The Customs Union – stupidity or sabotage?

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

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

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

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

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

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

 

 

Some Brexit insights from Ireland

Dr Anthony Coughlan, a leading supporter of  “Irexit” and long-term acquaintance of Edward Spalton, our Chairman, has recently forwarded some interesting insights into Brexit which come from a well-placed Irish friend of his.

“The editorial in today’s Irish Times and the article by Stephen Collins are saying – obliquely – what you … and others have been saying since the referendum, i.e. that the British and Irish Governments have to sit down and work out a post-Brexit border regime, which requires technical and pragmatic solutions according to Michel Barnier.

Indeed it does, but the European Commission was not saying that at first. It is doing so now, I suspect, because the continental Member States are getting fed up with the Irish Government and the European Commission, along with British Remainers, attempting to use the border to scupper Brexit. The Continentals just want the thing sorted.”

This is one glimmer of light in what has not been a happy time for negotiators as far as the Irish border issue has been concerned. Barnier’s “backstop” proposal of keeping Northern Ireland in the Customs Union was greeted with widespread anger among Unionists in Northern Ireland. It does not bring the issue any closer to resolution but does suggest that, not withstanding public shows of solidarity by the other 26 EU member states, the Irish government will not garner much support for being deliberately obstructive over the search for a resolution to the border issue.

On a less encouraging note, however, Dr Coughlan’s friend goes on to say:-

I suspect, incidentally, that if the West attacks Syria the British Government might use it as an opportunity to “suspend” Brexit. I have little doubt that the British Foreign Office is working up something along those lines to present to Theresa May. If there is a really serious war, i.e. WW3, it won’t matter, but a shooting war that is something less than WW3 would suit the Remainers down to the ground.

The latter are well capable of urging an attack on Syria for that purpose. I hope the Brexit community in the UK is alive to this possibility, particularly Tory MPs, some of whom might otherwise be expected to be gung-ho for war over Syria.”

Since Dr Coughlan sent us his friend’s comments,  a military force including the USA, the UK and France has bombed Syria. The first polls taken after this action suggests that there is strong opposition from the UK public to these actions, with supporters outnumbered by two to one. Furthermore, Mrs May faces strong opposition from Parliament, annoyed at not being given a vote. So while an escalation of the conflict may be in the remainiacs’ interests, it does not look particularly likely at the moment.

Even so, this bunch of bad losers needs careful monitoring. A meeting of remoaners took place yesterday (Sunday 15th April ) in London, with the hope of launching a major drive to stop Brexit. Our friends from Leavers from London turned out in some force with a counter-demonstration, holding placards yet being polite and friendly.

It remains our opinion that a badly- executed Brexit remains a far greater concern than the activities of disgruntled, incorrigible remoaners,  but they must not be underestimated.

Filling in the blanks

This past week has seen a flurry of activity on the Brexit front, but it is debatable whether we are any further forward in the process of achieving an exit from the EU which is both reasonably seamless and a genuine parting of the ways.

The first shots were fired by the European Commission  in the shape of a draft withdrawal agreement, which appeared on  Wednesday 28th February. Barely had the text been made public when Mrs May responded, saying that “no UK Prime Minister could ever agree to it.” The biggest bone of contention was the proposal that,  in the event of the two sides failing to agree on a solution to the Irish border problem,  Northern Ireland to remain in the EU’s customs union with a border between the province and the rest of the U.K.  Arlene Foster, the leader of the Democratic Unionist Party was equally forthright, stating in a tweet that “EU draft text is constitutionally unacceptable & would be economically catastrophic for Northern Ireland.”

Responding these swift rejections of the Commision’s proposal, Donald Tusk, who visited Mrs May in London, stated that the document was built on last December’s draft agreement on “Phase 1” of the divorce talks, with the blanks filled in, not out of any desire to provoke but merely because the UK has so far not come up with any proposals for dealing with the Irish border issue. “you fill in the blanks if you don’t like our suggestions” was the gist of his remarks. Michel Barnier added that the EU document has addressed the Irish border issue “in a practical, pragmatic legal fashion.”

