Jam tomorrow and non-tariff barriers

Businesses have to abide by all manner of regulations. Many have come to us from the EU but are made elsewhere and are, to a greater or lesser extent global, with the EU merely acting as a conduit. For instance, your mobile phone continues to work when you cross borders and I don’t suppose that even the hardest Brexiteer would want a unique national standard, so that only British phones worked in Britain.

Similarly, batteries for all the various electronic gadgets are standardised. You can go to a corner shop in Tanganyika or Tokyo, as well as Toulouse and it will fit. That has not happened by chance.

This article by the economist John Kay concerns a lower tech product – jam .

“All developed countries have extensive regulation of their food and drink industries.” he writes,   “If you buy a jar of jam, you want to be confident it is not poisonous:  you want to ensure that it resembles what you expect when you hear the word ‘jam’.  Libertarians might dispute the necessity of such regulation:  Are not the civil and criminal law, and the concern of suppliers for their reputation, sufficient to protect us from toxic or inferior jam?  But history suggests that the answer is probably no.  Britain’s Food Standards Agency came into being after ‘mad cow disease’ transmitted through the food chain, having infected several hundred people with a terminal degenerative illness.  In any event, there is no advanced country in which such libertarian arguments have been found persuasive.”

“But when countries determine their food regulations independently, they will come up with different answers.  Often for essentially arbitrary reasons:  Asked to define ‘jam’, it is probable that French civil servants will come up with somewhat different answers from those reached by British civil servants.  And different countries will have different jam-making traditions, and their jam makers may have chosen different areas of specialisation. Their lobbying will influence, perhaps determine, the local jam regulation.”

“Free trade in jam, or any other product, requires some measure of coordination, a move towards a broadly common perception of what is ‘jam’, to avoid necessity or opportunity for opening jars of imported jam to see what is in them.  This coordination is the process of removing non-tariff barriers to trade.  The European Union’s single market is the result of such coordination.  Not just for jam, but for thousands and thousands of products.”

“The EU does not have a jam directive because some power-crazed bureaucrat in Brussels wants to interfere with the sale of jam at the village fete.  If silly disputes over food standards do arise at village fetes – and they sometimes do – it is because an over-zealous trading standards officer from the local council has crossed the borders of common sense, not because EU officials want to control our crumpets.  In fact the Food Standards Agency gives sensible advice to home cooks at village fetes – as the agency does on many other issues.”

Mr Kay has drawn attention to the biggest issue facing Mrs May’s government as it seeks to decide what sort of trading arrangement it wants with the EU after Brexit. Doctrinaire free traders appear to believe that tariffs are the main problem. However, this is not the case. Our biggest challenge will be to ensure that British goods continue to be internationally acceptable in the global market place as well as the EU and what is more, it is quite obvious that there are far too many regulatory details to negotiate on an item by item basis and such matters will have to be dealt with as a package or off the peg deal.

In whole or in part, the only body of law which contains all these all together is the EEA agreement. It would be relatively simple to do the job “off the peg with alterations” by making deletions or additions to it but to open the whole can of worms would take many years.

With thanks to John Kay for permission to reproduce and quote from his article. His website is www.johnkay.com

Could CETA go the same way as TTIP?

Opposition to TTIP was not just confined to leave supporters in the UK. A petition of three million signatures from across the EU, all urging the EU not to continue with the controversial EU-US trade agreement, was handed in to Ceclia Malmström, the EU’s Trade Commissioner who contemptuously replied, “I do not take my mandate from the European people.”

Since the referendum, TTIP negotiations have spluttered to a halt, leaving President Obama distinctly disappointed as he had hoped to see the agreement signed before leaving office. Some commentators do not think it will ever be signed off – and it could not be the only trade deal to bite the dust.

Opposition from Wallonia, the French-speaking area of Belgium, could kill off CETA, the proposed EU- Canada trade deal as well. The other 27 member states (including the UK) were happy to sign the deal and the Canadians had been preparing to come to Europe for a signing ceremony this week, but without Walloon approval, the federal Belgian Government cannot sign and no deal is on the table.

