Should the UK stay in the EEA after Brexit?

This revised version of Anthony Scholefield’s briefing note can also be downloaded as a pdf here.

We don’t start with a ‘clean sheet’

If we were considering ideal future trading arrangements for the UK from the basis of a clean sheet, it would probably not be sensible for the UK to join the European Economic Area [EEA].  However, the decision to remain in the EEA is quite different from a decision to join the EEA from outside.

Today, the UK does not face a clean sheet.  The UK has been in the EEA for 26 years (40 years in the EU) and its trade has developed in this environment.  Following the decision to leave the EU the question of whether to change trading arrangements is only one of a number of political decisions the government has to take.

Background

The background fact to be borne in mind is that a huge part of the UK’s export trade has always been with Europe.  According to Professor Ashworth, in his ‘Economic History of England, about 40% of UK gross goods exports in the mid-nineteenth century went to Europe.

The definition of ‘Europe’ in the nineteenth century was different from the EU of today, of course, and included the Russian Empire but, notably, excluded Ireland

Free Trade Agreements

The underlying rationale of any trading agreement is not free trade but an increase of trade between the participants at the expense of third party countries.  Indeed, a ‘free trade’ agreement is a contradiction in terms.  It will also usually benefit producers at the expense of consumers in the participating countries.  But the point is that such ‘agreements’ cause trade to flow in certain ways which are not ‘free trade’ but once actioned have costs when they are dismantled.

Political advantages of staying in the EEA

It is very important to consider that staying in the EEA will massively reduce the political upheaval and workload of the government organising Brexit, reassure business, achieve a degree of national unity and make it easier to negotiate on other matters with the EU which will favour this scenario.  It also reverses the burden of responsibility for causing a breakdown in negotiations.  Finally, it offers a secure refuge (the UK already being in the EEA) should the talks break down.  For the EU also, the political upheaval and workload is minimised.  It is always good negotiating strategy to consider the difficulties of your opposite numbers.  If, after experience, it does not work, the UK can leave the EEA by giving 12 months’ notice.  Therefore, there are political reasons to remain in the EEA.

There is also the need to balance the costs of disruption against the calculation of the net benefits and disbenefits of the EEA membership.   At present, no such cost/benefit analysis exists, which is an essential preliminary to negotiation.  It is possible to recall the exhaustive studies by the Swiss government before their referendum on joining the EEA.

Theory of Trade

There are two unspoken assumptions about the advantages of trade as put forward by the conventional economic wisdom:

‘Any trade is good trade’

‘All trade is of equal value’

Therefore, bulking up trade is ‘a good thing’.

However, the political economists of the nineteenth century recognised there was more to it than the above two assumptions.

John Stuart Mill included the question of the different profitability of different types of trade and which party got the most benefit in his study entitled ‘Essays on Some Unsettled Questions of Political Economy’ in 1848.  The particular question of the profitability of various trades is still ‘unsettled’ but ground-breaking work has been done by the OECD and WTO in focussing on trade as a value added phenomenon rather than just gross trade statistics.  The OECD/WTO joint paper entitled ‘Trade in Value-Added: concepts, methodologies and challenges’, sets out the intellectual case for viewing trade through the lens of value-added rather than gross figures.

One significant example, which has been widely referred to in the literature is the case of the Apple I-phone, which is assembled in China and whose ex-factory price appears as exports in Chinese trade statistics.  Estimates are that only 8% of the ex-factory price accrues to the Chinese assembler with 92% being spent on imported components and thus showing up in Chinese import statistics and then again in the Chinese export statistics as part of the Apple phone.

Another interesting area arises in the case of the UK where Switzerland in 2014 became the UK’s fifth biggest export market and, in December 2015, was actually the UK’s single biggest export market (£4293 million of exports, according to UK Overseas Trade Statistics, December 2015) and twice the size of the German market.  Much of this export trade was non-monetary gold which, of course, is not produced in the UK.  Therefore, the value added to national factors of production in both these examples is very small.

Plainly, therefore, trade is not an undifferentiated item.  All trade is not of equal value.  Some trading is more profitable than other trading.  Simply increasing exports of any type is not an adequate policy.

Profitability of Trade

Profitability of trade for a national economy is dependent on value being added so the factors of production, such as labour and capital, get increased returns after buying in necessary supplies to effect increased exports.  Therefore there is a hierarchy of added value in trading activities.  Simply bulking up gross exports is meaningless.

