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

Varadkar gets a caning from Lord Stoddart over Brexit comments

THE PRESS OFFICE OF

The Lord Stoddart of Swindon (independent Labour)

News Release

8th August 2017

 

Comments from leader of “EU minnow country” go down badly with Brexit peer Lord Stoddart of Swindon

The independent Labour Peer, Lord Stoddart of Swindon has taken the new Prime Minister of the Irish Republic, Leo Varadkar to task about his contribution to the ongoing debate over Brexit and advised the “stripling leader of a mini-state” to “learn his trade” before presuming to lecture the United Kingdom.

Lord Stoddart said: “The British people must be getting fed up with EU minnow countries telling them either to stay in the EU or agree to conditions like remaining in the Single Market and the Customs Union, which would effectively keep our country in the EU.  The latest culprit is the Prime Minister of the Irish Republic (population 4.7million) Leo Varadkar.  He should be reminded that the United Kingdom is the Republic’s good friend and a substantial trading partner –indeed, such a good friend and partner that that it gave Ireland a loan of £3billion to save it from bankruptcy caused by its membership of the single currency, during the last recession (I wonder if they have paid it back yet?).

“This stripling leader of a mini-state should learn his trade before presuming to lecture substantial and successful countries like the United Kingdom on how to proceed on Brexit, particularly after its people have voted in a democratic and free referendum to leave the European Union.”

The great trade muddle

“We are leaving the European Union… We are leaving the Single Market… We are leaving the Customs Union.” Theresa May has repeated these phrases on numerous occasions since her Lancaster House speech in January.  Only last week, Steve Baker, the new Brexit minister, insisted that there would be no watering down of the Brexit strategy. “It’s like putting blood in the water to even talk about the EEA,” he said. “We don’t want to be a rule taker, for all the reasons that David Cameron gave during the referendum. We mustn’t take up some of those ideas.”

The Customs Union is a red herring. It never came up during the referendum debate last year and, one suspects, it has only re-surfaced recently because some people may well not know the difference between it and the Single Market.

The Single Market is another matter. It is not true, as suggested by a number of senior EU figures  including Michel Barnier, the chief negotiator, that the four “freedoms of movement”  – goods, services, capital and people – are indivisible.  They may be for EU member states, but not for the non-EU countries in EFTA. Iceland imposed restrictions on the movement of capital when its banks collapsed and Liechtenstein still imposes restrictions on immigration from the EU. Furthermore, no Brexit campaigner suggested that the “Norway Option” or even the “Liechtenstein Solution” should be anything other than an interim arrangement to get us safely through the EU’s exit door within the Article 50 timescale.

It is certainly not an ideal arrangement, and some leave campaigners, including CIB Committee member Ian Kealey, have offered a number of reasons why it should be avoided even as a temporary solution.  Carolyn Fairbairn, the Director General of the Confederation of British Industry, which represents large employers,  has nonetheless been pushing hard for us to adopt this approach. Some leavers are naturally suspicious of an organisation which campaigned for us to stay in the EU, arguing that the real motive of the CBI is to stop us leaving the EU at all. For all the objections to re-joining EFTA and accessing the Single Market via the EEA agreement, the fact is, countries which use this model are most definitely outside the EU as this helpful comparison by CIB Committee member Anthony Scholefield illustrates

Mrs May, however, has not shown any enthusiasm for this route, although she mentioned the possibility of an interim arrangement as far back as November of last year, without going into any details. Her  recent pronouncements have been very much about the long term, stating her desire to sign a “bold and ambitious” trade deal with the EU by March 2019 and only yesterday, at the G20 summit in Hamburg, she said she wanted a “deep and special partnership with the EU, a comprehensive free trade agreement with the EU, so that we can continue to trade with the European Union. That’s not just in our interests in the interest of the other 27 member states as well.”

Fair enough, but only two days ago, Michel Barnier said that “There will be no business as usual.” To underscore the point, he later continued, “I have heard some people in the UK argue that one can leave the single market and keep all of its benefits – that is not possible.”

It has been argued that many other countries trade with the Single Market without being members of it. This is true, but they do not get 100% access nor of the benefits. There will inevitably be obstacles. Most people who have looked at this complex subject accept that being outside the Single Market will involve some loss of trade access to the EU. The big question is whether or not they can be minimalised.  The Bruges Group has come up with an alternative which, its authors claim, can be implemented in eighteen months and which would address the main concerns of business, including non-tariff barriers. However, it does not deny the presence of significant obstacles.