Although not generating the same opposition as TTIP,  there have been similar objections to the deal with Canada. While the most widely-cited argument in the media for Walloon opposition – a desire to protect the region’s agricultural sector – sounds like old-fashion protectionism, there are other concerns which are far more serious.

For most people, free trade is seen as a good thing. We in the UK have usually been keen on reducing tariff barriers since the days of Adam Smith’s Wealth of Nations in the late 18th century. However, the CETA deal, like TTIP, is more than just a simple trade deal. It would set up special courts which allow investors and companies to sue national governments. Canada is already the most sued nation under the NAFTA deal covering North America, which has similar courts. CETA would result in all participating nations being at the mercy of big businesses. In other words, you and I, ordinary tacxpayers, could find ourselves shelling out millions to be handed over to multinationals if they take our government to court if they feel that, for instance, environmental legilslation has affected their profits.

Such a situation is a million miles  from Adam Smith’s very reasonable defence of free trade. As one critic puts it, the signing of CETA would result in “punitive legal fees for national governments and billions of euros in damages drained from public coffers. That’s not to mention the inevitable rise in regulatory chill, as governments refrain from passing regulatory measures in the public interest due to the threat of being sued by private foreign investors. Once such a system is in place, each and every investment that foreign corporations make in a member country will effectively be backstopped by that government (and by extension, its citizens and taxpayers); it will be too-big-to-fail writ on an unimaginable scale.

And what is frightening, national leaders, no doubt heavily lobbied by big business,  seem happy to endorse such deals, even though in so doing, they are surrendering their own power and not acting in the interests of those who vote them to office.  The UK’s Trade minister Liam Fox has supported CETA, which has won him few friends, especially as he has not allowed Parliament to debate it until after it is signed.

Deals like CETA and TTIP are not capitalism but crony-capitalism. It reduces the free market to the shambolic system which prevailed in the break-up of the Soviet empire where big business and government were joined at the hip resulting in huge fortunes for the favoured few and ordinary voters had very little power.

Australia was seeking a substantial free trade deal with the EU, but after the problems with CETA, they seem to be looking for a more modest deal, especially after the statement by the EU Council President Donald Tusk that the Canada deal (if it is ever signed) could be the EU’s last.

These developments have inevitably been spun by both the EU and remainiacs in this country to  highlight the difficulty of the UK securing a bespoke trade deal with the EU. However, it is vital not to confuse the wood from the trees.  Any bespoke trade deal would indeed take a number of years to negogitate, but there is no reason for it to involve any mechanism allowing governments to be sued by the big muiltinationals.

Furthermore, the mechanics of international trade is changing. Mr Tusk may well be right about no similar deal being in the offing after CETA. Rather than large-scale free trade agreements, countries are moving towards more limited agreements covering specific areas. While it is true that there is no EU-China free trade deal, China does have 65 such deals with the EU.  Such arrangements take far less time to negotiate than a full tree trade agreement.

So, in conclusion, while the UK does need to ensure that trade continues to flow smoothly with the EU upon withdrawal, we should not be worried about the intransigence of the Walloons. It will, in fact, be a blessing if CETA fails. If the government chooses to rejoin EFTA, that organisation has already signed a deal with Canada containing far fewer areas of concern.  EFTA deals do not have big business pulling the strings to anything like the same degree.

CETA (and, by implication, TTIP) has been described by the European Commission  as “A free trade deal fit for the 21st Century”, and “the most advanced of its kind.” It is nothing of the sort.  It is nothing more than an agreement by elected governments to hand power to big business – the same sort of people who so enthusiaistically supported the remain cause in the recent referendum.  The leave vote was a vote against these organisations and it is vital that a newly-independent UK implements a trade policy which will benefit ordinary people rather than putting more power into the hands of people who use it so shamelessly for their own ends – a trade policy worthy of a nation which was among the pioneers of free trade.