Generally the most profitable areas of trade from the point of view of the national economy are in services or manufactured goods with a high skill content because they involve very little imports or have a high added-value content.  In these examples the gross revenue flows through as very high added value.  At the other end of the spectrum are re-exports of raw materials or precious metals with very little added value.

UK gross services exports have recently approximately overtaken UK gross goods exports when considering UK overall trade outside the EU.  However, the percentage of UK exports to the EU which relates to services is much lower than in UK trade outside the EU.

Therefore, in principle, UK trade with the rest of the world generates greater added value per unit and, consequently, greater returns to labour and capital than the UK’s trade with the EU.  For this reason, a clean sheet consideration would not favour joining the Single Market where services exports are weak whether because of greater competition or restrictive practices.

Paul Samuelson and ‘over trading’

So some trade is more profitable than other trade.  But we can go further than that in critiquing the conventional wisdom that all trade is good, following the line of argument put forward by Paul Samuelson, the most influential ‘liberal’ economist of the post-war generation, in a revolutionary paper just before he died.

This was entitled Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization’, 2004.

In this work he questions the alleged benefits of ‘more trade in modern conditions’.

The kernel of his argument was that trade is beneficial to start with but can cease to be beneficial when shifts in capital and skills make it hard for a country to compete in its supposed (Ricardian) superior productivity industries.  Having already given up its supposed (Ricardian) inferior productivity industries, it is faced with a retreat to national autarky to balance its payments situation.  At some point the disruptive effects of trade outweighs the benefits.  In effect, Samuelson is enlarging on a long-standing critique of the theory of comparative advantage.  This is that trade advantages do not stand still.  England had comparative advantage in the cotton industry in the nineteenth century and over-concentrated on this industry.  In the twentieth century, other countries with cheaper labour out-competed the English cotton industry.  In the terminal phase, after 1945, the cotton industry even imported cheap labour from Asia to try to maintain competitiveness but was unable to do so.

So, concentration on what is presently a trade where there is comparative advantage is not necessarily an advantage in the long-term.

The Supply Chains

It is estimated that a majority of trade in manufactured goods takes place within supply chains, co-ordinated by major corporations and worked through legal subsidiaries, associates or clusters of component and assembly suppliers.

These supply chains have adjusted themselves, for good or bad, to working within the EEA.

To leave the EEA would be to disrupt these supply chains, at least in the European Area.  There is exactly the same situation which was experienced in the agricultural sphere when the UK joined the EU and the food and raw materials exports of Latin America and Australasia, which were geared to the requirements of the British market, were heavily disrupted.

Weighing up the Balance

The decision to remain in the EEA, however, is quite different from a decision to join the EEA.

UK trade with the Rest of the World appears more profitable than trade with the EEA.

However, once settled inside the Single Market, the argument for not disrupting supply chains is a major issue, counterbalanced by the clear fact that trade with the EEA in services is not proportionate to their role in trade with the Rest of the World and the endless prevarication about removing the barriers to services trade in the EEA.

If the warnings of Paul Samuelson are correct, seeking extra gross trade from supposedly superior productivity activities is not beneficial in itself in the long run.  Better is to ensure a balance of manufacturing and service activity with, to be sure, an emphasis on what appears to be superior productivity industries but with particular emphasis on new industries.

Hidden Costs of Trade

Of course, a deeper analysis of the benefits of trade would need to address issues connected with the social or financing costs of trade.  It is widely noted, in the case of EU membership, that there is a substantial budgetary cost for British taxpayers for the trading arrangements with the EU as they stand now.  (This budgetary cost would be massively reduced by a move from full EU to simple EEA membership.)

A further point is that trade secured by the use of extra factors of production, rather than use of existent national factors, should be strictly analysed for cost.  Many advocates of bulking up trade are also advocates of the importation of capital and labour rather than utilising existent capital and labour.  These advocates belong to a kind of ‘deus ex machina’ school of economics where problems can be solved by outside actors.