We do not know whether or not this report is being digested by the Civil Servants of David Davis’ department. What we can say is that there has been precious little comment from the government on its  proposals regarding this important subject. To date, the Bruges Group proposal is the most detailed study of a non-EEA  solution to the trade conundrum which would avoid the need for any interim arrangement.  If it isn’t going to be adopted but something better has been produced, it clearly hasn’t reached the ears of the CBI or some other concerned politicians who advocate our remaining in the EEA.

What is worrying is the lack of a detailed response to these concerns. Could it be that even a year on from the referendum, the Government still doesn’t have any idea of what its Brexit trade strategy should be? When we joined the EEC (as it was) over forty years ago, businesses were given increasingly detailed guidance, starting over a year before entry. If the transition to independence is to be seamless, businesses need adequate notice to comply with whatever the new arrangements will be. Regulation has become a lot more complex since 1973 and the process of informing them of what needs to be done will surely need to start no later than March next year.

With some economists suggesting that the UK economy is slowing, some leave campaigners have expressed a concern that Brexit may not actually happen given the additional challenges which lie ahead. We do not believe this to be the case as any backtracking on Brexit would be suicidal for the government and the Conservative Party. Nonetheless, the Article 50 clock is ticking away and if the government is still in a muddle about trade, we may end up going down the EEA/EFTA route as an “off the peg” solution which, due to time constraints, could end up by default as the only way of preventing a “cliff edge” scenario in March 2019.

And they’re off!

Today, our formal negotiations to leave the EU begin in Brussels. David Davis is meeting with Michel Barnier, the EU’s chief negotiator. Mr Davis said he is beginning his task “in a positive frame of mind“.

So there is finally something concrete to report after a ten days of confusion and speculation since the inconclusive General Election result. This. however, is where the certainty ends. It is almost a year since the Brexit vote and we do not know the shape of the planned Brexit deal. Of course, it is quite possible that this is a deliberate strategy to “keep our power dry”. Daniel Hannan, writing in the Daily Mail, claims that the Civil Servants have “had a year to prepare for these talks, and have put it to good effect.

We must hope so, but detail is thin on the ground. Although Philip Hammond, the Chancellor. has been widely reported as supporting ongoing membership of the Customs Union, he recently insisted that this was not the case. Speaking on the Andrew Marr Show, he said, “And by the way, we’ll be leaving the customs union. The question is not whether we’re leaving the customs union, the question is what do we put in its place.” The subject of the customs union was barely mentioned in the referendum campaign last year. It has always been a red herring. For all the otherwise mixed messages of last year’s assorted leave campaigns, virtually everyone was agreed that freedom to determine our trading arrangements would be one of the principal benefits of Brexit and that remaining in the Customs Union would place unacceptable restrictions on any such future arrangements.

The Single Market is another matter, however. Mr Hammond also insisted that we would be leaving this too. Fair enough, but it would be good to know what sort of relationship exactly he and the Civil Servants have agreed to seek if they are to avoid what he called “those cliff edges.”

He also hinted that some transitional arrangement would be sought. “We will need some kind of transitional structures and the European Union needs to understand that as well. This is not a British ask or a British demand, it’s a statement of common sense, that if we’re going to radically change the way we work together we need to get there via a slope, not via a cliff edge. That’s good for business on both sides of the English Channel.” He appeared to rule out remaining in the customs union, even as part of a transitional arrangement, but was vaguer about the Single Market – deliberately so? We will no doubt know more in due course.

This does pose the question about how much influence say he, or even Mrs May, will have. The loss of the Tories’ overall majority leaves the government more beholden to Parliament  – including Tory backbenchers – than before. Some have gone on record – anonymously – that any backpedalling on, or dilution of Brexit by the Prime Minister will result in a leadership challenge.

Mrs May will therefore have her work cut out to appease some more hard line Brexiteers, but on the other hand, she will need to keep on board those MPs are less enthusiastic about leaving the EU, who will doubtless seek to exploit any features of the end deal which would negatively affect the economy in general and jobs in particular.