Photo by wfbakker2

Tough Brexit rhetoric by the EU will only highlight its failure

The EU is going to talk tough in the forthcoming Brexit negotiations, so we are told. Last week, François Hollande, the French President, insisted that “There must be a threat, there must be a risk, there must be a price.” Jean-Claude Juncker, the President of the European Commission, adopted a similar tone at the same meeting in Paris. “You can’t have one foot in and one foot out,” he said. “We must be unyielding on this point”, he said.

The desire of the UK to restrict freedom of movement for EU citizens while at the same time retaining access to the single market lies at the heart of the EU’s tough stance. The UK must not be allowed “to have its cake and eat it”, as Boris Johnson once described it. However, some reports suggest that the tough line promised by leading EU figures goes beyond the single market/free movement conundrum. According to the Sunday Times, Didier Seeuws, the Belgian diplomat who has been appointed lead Brexit negotiator for the European Council, apparently wants to stop the UK ‘grandfathering’ the 36 free trade deals the EU has in place with third countries after Brexit – in other words, contuniung to be a party to these deals on independence.  The idea that these third countries may want to continue free trade with the UK does not seem to have occured to Brussels. The same article quoted an EU source as saying, “we cannot make the separation look like a success.”

Of course, in view of the lack of detail being provided by Mrs May’s government, we are currently only hearing one side of the story, which may well include an element of posturing. It is in no one’s interest to go for a suicidal divorce and there have been hints that a “transitional arrangement” with the EU pending a more complete separation has defintely not been ruled out by the Prime Minister. This could possibly be something along Liechtenstein model lines – although at this stage, we can only guess.

If, however, we are to take the hard words of senior EU figures at face value, they reveal an underlying weakness. Of course the leaders of EU-27 do not want the project to fail and France faces a presidential election next year which M. Hollande is likely to lose heavily. The obstacles to Marine le Pen becoming his successor are considerable, but any deal which makes it look like the UK will prosper outside the EU will only bolster support for her anti-Brussels rhetoric.

But if the EU is such a marvellous idea, should not the UK be pitied rather than punished for leaving it? Just think of some of the institutions that took, or take a severe line towards escapees and defectors – German Prisoner of War camps in World War II, the Inquisition of Roman Catholic church, the Soviet Union, North Korea… Not a very distinguished list. Mrs Merkel, the most powerful leader within the EU, grew up in East Germany, 50 miles from the divided city of Berlin. She will recall the machine-gun posts positioned on the Berlin Wall to stop people trying to leave for the better life in the West.

In reality, there are already countries in Europe that have been proving for many years that life is better outside the EU. Switzerland and Norway took first and third place respectively in the Economist Intelligence Institute’s quality of life index. Swizerland is the only European country to be ranked as “free” in the Heritage Foundation’s Index of Economic Freedom while in the World Bank’s rating of countries by per capita GDP, Norway and Switzerland are ranked 7th and 8th, ahead of every EU country except tiny Luxembourg.

Norway’s current government is led by a Europhile and the Swiss tend to keep quiet about their excellent lifestyle and system of government. Neither therefore trumpet from the rooftops the benefits our being outside the EU. Furthermore, these countries never joined the EU. If a member – especially a large country with a higher international profile – left the EU and prospered, the world would sit up and take notice.  The very fact that EU leaders are inadvertently admitting that unless they take a hard line, the UK will be better off out shows how concerned they are. Their behaviour, however, poses the question as to why they do not dismember the whole project so the other 27 countries can follow suit and be better off too.

However, the EU élite would rather rave at the “populism” behind the Brexit vote rather than admit that it suffers from a serious democratic deficit that is alienating voters in plenty of other countries besides the UK. We have done the EU a favour in pointing out its shortcomings. In return, it wants to punish us.