Extra factor inputs are not costless.  For example, in the UK foreign owners of UK assets can receive dividends tax free while UK owners pay income tax.  Of course, these dividends are also negative.  This is, therefore, an outright subsidy to foreign capital.  Similarly, the provision of extra labour through migrants require massive social and economic capital such as buildings, roads, hospitals, schools, etc. to be paid for by natives either by taxation or by displacement of capital investments from supporting native workers to meeting the needs of migrants.  Additionally, there are two further costs in the UK as regards foreign labour.  The way the income tax system is set up now means very few low income workers pay any tax (many of these are migrants) despite being heavy users of public-financed capital investment and of public services.  So, both foreign capital and foreign workers are subsidised by the British tax system.

Additionally, many migrant workers make substantial remittances to their home countries.  These remittances are a dead loss to UK national income.

These extra costs should be considered when looking at the purported benefits of increased trade dependent on introducing extra factors of production.

Summing up

As a basic starting point, cost/benefit analyses are needed in two areas:

  1. What are the net benefits and disbenefits of EEA membership vis-à-vis, say, WTO stand-alone trade?

What are the costs of disruption of leaving the EEA?

  1. Where is any trade with the EEA which is lost going to be replaced?

Mrs May’s flimsy free trade agreement with the EU

If and when Mrs May, Mr Davis and the Department for (not) Exiting the European Union eventually  finalise a Free Trade Agreement (FTA) with the European Union (EU), it could potentially render the UK somewhat powerless against EU hegemony.  It will most certainly not be “taking back control” in any meaningful sense of the term, instead it will give the EU carte blanche to ‘turn the screws’ on the UK any time it wishes.  This potentially painful situation arises as a consequence of how the Single Market, the EU and our own Government, including the Civil Service, functions.

As first stated in her Lancaster House speech 17th January 2017, Mrs May recklessly decided to leave the Single Market (and the wider European Economic Area, EEA) when the UK notionally leaves the EU on 29th March 2019. As a result, under current plans, we will become either a temporary or permanent Vassal State of the EU. In place of membership of the Single Market, she is proposing an ambitious Free Trade Agreement (FTA) which, she hopes, will offer a continuation of existing stable ‘frictionless’ trade with other Member States of the EU and avoid trade ‘falling off a cliff’.  In the real world, trade deals with the EU are usually complex and slow to negotiate, taking several years. However, Mrs May and Mr Davis still believe it can be negotiated and finalised in a matter of months. At first, they hoped to have everything signed, sealed and delivered before next March when we leave the EU. Now they are aiming for 31st December 2020, 21 months later, following what the EU calls the “transition period” although misleadingly referred to by Mrs May et al the ‘Implementation Period’.

By any standards, the negotiating timescale for the FTA is very short and likely to be further shortened due to delays in fully agreeing the necessary terms within the Withdrawal Agreement for the Transition Period. Given Mrs May’s desperation for a deal, the ticking clock is a recipe for concessions being made on the UK side. Unless closely monitored and exposed, the many mistakes and concessions she is likely to make may well only show up later when both parties start implementing the complex and wide-ranging FTA.  Shortcuts and inadequate assessment of the details and their consequential implications are likely to be the order of the day.

The British negotiating side is further hampered through a general lack of motivation and expertise in intra-governmental negotiations in Government, Parliament and the Civil Service.  After kowtowing to the EU and its executive (the European Commission) for 43 years, our government has lost much of the acumen necessary to govern a sovereign country competently and responsibly. In any case the responsibility (‘competence’) for negotiating FTAs rests with the EU.

Once competence built up over many years is outsourced to the EU, it is rapidly lost and extremely difficult to reacquire in a short period.   The Civil Service, reduced to little more than a rubber-stamping organisation for EU directives could prefer to remain under EU leadership as it makes for a quieter decision-free and responsibility-free life.  This would explain their willingness to acquiesce to EU demands.  This seems to be the case with defence and defence procurement where the plan appears to be for increasingly close integration with the EU.

The EU negotiators, on top of their subjects, are running rings around our negotiators, who are repeatedly caving in to their demands and agenda. The EU’s negotiators are demonstrating a level of competence that is far superior to that of Mrs May, Mr Davis and Department for (not) Leaving the European Union.  Their dedicated website and Notice to Stakeholders (under Brexit preparedness) are not replicated on this side of the Channel.  A major consequence has been that the EU has effectively been in the lead all the time, dictating the terms for the negotiations and setting demands far outside what they are reasonably entitled to. For example, Article 50 negotiations were originally intended to cover financial arrangements for a Member State leaving the EU, nothing more.  Now, however, the EU wants to control UK fishing during the Transition Period through a continuation of the Common Fisheries Policy and still to manage our fishing afterwards – at least, what little is left of it – by treating it as a common resource.  The EU’s position is becoming more uncompromising slipping in further demands outside those strictly necessary for trade.

