming less enthusiastic, no doubt due to  the recent statement by Theresa May that she still intended to reduce annual net UK migration to less than 100,000, meaning that India’s desire for more of its citizens to come over here as part of a new trade deal is unlikely to be fulfilled. Australia is also keen to start negotiations with the UK on trade, but pointed out that  if we stayed in the EU’s customs union after Brexit, we wold become “irrelevant”.

Meanwhile, disgruntled remoaners are still seeking to over turn Brexit by demanding a second referendum.  For all her failings in other areas of Brexit, at least Mrs May is standing firm on this. “Regardless of whether they backed Leave or Remain, most people are tired of hearing the same old divisive arguments from the referendum campaign, and just want us to get on with the task of making Brexit a success. And they’re right to think that. The people of this country voted to leave the EU and, as Prime Minister, it’s my job to make that happen.” she said in a recent speech to mark one year until Brexit day.

Mrs May is most definitely right in claiming that most people have had enough of Brexit controversy. Claims that some 44% of voters want a second referendum do not tally with real-life experience.  Given that the poll was conducted by a pro-remain group, Best for Britain,  a healthy degree of scepticism is justified. Mrs May has the support of Jeremy Corbyn in opposing a second referendum and it is doubtful whether those activists on both sides of the argument who spoke in debate after debate, criss-crossing the country and having to suspend anything resembling a normal life for three months would want to go through it again.

The clamour is coming from those who wouldn’t have to do the donkey work. The latest addition to the ranks of these good-for nothings is David Miliband, who called Brexit “the humiliation of Britain.”  Well, Mrs May does seem to be trying to do this at the moment, but a decent Brexit would be the absolute opposite – a chance to stand tall as a sovereign nation once again. there’s nothing humiliating about this.  One after another, the fears stoked up by remoaners are being debunked. The UK economy has performed well since the vote and only today, Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, stated that despite attempts to lure parts of the finance industry to Paris or Frankfurt, London would remain Europe’s financial hub after Brexit.  A mass exodus from the City was always a concern during the referendum campaign, but such fears are unfounded.

In many ways, a healthy debate on how we leave  – i.e., the relative merits of the current transitional proposal versus EEA/Efta as a holding position will take the wind out of the remoaners’ sails and would cut their media exposure in favour of more important issues. However, one cannot overstate the importance of winning this debate. Brexit must mean Brexit (to quote Mrs May). Surrendering to the EU’s demands for a transitional deal would prevent us fully achieving the separation for which we voted in June 2016. This must not happen.

The fantasy of a “frictionless” trade agreement

Mrs May and Mr Davis’ oft repeated aspiration for ‘frictionless’ trade with the European Union (EU) via a free trade agreement (FTA) and mutual recognition of standards will in reality consign the United Kingdom to being a permanent EU vassal stateBrexit will be in name only, with “stay, pay, obey without a say” being the outcome of their mishandling the Brexit negotiations.  The transition agreement, which turns the UK into an EU vassal state thanks to completely caving in to unreasonable demands by the EU, is a forerunner of even worse things to come. The transition deal (partially agreed, although a long way from being ratified) is vastly inferior to the deal which they could have obtained, but rejected out of hand as far back as Mrs May’s Lancaster House speech 17th January 2017. We could have retained our membership of the Single Market (and wider European Economic Area, EEA) through re-joining, even temporarily, The European Free Trade Association, EFTA. This alternative, also known as the ‘Norway Option’, could have delivered practically ‘frictionless’ trade and a soft border on the isle of Ireland.

At the heart of Mrs May and Mr Davis’ highly risky, far-fetched and delusional approach to Brexit is a failure to understand the nature of the EU, the European Economic Area (EEA), EFTA’s working relationship with the EEA including the EEA Agreement, mutual recognition of standards and how world trade works.  They make the most basic mistakes and repeat factually incorrect or incomplete statements to support their contradictory desire to leave the Single Market while retaining the same level of market access through an FTA.  They appear unwilling to take cognisance of readily available facts that completely disprove their fatuous mantras.

The details of what will happen after the UK leaves the EU (and the EEA) are there for anyone to see on the EU’s dedicated website  – especially in the increasing number of “Notices to Stakeholder”s under Brexit preparedness) It makes somewhat chilling reading.  There is nothing equivalent on the Department for (not) Exiting the European Union’s website. Presumably either they haven’t done this vital work or have chosen not to share it – a truth too awful to tell?