So with there being no meeting of minds on Wednesday, would Mrs May shed any more light on how her government was going to fill in the blanks? She gave another speech on Brexit on Friday March 2nd and regrettably, it did little to clarify matters.   She still does not seem to have any idea of the extreme unlikelihood of the  EU agreeing to a system of  mutual product recognition, completely outside its present arrangements of assuring the standards of goods arriving from outside the EU. She acknowledged that leaving the single market and customs union would mean  “our access to each other’s markets will be less than it is now. How could the EU’s structure of rights and obligations be sustained, if the UK – or any country – were allowed to enjoy all the benefits without all of the obligations?” Fair enough, but anyone hoping for detail on what alternative arrangement she wanted to make  was going to be disappointed.

It is astonishing how badly advised Mrs May seems to be. In dismissing “the Norway model”, she said “we would stay in the single market, {which} would mean having to implement new EU legislation automatically and in its entirety – and would also mean continued free movement.”

This website alone has pointed out on umpteen occasions that Norway, Iceland and Liechtenstein only have to implement about one quarter of EU legislation and much of this relates to the technicalities of trade. What is more, Norway, if it so desired, could join Liechtenstein and unilaterally restrict freedom of movement from the EU using articles 112 and 113 of the EEA agreement. As an interim agreement, it reduces the burden of EU law by some 75% , compared with the EU’s proposals.

The only step forward, as Dr Richard North has pointed out, is that Mrs May acknowledged that many of these regulatory standards “are themselves underpinned by international standards set by non-EU bodies of which we will remain a member”. In particular, she noted that the UN Economic Commission for Europe (UNECE) “sets vehicle safety standards. Countries around the world.”

This speech, says Dr North, is “the first time in recorded history” that “we have a prime minister recognising that the EU is not the fount of all regulation and that “many” regulatory standards originate from “non-EU bodies”.

Much of the rest of the speech, sadly, was taken up with wishful thinking – good on mood music but totally lacking in any practical suggestions of how to move Brexit forward.

The biggest disappointments were that she did not announce the rejection of the EU’s proposals for a transitional arrangement- accepting every single part of EU law and any new ones they dream up for a period which may well extend beyond the projected 21 months.  Until this happens, there can be no real progress towards a deal which will be acceptable to her own MPs. Secondly, her comments on fisheries were a cause for concern:-“The UK will regain control over our domestic fisheries management rules and access to our waters.” That’s fine and if she had stopped there, everyone would be happy.

Unfortunately, she then continued “But as part of our economic partnership we will want to continue to work together to manage shared stocks in a sustainable way and to agree reciprocal access to waters and a fairer allocation of fishing opportunities for the UK fishing industry.”  These words do not suggest that she has yet been won over to Fishing For Leave’s exciting proposals to rejuvenate our fishing industry and coastal communities, which would make us once again a world leader. (see Fishing for Leave’s comments on her speech here)

Essentially, this week has just been an extension of the Brexit stalemate, even though some strong words have been said on both sides. How much longer can this last? In is now March 2018. In a year’s time, we will hopefully be leaving the EU. For all Mrs May’s talk of  “a bold new positive role for ourselves in the world”, we are none the wiser as to how she intends to achieve this.

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?

“Sufficient progress” or breakthrough?

The news that an agreement has been reached between our negotiating team and the European Union has been trumpeted as a “breakthrough” by the mainstream media.

The text of the joint report is available here and on reading it through, you will note that it amounts to nothing more than a statement of intent – an agreement to have an agreement. Nothing is set in stone, even assuming that the European Council will be happy with the document. Most importantly, however, it should enable the Brexit negotiations to move on to the important area of trade talks in the New Year.

Let’s have a quick recap:- In order to move on to “Phase 2” of the talks, the EU was not insisting on a deal on the three points it insisted needed to be discussed first – namely the rights of EU citizens living in the EU, the divorce bill and the Irish Border issue, merely that “sufficient progress” needed to have been made on these issues and Jean-Claude Juncker has decided that such a point has indeed been reached.

The document is distinctly lacking in detail. No exact figure for the divorce bill is mentioned. In broad terms, we will honour our commitments up to the end of the EU’s seven-year budget in 2020 and our shareholding in the European Central Bank will be reimbursed on withdrawal. The options for voluntary participation in certain EU projects have been left open. No surprises here. Reports elsewhere suggest a figure of £35 to £39 million – considerably lower than the EU’s initial demands.