Another major weakness on the UK’s side is a lack of understanding of how the EU and the Single Market (or wider EEA) function.  The aspirations of ‘frictionless’ trade through an FTA and a soft border on the island of Ireland cannot be achieved by anything so far suggested by the UK side, as the EU has repeatedly pointed out.  Leaving the Single Market (or wider EEA) on 31st December 2020 (when the Transition Period is meant to end)  makes the UK into a ‘third’ country, nominally outside EU control, and subject to the same treatment as any other ‘third’ country trading with the Single Market (or wider EEA).  It is membership of the Single Market AND NOT THE CUSTOMS UNION which delivers customs cooperation between Member States across a range of products and frictionless internal trade.

The EU’s approach to most products within the Single Market 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 and encapsulated in EU law in REGULATION (EC) No 765/2008 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 9th July 2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products and repealing Regulation (EEC) No 339/93.

The EU’s guide, in describing the processes involved and their overall approach, also provides an indication of where future problems could occur and how out of touch with reality Mrs May and Mr Davis are.  At any time the EU can legally ‘turn the screws’ on us when it comes to trade.  Mutual Recognition of Standards or an FTA will not make much – if any – difference, simply because the EU’s negotiators will make sure they don’t.  They don’t have much alternative since to cave-in to UK demands would go against their direction of travel which was determined many years ago. Such a cave-in would set a precedent that could be exploited by other ‘third’ countries.

There is no guarantee that we will get to a Free Trade Agreement. The Transition Deal and Withdrawal Agreement are still far from finalised and, as the EU have stated many times, ‘nothing is agreed until everything is agreed’.  However sacrificing UK fishing, defence and agreeing to continue to adopt existing and future EU laws et al in the hope of one day achieving a free trade utopia is delusional and incompetent.  Hopefully reality will dawn – in particular, the horrific electoral consequences for the Conservative Party of such an abject surrender – in time to change tack. It is not too late for Mrs May to cut off negotiations and pursue a faster, safer and simpler approach to leaving the EU – for example EFTA/EEA explained in some detail in Brexit Reset.  Is it too much to hope that our latter-day Chamberlain may net metamorphose into a Churchill or the second Iron Lady which we so desperately need? “No! No! No!” is the only language which the EU understands. They need to hear it loud and clear from Mrs May or she will soon be hearing it from disgruntled voters.

Impressions of meeting with Michel Barnier in Brussels – John Mills

ON WEDNESDAY, 10TH JANUARY 2018

    Michel Barnier is an impressive person, tough and charming, who is evidently well on top of his Brexit brief and thus a formidable person to have on the other side of the table as the Brexit negotiations take place. He wants to get a deal completed but not at any cost to the EU27.

    His primary aim is to secure the integrity and security of the Single Market and the Customs Union rather than to search for a deal which is necessarily in the overall best interest of both the UK and the EU27. The notion that the EU27 may make substantial concessions to avoid economic pain is therefore very probably misplaced.

    While the best outcome from both the UK’s and the EU27’s point of view has always seemed to be for the UK to be outside the Single Market and the Customs Union but with a free trade deal in place covering goods and as many services as possible, this now looks as though it may be difficult to achieve. This is despite the fact that this is substantially the relationship the EU27 has with other countries as varied as Israel, Peru, Mexico, South Korea, Canada and the Ukraine.

    There are at least four major reasons why this is the case, these being:

1. The UK is starting from a radically different position from these other countries – essentially looking for a divorce rather than marriage, with all the baggage that this brings with it.

2. The UK is a much larger player in EU trade terms than any of these other countries, and thus potentially more disruptive if derogations are needed from the existing carefully balanced EU acquis.

3. The UK’s negotiation position has been gravely weakened both by the sequencing insisted on by the EU27 – dealing with money, Ireland and citizenship before trade – and by the result of the recent general election which has left no majority in Parliament for the WTO option which – although not the optimal outcome – is the only realistic fall-back position for the UK to have, without which the EU27 is left with all the cards in its hands.