Upon leaving the EU and the EEA we would become a ‘third’ country. We would then be subject to different requirements by the EU in order,  at best, to manage the risks (to consumers and others) of doing business with us (or any other ‘third country’ outside the Single Market or EEA) and, at worst, to erect protectionist trade barriers in favour of domestic EU enterprises.  From the EU’s perspective, they will not grant concessions to ‘third’ country suppliers outside their control which are not enjoyed by EU domestic suppliers, especially when these could increase risks or create an ‘unfair’ competitive advantage.  The EU also has to treat the UK the same as any other ‘third’ country in order to comply with World Trade Organisation (WTO) agreed requirements or principles.

The EU is developing the Single Market by harmonising standards, regulations, and enforcement or surveillance within a top down centralised legalistic and bureaucratic framework under their supervision and control. It is also a long-established declared ambition that ‘third’ countries (outside the EU, or wider European Economic Area, EEA) would adopt or follow at least some EU-style measures.  The EU’s approach (to products) is outlined in principle in COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT Enhancing the Implementation of the New Approach Directives and in more detail in the EU’s Guide to the implementation of directives based on the New Approach and the Global Approach .

For the EU, mutual recognition of standards (which differ from theirs) has limited application, since it is not their preferred choice where harmonised standards (in their widest context) exist.  In any case, there is the practical complexity and increased cost of demonstrating equivalence and compatibility, which can be far from straightforward and unacceptable to consumers and users.  To take a simple illustration, traffic lights using green on top for ‘stop’ and red underneath for ‘go’ certainly provides equivalent functionality but are far from compatible and acceptable.  Also test values from subtly different tests may mean a product is (theoretically) less safe rendering it unacceptable or requiring expensive (or impractical) re-design, which in turn may invalidate other test results and/or existing certification/approvals.  (See also the Fallacy of Easy Mutual Recognition of Standards).

The EFTA/EEA option is not perfect, but is far more favourable to the UK’s interests than the transitional deal on offer or indeed, to what will eventually emerge as Mrs May’s FTA and ‘deep and special relationship’. Norway participates in the EEA through membership of EFTA. Actually it only implements EU legislation necessary for functioning of the EEA, which at most constitutes around 25% of the total EU acquis or system of laws. More than 90% of these EEA related laws reportedly originate in global bodies, meaning the UK would need to implement them anyway for global trade, unless we leave the World Trade Organisation (WTO), et al. Also the EFTA route to EEA membership gives members outside the EU a say in EU legislation affecting the EEA, is largely free (although ‘voluntarily’ Norway does contribute to regional development funds) and is outside the jurisdiction of the European Court of Justice (ECJ). What is more, EFTA members make their own trade agreements with other countries.

Contrary to statements by M. Barnier and Mrs May about the four indivisible freedoms, EFTA/EEA membership contains the facility to control immigration. Two members of EFTA have unilaterally invoked Article 112 (the Safeguard Measures) of the EEA Agreement to restrict free movement – Liechtenstein for people and Iceland for capital. The UK could do so too if we retain membership of the EEA by re-joining EFTA.  Ironically, Articles 112 and 113 of the EEA agreement, which Mrs May rejects, are reproduced closely by the EU in their draft Withdrawal Agreement, Article 13 (Protocols NI), allowing the EU unilaterally to restrict freedom of movement (including immigration into the EU from the UK).

Continuing membership of the EEA solves the problem of maintaining a soft border in Ireland between the Irish Republic and Northern Ireland, thus avoiding a hard border between Northern Ireland and the rest of the UK (something Mrs May has ruled out, for the moment).  It also gives us full control of fishing in our Exclusive Economic Zone.  The EEA agreement (for EFTA members) can be adapted to suit their interests.  Thus the UK (within EFTA) could get a bespoke version.  So we could ‘imitate, adapt and improve’ on the existing EEA agreement to suit our needs rather than follow an insular and amateurish effort to ‘re-invent the FTA wheel in a few months’ that isn’t going anywhere.

From the beginning, the EU negotiators completely dominated the Brexit negotiations. It was inevitable then that negotiating concessions (or cave-ins) would be made by weak, dithering and clueless Mrs May and Mr Davis to strong, decisive and professional M. Barnier and his team. Comparing the EU’s draft Withdrawal Agreement with the text agreed by the UK shows just how much the increasingly uncompromising EU is getting its way.  Worse still, the EU is getting away with demands that are over and above those necessary for trade, with more already in the pipeline (such as fishing, defence, defence procurement, locking UK into EU budgets etc.).  If you thought the Transitional Deal was bad, wait until you see the final withdrawal agreement and the FTA.