Neither is there anything unexpected in the wording of the section on EU citizens’ rights.  There remains some ambiguity over the “extraterritoriality” issue – in other words, that EU citizens resident in the UK being subject to the EU law (including the European Court of Justice) and not to UK law. The document contains a rather vague statement that , “UK courts shall therefore have due regard to relevant decisions of the CJEU after the specified date.” {i.e., withdrawal} but Jean-Claude Juncker’s understanding of the wording is rather disturbing. He said that, “For EU citizens, the ECJ will still be competent.” Mrs May, on the other hand. said that EU citizens living in the UK will have their rights enshrined in UK law and enforced by British courts”

On the Irish Border issue, the relevant paragraphs are particularly interesting, given that the final text would have been approved by the Democratic Unionist Party. This is what they say:-

“The United Kingdom remains committed to protecting North-South cooperation and to its guarantee of avoiding a hard border. Any future arrangements must be compatible with these overarching requirements. The United Kingdom’s intention is to achieve these objectives through the overall EU-UK relationship. Should this not be possible, the United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland. In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the 1998 Agreement.

In the absence of agreed solutions, as set out in the previous paragraph, the United Kingdom will ensure that no new regulatory barriers develop between Northern Ireland and the rest of the United Kingdom, unless, consistent with the 1998 Agreement, the Northern Ireland Executive and Assembly agree that distinct arrangements are appropriate for Northern Ireland. In all circumstances, the United Kingdom will continue to ensure the same unfettered access for Northern Ireland’s businesses to the whole of the United Kingdom internal market.”

In summary, the ball is in the court of the UK negotiators to come up with a specific solution to the Irish border problem which enables cross-border trade to continue seamlessly but without Northern Ireland ending up subject to a different set of regulations as the rest of the UK. Feargal Cochrane, an academic at the Univeristy of Kent, described the wording as “more constructive ambiguity” – a fair assessment.

Thankfully, everyone has recognised that the nature of future trade with the Irish Republic  cannot be separated from the wider issue of a future UK/EU trade deal. This recognition does not, however, make the agreement of such a deal any easier – as the challenges ahead if all the relevant parties are to sign off a bespoke deal in time for it to come into force by the end of March 2019 are immense.  The main benefit of the agreement reached this morning is that the many obstacles ahead of our negotiators, including the unacceptability of any transitional arrangement on the terms Mrs May is rumoured to be considering will come to the surface sooner rather than later.

In conclusion, this agreement has removed one obstacle in the talks and for this, we must be grateful. It is only one small step, however. “Nothing is agreed until everything is agreed,” says the first page of the text. Arlene Foster of the DUP has warned Mrs May that Conservative backbenchers are likely to be unhappy with some aspects of the joint report, particularly  over the extraterritorialty issue and any restrictions on our ability to adopt an independent trade policy on Brexit.

At least for now, however, things can move on with any thought of a separate status for Northern Ireland now consigned to the dustbin for which we must be thankful, especially given the  demands for special treatment for Scotland and possibly Wales which could have followed.  There is, however, a long, long way still to go and fierce opposition to any plan to keep us more or less in the EU for a two-year transitional  period will soon be manifesting itself.

“We still have a lot of work to do; the joint report is not the withdrawal agreement,” said Jean-Claude Juncker. One does not often find oneself in agreement with the President of the European Commission, but on this occasion, he never spoke a truer word.

Photo by .swallowtail.

No deal is looking increasingly likely

There was something of a storm in a teacup in the House of Commons on Monday. The Conservative backbencher Jacob Rees-Mogg asked the Prime Minister for an assurance that the European Court of Justice’s writ will not run in the UK after March 29th 2019. Mrs May didn’t oblige. She replied that “That may mean that we will start off with the ECJ governing the rules that we are part of.” This admission that we will “fall under ECJ rules” was all over the papers, but this media frenzy was based on the assumption that the transition period proposed by Mrs May, among others, is a realistic option. In reality, it isn’t.

What seems to be the core of the transition proposals is that we continue for a couple of years as a shadow member state. Having repatriated the acquis into domestic legislation, we would voluntarily apply the rules of the single market and customs union while in exchange, the EU would treat us like a member state for trade purposes and neither impose any tariffs nor apply the usual rules of inspection for a “third country” at the main ports of entry for UK exports, such as Calais due to our regulatory convergence with the EU.