4. Time is running short, although some extension of time by suspending Article 50 to create the proposed transitional period may help.

    In these circumstances, the most likely offer to the UK from the EU27 seems be free movement of goods and some concessions on services with the UK formally outside the Single Market and probably the Customs Union too but with the UK having to continue to accept nearly all the legal and regulatory obligations currently in place. These will almost certainly include substantial annual net contributions to the EU budget, free movement of people, significant jurisdiction by the ECJ, constraints on the UK’s capacity to negotiate trade deals on its own, and continuing membership of both the Common Agricultural Policy and the Common Fisheries Policy.

    An offer to the UK along these lines would probably be supported by all the EU27, led by Germany and France, but may not be acceptable to Parliament, let alone the British electorate. In these circumstances, preparing for the UK to fall back on WTO terms appears to be essential both to safeguard the position if no acceptable deal is presented to the UK, and to stiffen the UK’s negotiating position in the meantime.

    There may well be calls in circumstances where no acceptable deal is offered to the UK, for a second referendum on the UK’s EU membership, although probably only by a small minority of diehard Remainers. Even in the unlikely event of another referendum being held, current polls indicate that it would be unlikely to produce a different outcome from the one held in June 2016, thus confirming that Brexit is some form is likely to be inevitable.

    If the EU27 wants a deal with the UK it is therefore essential that this takes account of the political realities exposed by the 2016 EU referendum and current polls, which is that – if push comes to shove – the UK electorate would very probably be willing to opt for a clean break with the EU rather than finishing up being in a worse position than we were before Brexit started – with all the obligations against which people voted still in place, but with the UK having no say in how the EU develops in future.

John Mills 11th January 2018

Mrs May’s EU Vassal State

How much humiliation are Mrs May and Mr Davis prepared take at the hands of our European Union (EU) overlords? When will the pain they are going through reach such a level that they finally grasp the reality of the EU’s superior machinations?  It is now so obvious that the United Kingdom is to be made the latest example of what happens when the power of the EU’s rigid, self-interested bureaucratic and political machine is defied; it cannot be bargained with or changed – just obeyed.  And worse, Mrs May through her mistakes and Mr Davis through his slothful ignorance, has not just allowed it to happen, but made the EU’s worst excesses unavoidable. The first (So-called transitional) phase of  Mrs May’s ‘deep and special relationship with our EU partners’ after 29th March 2019 amounts to being a vassal state to the EU Empire just as around 2000 years ago Judea under King Herod the Great was a vassal of the Roman Empire. They eventually took over completely. The EU is threatening to do the same. What has gone so disastrously wrong?

In January this year Mrs May in her Lancaster House speech ruled out continuing membership of the Single Market (and European Economic Area, EEA aka Internal Market). Continuing membership is possible through membership of EFTA (The European Free Trade Association).  All the UK has to do is join – or rather re-join – assuming the existing EFTA members would have us back, which seems far from improbable. This route offers the ability to limit immigration from the day we leave by unilaterally invoking Article 112 (the Safeguard Measures) of the EEA Agreement.  The EFTA route to EEA membership does give 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). The EEA Acquis or body of law is about a quarter of the total EU Acquis since it only relates to successful functioning of the EEA. And EFTA members make their own trade agreements with other countries.  Membership of the EEA solves the problem of maintaining a soft border in Ireland between the Irish Republic and Northern Ireland.  It is EEA membership that allows seamless trade since regulatory measures are the same for each side, whereas being a ‘third country’ outside the EEA brings a hard (often protectionist) border with the EU of controls, tariffs, inspections etc.

Mrs May rejected even temporary EFTA/EEA membership (for reasons that have never been stated) and now, in order to get a transitional agreement (to buy time to negotiate a free trade agreement), she is being faced with having to agree a far worse arrangement with the EU (see European Council (Art. 50) meeting (15th December 2017) – Guidelines). For two or more years (subject to EU agreement) we will continue to be subject to the full EU acquis, pay into the EU budget, accept freedom of movement, be unable to make our own trade agreements with other countries,and accept the overall jurisdiction of the ECJ. It gets worse. During this transitional time (after 29th March 2019) the UK would have to accept unconditionally any new additional or amended laws and costs the EU wants to impose. All whilst actually being excluded from any decision making – all pay with no say.