Labour, however, says it will not seek to derail Brexit. During the election campaign, Jeremy Corbyn was campaigning for a different sort of Brexit but never offered any hint that he would try to undermine it.  There are two issues at play here. First, personally, Mr Corbyn has never been a supporter of the EU project. As we have pointed out, his contribution to the remain campaign was at best lukewarm and in reality, a negative one.  More to the point, outside the big cities, support for Brexit was strong in Labour-voting constituencies and Corbyn and his team rightly realised that unless he emphasised his commitment to Brexit, votes – and potentially seats – could be lost in the constituencies which historically have been Labour’s heartland. This tactic succeeded and consequentially, those Labour MPs who dislike both Corbyn and Brexit must realise that their room for manoevre is rather limited given that their party did much better than was widely predicted two months ago.

Emmanuel Macron, the seemingly all conquering French President, insisted that “the door remains open” to the UK abandoning Brexit and remaining in the EU. Dan Hannan strongly rebutted this offer. “The idea that Britain might crawl back to Brussels, apologising for its mistake, shows an extraordinary misreading of our character, our history – and public opinion,” he wrote.

It’s not just our history and character. One does not often find oneself in agreement with John Major, but during a recent interview on BBC’s Radio 4, he made the point  that the EU has never really been a big priority for most UK voters. Ask any veteran UKIP candidate or even the Lib Dems, whose pitch to the supposed “48%” in the recent General Election campaign fell rather flat, and they would concur 100%. A vocal minority notwithstanding, most people, whichever way they voted in June last year, just want the government to get on with it.

And this is what it is finally doing. We can but hope that everyone will be satisfied with the result.

 

Photo by rogerblake2

Fishing the first Brexit bright spot as confusion reigns

Fishing photo

Are we going to leave the Single Market or not? And what about the EU’s customs union? – a subject that never cropped up in the referendum debate last year. Do some politicians even know the difference between the two?

At the moment, we are seeing a great deal of confusion about the future direction of Brexit and for those of us outside Mrs May’s new cabinet, what we are reading in the media is leaving us none the wiser. the quality of press reporting has reached an all-time low, with uninformed speculation given free rein and undue weight placed on off-the-cuff comments.

Take, for instance, headline statements that Emmanuel Macron, France’s new President claimed that “Brexit could be reversed.” What he actually said was “Of course the door remains open, always open until talks come to the end. But it was a sovereign decision taken by the people to come out of the EU.” In other words, there remains a theoretical possibility that the UK government might change its mind, but no more than that.  Given the shock of last week’s General Election result, it is hard to see the any rowing back on Brexit given that the consequences for the Conservatives would be the worst crisis since 1846.

The terms “hard” and “soft” Brexit have been bandied about with very few people knowing what they actually mean.  By and large, the terms relate to a future trading arrangement with “hard” meaning leaving the Single Market (or perhaps the Customs Union, or maybe both??) and “soft” means remaining in one or both. But what about criminal justice or foreign policy? There are “hard and “soft” issues here, which few in the media are picking up.

In all this muddle, one thing is clear. From what we could discern of Mrs May’s Brexit agenda, it contained some worrying and unsatisfactory features, including too close a link with the EU’s military plans and an ongoing commitment to remain party to the European Arrest Warrant. The loss of her majority means that she cannot force through her plans for Brexit if they are widely seen as flawed. Indeed, it is possible that we could end up with a better Brexit deal, given that pressure groups and their supporters on the Tory back benches will have a lot more leverage than if we had ended up with a thumping Conservative majority.

In one particular policy area, fishing, we are already seeing evidence of this. Scotland was the one piece of good news for the Conservatives in an otherwise dismal result and several of the seats they won from the SNP include fishing communities. Ruth Davidson, the Scottish Conservative leader, campaigned strongly on the fisheries issue and has apparently spoken to Theresa May, insisting that the UK must leave the Common Fisheries Policy and manage its own waters right up to the 200 Nautical Mile/Median Point limit.

Given that Michael Gove, who has recently been appointed Secretary of State for Environment, Food and Rural Affairs , is the son of a man who worked in the fishing industry, there is every reason for being hopeful that the sensible post-Brexit fishing policy proposed by Fishing for Leave has a greater chance of being implemented.

So, amidst the current confusion, we are perhaps seeing the first bright light. As the dust settles, hopefully others will follow