The flaw in the proposal is that it makes the assumption that the EU will bend its own rules for the sake of an ex-member whose vote to leave dealt it a huge political blow. There is every indication that Mrs May’s transitional plan, which so upset Jacob Rees-Mogg, is a non-starter. EU bigwigs have been very courteous but the message has been quite unequivocal – No way to this transitional arrangement, no matter how many times the Prime Minister calls on the EU to show “leadership” and “flexibility.”

So what are we left with? In her speech yesterday, Mrs May raised the possibility of there not being a deal in place – transitional or otherwise – by March 2019. “While I believe it is profoundly in all our interests for the negotiations to succeed, it is also our responsibility as a Government to prepare for every eventuality, so that is exactly what we are doing. These white papers also support that work, including setting out steps to minimise disruption for businesses and travellers”, she said. (The white papers to which she refers cover trade and customs.)

Naturally, the Prime Minister stated that this was not what she wanted, going on to say “We are negotiating a deal. We will not have negotiated that deal until, I suspect, close to the end of that period that’s been set aside for it.” In other words, we will keep on talking and hope for some sort of deal eventually, even if the talks go to the wire.

This is not helpful for businesses, who will not have any guidelines to help them prepare for Brexit and will not even know whether a deal is going to happen until the last minute.  If they were to take the advice of some commentators, it would be to prepare for no deal being struck. For all Mrs May’s calls for flexibility, that word isn’t to be found in the EU’s vocabulary, as David Davis and his team are beginning to discover. We agreed to the EU’s negotiating timetable – in other words, that an agreement (or at least, reasonable progress towards an agreement) – on  the Irish border question, the divorce bill and the rights of EU citizens resident in the UK must come before any talk about trade. We needn’t have done this, but we have and so who can blame the EU for sticking to its guns when there has been very little progress in these three areas?

The repeated rejection of ongoing membership of the European Economic Area, for instance, by re-joining EFTA, has closed off another option and one which has two advantages over the bespoke transitional arrangement which Mrs May is suggesting. Firstly, it is rooted in reality. We would be signing up to an agreement which the EU has already signed. Secondly, there would be no need to accept the supervision of the ECJ or to be part of the EU’s customs union. We would thus be free to strike our own trade deals.

There is also one other intriguing possibility, first raised by George Yarrow of the Regulatory Policy Institute. In his paper,  Brexit and the Single Market, he claims that on Brexit, the UK would remain a member of the EEA by default  He points out that joining the EU does not automatically mean joining the EEA; a separate accession process is required. Likewise, when Austria, Sweden and Finland left EFTA to join the EU in 1995 (by which time the EEA agreement between the EU and EFTA was in place), they did not have to re-apply to join the EEA. They were already members through having been in EFTA. The default position for the UK on departure, therefore, is that it too would remain an EEA member.

Yarrow’s thesis has attracted little attention from either our negotiators or the EU’s team. It raises a number of questions but it might possibly offer some answers. While the EU has no interest in exploring it, it would make life a lot easier for David Davis. We would not be under the power of the ECJ but of the EFTA court (which is limited to “EEA-relevant” matters) and could follow Liechtenstein and apply the same restriction on free movement of people, using Articles 112 and 113 of the EEA agreement. At a stroke, we would be in a better transitional position than under Mrs May’s proposals – to which the EU is not going to agree anyway.

On the other hand, if Yarrow is wrong and leaving the EU means leaving the EEA, it does mean that time is very short – probably already too short – for any satisfactory arrangement  to be in place by March 2019. German manufacturers are being told to prepare for a “very hard Brexit” while the Irish equivalent of HMRC has already reached the conclusion that customs posts will need to be erected between the Republic and Northern Ireland, even though no one on either side wants to see the return of any sort of visible border.

Yarrow’s thesis or an immediate application to re-join EFTA  are thus the only two escape routes from the looming cliff edge which no one wants either. The first option is untried and may not stand up legally while the second has been repeatedly rejected in favour of a chimera – namely Mrs May’s illusory “transitional arrangement”. We are not yet in Private Fraser territory where “we’re all doomed”, but Mrs May and her party could well be unless they engage in some lateral thinking – and quickly.