Even an agreement from the EU to this transitional agreement is not a foregone conclusion, in spite of Mrs May being forced to fall into line just to get this far.  She has had to agree to the EU’s methodology for working out outstanding financial liabilities, She has had to accept the ECJ creating a different (potentially privileged) legal status for EU citizens here and the Irish border being effectively an internal EEA border; (though she may not yet realise that is the only workable solution for a soft border). We would be stuck with the Common Fisheries Policy and there is nothing to stop the EU imposing further demands for accepting a transitional agreement or during implementation whilst we remain a vassal state, for example, participation in the emerging EU Army and its common procurement (concealed under the initials PESCO), implementing centrally imposed migrant quotas and paying EU imposed fines.

Mrs May’s recent Brussels ‘triumph’ is more likely a poisoned chalice where there is little incentive for the EU to be accommodating or to hurry up with a free trade agreement.  Such discussions are very much on the EU back burner until after we become a vassal state (aka “leave the EU in name only” on 29th March 2019). Mr Davis talks about having a FTA agreed before we leave the EU and Mrs May talks about its implementation period, but this isn’t going to happen, as explained above. Indeed, it was spelt out by the EU’s Trade Commissioner back in 2016.  Even if they believe what they are saying, these are no more than wishful thinking and no matter how often they repeat them, it won’t make their hopes come true.

Looking at the bigger picture, progress so far by Mrs May, our EU negotiators and the Department for (Not) Exiting the European Union in managing Brexit has been lamentable and cavalier towards managing risk. The recent Joint (progress) Report, (and EU Commission Communication), containing contradictions, fudge and weasel words to appease all interested parties, amounts to 15 pages. Although not legally binding, it is likely to become politically binding upon Mrs May, contradictions and all.  Then there are the 58 non-existent sector-by-sector impact assessments which Mr Davis once claimed existed, but has since denied. How can the best route out of the EU be chosen when those doing the choosing haven’t a clue what could go wrong or even how anything works?  By contrast, here are impressively informative sector-by-sector assessments by Eureferendum.com.

Predicting the future is fraught with imponderables and the potential exists for unforeseen events completely to change outcomes.  So in the end, it is possible that things could be fine. However, judging by experience to date, this looks increasingly unlikely. We can but hope that Mrs May will abandon her single-minded rejection of the EEA/EFTA option, as the options she seems to be pursuing contain impossible contradictions. Perhaps she doesn’t know enough yet to understand all the practicalities. Meanwhile, how long can Mr Davis will keep on talking up imaginary progress towards a free trade agreement whilst getting nowhere and at the same time, making regular, very public gaffes that undermine the credibility of Brexit negotiations?

Another question remains unanswered, perhaps because nobody has asked it yet:– why put all your efforts, concessions and kowtowing into negotiating a complex transitional agreement, which could end up lasting a long time, when a far better (or less damaging) simple solution exists (of EFTA/EEA membership) at least for a transitional arrangement?  You rejected it once, now you are leading us into a worse mess all round until who knows when, why?

Straws in the wind

Apart from signs of possible movement in the stalled negotiations with the EU on trade, events are beginning to push into reality those matters which have previously been merely the subject of rhetoric and speculation.

Whatever plans the government has, it will have to start giving practical information to businesses in the early new year about its intentions. In our extended article The Complexities of Brexit, we pointed out the urgency of the situation for chemical manufacturers, farmers, food producers and other businesses which have long production cycles or investment programmes which reach into the post Brexit era.

Whilst trade associations like to avoid publicity which might upset the government and to conduct their negotiations in private, the urgency of the situation is pushing these matters into the public sphere. Two articles from City AM of 22nd November demonstrate this.

EASYJET PLAN COULD SHAKE UP SHAREHOLDINGS by Rebecca Smith

EASYJET yesterday set out plans which could force UK shareholders to sell their stakes after Brexit, as it prepares to comply with foreign ownership rules.

Under EU law, the airline needs to ensure majority control and ownership by EU nationals after Britain leaves in order for it to keep operating intra-EU. Yesterday it unveiled plans to amend its articles of association which currently give directors the power to limit the ownership of the firm’s shares by by non UK nationals. Easyjet intends to change this so they apply to non EU shareholders, which will exclude UK shareholders once the UK has left the EU – giving it the power to force UK shareholders to divest their shares if need be.

