Trading with Canada – the EFTA angle

Mrs May is keeping her cards close to her chest regarding the sort of post-Brexit relationship she is seeking with the EU. Of course, there has been much intense and often ill-informed speculation in the media, which (in our opinion) is better ignored.

Occasionally, however, she or one of her team lets slip the occasional clue. It looks highly likely that the “WTO option” alias “Hard Brexit” is a non-starter.  In an exchange between the Prime Minister and Jeremy Corbyn at Prime Minister’s Question Time last week, Mrs May said, “We’re going to deliver the best possible deal for trade in goods and services with and operation within the European Union, and we’re going to deliver an end to free movement.” A couple of days later, Greg Clark, the Business Secertary, told Andrew Marr that “our objective would be to ensure continued access to the markets in Europe and vice versa, without tariffs and without bureaucratic impediments.”

The obvious assumption is that some form of continuing membership of the European Economic Area is envisaged, either by re-joining EFTA, the European Free Trade Association, or by a one-off arrangment whereby the UK, as a current participant in the Single Market, will be allowed to continue to be a member of it after we leave the EU. Either way, once outside the EU, like Liechtenstein, we can avail ourselves of Article 112 of the EEA agreement and restrict freedom of movement by EU nationals into the UK.

This seems to be the direction in which Mrs May intends to take us. The decision of Nissan to produce two new models at its Sunderland plant points strongly towards some form of continued membersip of the EEA. The complexities of the supply chain, to which Greg Clark referred during his interview with Andrew Marr, are such that, without a guarantee that there would be no disruption, Toyota would have not made this commitment. As state aid – in the shape of compensation for loss of single market access – is ruled out by WTO  rules,  this once again points to some sort of continued access to the single market being Mrs May’s objective.

This, of course, has been a divisive issue among Brexit supporters. Ironically, if the government formally announces that this is the plan, it will bring our side closer together for no leave supporter views access to the single market, whether or not via EFTA membership, as anything other than a short-term holding position – to get us through the Brexit door without  disruption to trade. We all want a looser arrangement in the longer term.

However, EFTA membership would raise a number of interesting points. Firstly, EFTA already has a trade deal with Canada,  It is a much less contentious arrangement that the CETA deal between Canada and the EU. While all relevant parties have now signed the CETA deal, it is not yet in force and by the time it is fully implemented, we may well be on the way out. Signficantly, there has been objections from a few EU leaders to the idea of the UK automatically being able to “piggyback” onto trade deals to which it signed up as an EU member state.

As far as CETA is concerned, re-joining EFTA would not only cirumvent this problem, but would be a much better outsome, as the EFTA-Canada deal has a much simpler disputes system. Each party will nominate one person who is impartial, then they agree on a third person who will be the President of the tribunal, and the case is then heard. If this doesn’t work, the WTO arbitration process kicks in. All in all, this deal is much less likely to see our elected government sued by predatory multinationals. Anti-CETA campaigners should read more about the EFTA-Canada deal. Unfortunately, those who have e-mailed me about the subject do not seem to have EFTA on their radars at all. 

Of course, EFTA has suffered from a low profile for many years. Apart from Liechtenstein, which joined in 1991, no other country has become an EFTA member since 1970. The organisation has lost member after member to the EU and has had to accept underdog status in its dealings with the EU. It now has only 4 members as opposed to the 28 member states of the EU. Iceland, which currently holds the EFTA presidency, has expressed its support for the UK rejoining. “The EFTA countries might make an agreement with the UK,” said Iceland’s Foreign Minister Lilja Alfredsdottir. “We are chairing the EFTA right now and I put it as a priority to analyse the possibilities that EFTA had on this front.

Of course, the UK’s re-accession to EFTA would tip the balance slightly. It would still be much smaller than the EU, but the additional presence of a heavyweight European nation would certainly give he organisation some extra clout. More importantly, it would put EFTA back in the spotlight, which could be something of a worry to the EU. Would applicant countries like Serbia, Montenegro or even Turkey start to weigh the two options of EFTA or EU membership and decide that, even if they would not be bribed with further EU funds,  preserving their political freedom by joining an organisation that is committed to trade and not political integration might be a better bet? What about Sweden and Denmark, who may be tempted to follow us out of the Brexit door?

Back in the 1980s, Jacques Delors envisioned the EU and EFTA states as working in cooperation as partners in a “European village”, which in due course became the European Economic Area (EEA) alis the Single Market. However, following the collapse of the Soviet Union, there were fears that if joint decision making between the EU and EFTA was to be implemented,  the newly-independent nations of Central and Eastern Europe may plump for EFTA rather than the EU, which the EU hierarchy was none too keen on. The EU therefore had to be the lead partner and EFTA subordinate in the EEA. With EFTA still draining members to the EU in the 1990s, it had little choice in the matter. 

Now, however, Brexit has dealt a hammer blow to the credibility of the entire EU project at what was already a difficult time.  It has also put the final nail in the coffin as far as any hopes that existing EFTA members might leave it and join the EU. Making the EU more attractive than EFTA may have been a simple job in the early 1990s; the UK rejoining EFTA after Brexit in a couple of years’ time would lead to a very different perception of the situation.

Of course, to repeat, the EEA or indeed EFTA is not a long-term arrangement for the UK. Ideally, what is needed is a continent-wide free trade agreement – one without the baggage of CETA or TTIP – which would replace the EEA, probably EFTA too and would only include free movement of capital, goods and services like any normal free trade agreement. This is a long-term goal around which all Brexit supporters could unite.  In the short term however, EFTA, while far from perfect, may prove a valuable tool for tipping the balance of influence in Europe away from Brussels, which would be no bad thing.

(with thanks to Hugo van Randwyck for details about the EFTA/Canada FTA)

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.