Photo by Fabrice Plas

Container inspection at port of entry

The BBC’s Fake Britain series was not produced to make a contribution to the debate on options for UK trade once we leave the EU. However, this latest episode, which shows the identification, inspection and eventual rejection by the Port Health Officer at Southampton of a distinctly dodgy container, consisting mostly of food products  from China, contains a number of incidental details of great importance to this subject which will be  exercising the minds of government ministers and civil servants in the coming months.

Anyone interested in the subject of how trade passing through our ports is regulated should watch the  first ten minutes of  this episode while it is still available on the BBC website. (You will need a valid TV licence)

The first thing which strikes anyone watching this programme is the huge volume of containers handled at this port – 1.3 million per year. Southampton is a port of entry for goods from outside the EU and thus a first line of defence against risks to public health, not only for the UK but for the whole of the EU.

The officials are first drawn to examine the container because its documentation is incorrect. Then on inspection, the contents of the container are not the same as those on the packing list.

The Port Health Officer remarks that there is no EU-approved manufacturer for one of the meat products. People often say “China has no free trade agreement with the EU”. This is true enough but China has many agreements with the EU about mutually recognised standards of quality and traceability for different classes of product, approved manufacturers etc.

These agreements are mostly registered with the UN rather than the WTO. Many commentators discussing the trade issue have overlooked them, continuing to believe that tariffs are the main or sole barriers to trade.  China’s trade with the EU is therefore dependent on far more than “WTO rules” about tariffs alone.

These Mutual Recognition agreements are critical. If they did not exist, every single container from China would have to be inspected individually for compliance with EU standards – a  hugely expensive and very onerous task given the volume of trade.

The legal compliance and safety of goods made and circulated within the EU rests on the common regulations enforced by each member state and certified in the documents accompanying each container. If these are all in order, containers from member states cannot usually be detained for inspection when crossing EU borders. That is the effect of the Single Market. Trade moves very much more easily. For this reason, there are very few BIPs (Border Inspection Posts) at ports which mostly handle trade from one EU country to another.

If the UK were to leave the EU without a comprehensive agreement on maintaining the mutual recognition of the standards (with which we already comply), then our trade with the EU would be gravely handicapped. Relying solely on basic “WTO rules” means that every container would have to be inspected. Some people have advocated “WTO rules” – saying “Better no agreement at all than a bad agreement”. As far as we know, no other country relies on this sort of trade relationship with the EU.

Photo by Robert.Pittman

Photo by Robert.Pittman

Andrew Tyrie’s paper “Giving Meaning to Brexit”

A paper called Giving meaning to Brexit by Andrew Tyrie MP, has just been published by Open Europe.

Mr Tyrie is Chairman of the House of Commons Treasury Select Committee and former Chairman of the Parliamentary Commission on Banking Standards. Given he supported remain during the referendum campaign, it is highly unlikely that  you will agree with everything he says, but it is nonetheless interesting to read the thoughts of one influential backbench MP on the subject of Brexit.

He spends some time explaining why he feels the so-called “WTO option” is not viable except as an emergency fall-back if negotiations with the EU break down.

He also addresses the issue of single market in some detail, although like many other commentators on this subject, he hasn’t done his homework very thoroughly. He talks of a Norway-type relationship giving us “no formal say” over the development of financial services regulation. This is not true. Norway is widely consulted in the framing of EEA-relevant regulation, even if it does not have a vote. He does, however, mention that with much financial regulation originating in global organisations (with the EU merely acting as a conduit),  withdrawal from the EU would give us an independent seat on all those bodies where we are currently represented by someone from the EU.

Given the influence of global bodies in dictating the terms of international trade, he feels that the promised “bonfire of regulations” upon withdrawal will not be anything like as great as has been claimed, although he identifies one or two beneficial changes that may be possible .

He also says little about the possibility for non-EU members of the EEA to restrict free movement of people, which Liechtenstein has done, merely usng the phrase “emergency brake”, which is not a very accurate description of the possibilities under articles 112 and 113 of the EEA arrangment.

He is critical of the substantial savings promised by some “leavers” and is very sceptical that we will be £350 million per week better off.  He also doubts that a settled arrangment with the EU will be complete within the two years stipulated by Article 50.