The airline will put the changes to shareholders at its annual general meeting in February, saying the switch-up will ensure that Easyjet is able to remain EU-owned and controlled at all times after the UK has left the EU.

The carrier said it has “no current intention” of using the proposed powers……

BREXIT BREAKTHROUGH NEEDED BY EARLY 2018 TO HELP BUSINESSES.

By Jasper Jolly & Alys Key

THE GOVERNMENT must secure a Brexit transition deal by the end of the first quarter of 2018 before businesses implement “no deal” contingency plans, according to the head of the Institute of Directors (IoD).

Speaking at the lobby group’s annual dinner last night, IoD director general Stephen Martin said businesses “are concerned about what happens if a breakthrough is not made at the next round of talks in December”.

He said “It’s as simple as this – we are now only 16 months away from leaving the EU. We need the discussion to move on to our future trading relationship and critically what happens when the Article 50 timeline runs out in early 2019.

But he praise IoD members for their “determination” in preparing for every Brexit eventuality, saying that businesses have upheld their end of the bargain and now need the politicians to “deliver” for them.

IGNORANCE ABOUNDING IN HIGH PLACES

A colleague, who has been quietly lobbying trade associations for months, decided it was time to speak to his MP. During the course of their discussion, he mentioned EFTA (The European Free Trade Association) and was astonished to find that this shadow minister did not know what it was. He had never heard of it. Over many years of campaigning, we have often been surprised at the lack of knowledge by MPs of all parties concerning the European project. A national referendum and over a year’s intense debate on the result appear to have been insufficient to disperse the fog of ignorance on even such a basic matter as this.

It is not just politicians either. At a private meeting of senior business people, not one participant raised a hand when asked if they had ever downloaded and skim-read an EU Free Trade Agreement. Former civil servants at the meeting said that this was also true of ministers they had served.

Mind you, half an hour of reading the sort of leaden prose which the EU produces is enough to sap the will to live! Considering the very definitive statements made by leading spokesmen and media personalities, it would be interesting to know how many of their very emphatic opinions were based on direct acquaintance with the text. The Devil is always in the detail.

A WIND OF CHANGE

Commenting on a report of this meeting, our good friend John Ashworth of Fishing for Leave wrote “I haven’t been home long from three days in London and I too can’t say what I have been up to, but I can confirm there is a wind of change. I have a lot of work to do now, but I am happy with the three days, never satisfied enough. But movement is at last happening, so to all readers, keep the pressure up.

“The two factors which had the most effect on them were, on the one hand, a most extraordinary level of ignorance and, on the other, an almost complete inability to listen. If anything, the stories that have leaked out on these aspects are somewhat under-stated” – yes, spot on”.

 

Ireland – The Second Government Brexit position paper

No one wants to return to a hard border between Northern Ireland and the Irish Republic. Even less does anyone, bar a few fanatics, want to return to the days of “the Troubles”. This much is obvious.

Settling the issues relating to what will be the UK’s only land border with the EU has been given a high priority by the EU too. Only yesterday, in response to the first UK government position paper (on customs), the  EU’s chief negotiator, Michel Barnier,  named the Irish question as one of three important issues on which agreement would need to be reached before serious discussions on trade-related issues could begin.

So a mere 24 hours after the position paper on customs, another has appeared which offers us some insights into the Government’s thinking on Ireland.

The paper identifies four priorities:-

  1. Upholding the Belfast (‘Good Friday’) Agreement in all its parts
  2. Maintaining the Common Travel Area and associated rights
  3. Avoiding a hard border for the movement of goods
  4. Aiming to preserve North-South and East-West cooperation, including on energy.

As far as the Good Friday Agreement is concerned, the paper points out that it was an agreement between the UK and the Irish Republic rather than the EU. Among other things, it affirmed “the permanent birthright of the people of Northern Ireland, irrespective of Northern Ireland’s constitutional status: to identify themselves and be accepted as British or Irish or both, as they may so choose; to equal treatment irrespective of their choice; and to hold both British and Irish citizenship.”  The UK Government has every intention to preserve this arrangement after Brexit.