On a more positive note, he does see the freedom to make our own trade arrangements as one of the big benefits of Brexit.

He says that Parliament should be given a chance to “express a view” on the planned negotiations before Article 50 is triggered, but does not call for a vote.

As for the future of the EU without the UK, he feels that sudden collapse of the project would be disastrous for us as well as the EU, but he does not mention the possibility of other nations peeling off one at a time, which cannot be ruled out and which would not necessarily cause a collapse. His description of the EU project as the “most sophisticated system of cooperation and integration, supported by the rule of law, between a large number of nation states – freely entered into – ever attempted” is a bit wide of the mark, given the deceit used by Edward Heath to take us in and the considerable sweeteners and twisting of the rules used to ensure that other candidate states vote to join when they get round to holding referendums on membership.  I recall being told that in Malta, for instance, voters were told that not voting would count as voting not to join the EU, which was a lie.

In spite of these reservations, the essay is worth reading if for no other reason than it shows that most erstwhile Tory remainers have accepted the result and just want to make Brexit work as best as it can,  for which we must give thanks.

BREXIT – Onwards from the Referendum by Edward Spalton

(This article was written for our Chairman’s local newspaper, the “Three villages” magazine)

The leading campaigns on both sides of the EU referendum were lacking in honesty. In that, they followed the example of successive British governments which have all pretended that the European project concerned the economy (“The Common Market”) when it was always about developing a single European government under which the nations of Europe would be subordinated in a new polity. We know from official documents that the government understood this from 1960.

The Remain side presented the EU as being about the economy and the Leave side emphasised the cash savings from leaving. Both exaggerated greatly.

In 1971 the Foreign Office advised the government “…there would be a major responsibility on HM Government and on all political parties not to exacerbate public concern by attributing unpopular policies to the remote and unmanageable workings of the (European) Community”. The referendum was the last hurrah for this long-maintained policy of deceit. The leaders of all the main parties stuck to it and lost. So we are now moving in a new direction and the impetus has come from the people not from the political establishment.

Mrs May has said that “Brexit means Brexit” but people are naturally apprehensive about how things will develop. There are three main approaches to forming a new relationship with our European neighbours:

  • The Bilateral Option – An agreement or series of agreements negotiated individually, as Switzerland has done. This takes a very long time – 16 years for the Swiss.
  • The WTO Option – To have a minimal agreement with the EU and to rely on the rules of the World Trade Organisation. This would involve paying tariffs on certain classes of goods exported to the EU (and vice versa) but would be very cumbersome if it was not accompanied by a Mutual Recognition Agreement on quality standards, allowing containers to pass EU customs without having to be individually inspected(and vice versa).
  • The EEA/Efta Option.  This is sometimes called “The Norway Option”. EEA stands for European Economic Area and Efta for European Free Trade Association.

Effectively this is inside the “Common Market” but outside  the EU political union. Britain is free from most EU policies including Foreign & Security, Justice & Home Affairs, Economic & Monetary Union, the EU Court of Justice, the Customs Union, Common Trade Policy, Common Fisheries Policy, Common Agricultural Policy.  But we would have to observe the rules of the Single Market. Contrary to the general belief it is possible for EEA countries to impose their own restrictions on excessive inward migration of EU citizens under Articles 112 and 113 of the EEA agreement.

Some 80% of EU regulation on trade is now adopted from global bodies such as the UN and WTO. EU membership keeps Britain from having a voice there. So paradoxically, EEA states, which are not EU members, have a bigger direct say on many EU regulations than EU members which are bound by the “Common Position” decided by the EU Commission.

By Googling “FLEXCIT” you can get a full description of how the EEA/Efta option might work. The short version is 48 pages. The full document is over 420 pages. The government may, of course, choose to combine some elements of these three listed options. Things are more complicated than the sloganeering of the referendum suggested but, given careful thought and steady purpose, there is not really anything to fear.