The Common Travel Area pre-dated either the UK or the Irish Republic joining the European project. Indeed, Irish citizens have enjoyed special rights in the UK for most of the period since 1922 – a reflection of the strong, historic links between the Irish people and those in the UK. The Common Travel Area in its present form also involves the Isle of Man and the Channel Islands, which were never part of the EU. It allowed freedom of movement throughout the area and  allows Irish citizens to vote in the UK’s locla and Parliamentary elections.

Given that the Common Travel Area arrangements have been administered by the governments of the parties involved rather than by the EU and that the EU has been happy about this, the document maintains that there should be no reason why this situation should not continue after Brexit.

The “hard border” issue is likely to prove the most complex. In 1972, the paper informs us, there were 17 HM Customs and Excise boundary posts at the major road crossing points along the 310-mile long Northern Ireland land border and more than 200 other crossings not approved for vehicular traffic.  These have all disappeared but this is the number of potential crossing points which would need to be reinstated if a “hard border” were imposed. No wonder all sides are keen to avoid such a scenario.  Some farmers’ land straddles the border.

The paper recognises that it cannot propose a unilateral solution to the problem of maintaining the free flow of trade across the Irish border. It does, however, point to instances “where the EU has set aside the normal regulations and codes set out in EU law in order to recognise the circumstances of certain border areas.” – including the border between the Greek and Turkish sectors in Cyprus and the Croatia/Bosnia border. At the same time, the paper acknowledges that resolution of this issue “cannot be based on a precedent”. This makes sense for, after all, the EU’s aspiration is for Cyprus to be reunited with both parts of the island in the EU and likewise, Bosnia is a candidate country, even though it is unlikely to be joining the EU any time soon. By contrast, the UK is going in the opposite direction.

The paper also refers to the position paper on customs. Obviously, on the one hand the peoples of the UK and Ireland have an unique relationship, but the Irish Republic is an EU member state and part of the EU’s Single Market and Customs Union.  A solution for customs issues at the Irish border is inevitably going to be linked to wider customs and trade issues which will need to be addressed as part of the Brexit process, but as anyone who has visited the Irish Republic will be very aware, a substantial percentage of the products on sale in supermarkets in Irish towns and cities originate in the UK. It is therefore unsurprising that Irish officials are very concerned about the damage their economy may suffer if no trade and customs agreement is in place on Brexit. Leo Varadkar, the Irish Taoiseach, expressed a wish that the UK would not actually leave the EU, or if it did, that we would remain within the EEA. Dan Mulhall, the Irish Ambassador to the UK, by contrast, hoped that we would remain inside the Customs Union.

So the  progress towards the “innovative and untested” customs proposals and the possibility of a temporary customs arrangement discussed in the earlier position paper will be followed particularly closely in Dublin. Given that even if the UK government  changes tack and opts for ongoing membership of the EEA, agricultural goods would be outside this arrangement, it will take a lot of hard bargaining on both sides if all goods and services are to enjoy even relatively free access across the Irish border, whatever form that border may take. If it sticks to the proposals outlined in the position paper, there will be a number of areas where agreements on mutual recognition of conformity would have to be signed and time is short.

The North-South East-West cooperation may be a new term to many of us. North-South simply means the Belfast-Dublin axis and East-West refers to the relationship between London and Dublin. In many ways, the various fora such as the British-Irish Council and the British-Irish Intergovernmental Conference which have been set up under this label are the outworking of the recognition of the  close historic and geographical links between the UK and the Irish Republic. The cooperation has manifested itself in some specific sectors such as energy and the position paper emphasizes the need for the cooperation to continue after Brexit.

With this in mind, the concluding statement that a formal agreement between the EU and the UK on the Irish border issue early in the Brexit negotiations would not mean the end of any dialogue between the UK and the Irish government makes perfect sense. There will be a number of bilateral issues to resolve which do not directly involve the EU as a whole.

As with the position paper on customs, the abiding impression left by this document is that it has identified the issues which need a resolution without offering too much detail as to how they are to be resolved. Unlike the customs paper, however, where failure to reach an agreement would be far more disastrous for the UK than for the EU as a whole, when it comes to Ireland, a crashing out of the EU with no agreement would probably hit them harder than us. The Irish government is well aware of this and we cannot but hope for their sakes as well as ours that it will not be WTO rules on March 30th.