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.

 

Immigration:- putting the cart before the horse?

Last week, the Guardian published a leaked draft of a Home Office document entitled  ‘Borders, Immigration and Citizenship System After the UK Leaves the EU’

It contained the welcome news that the Government is determined to bring immigration down and intends to use the opportunities presented by Brexit to honour – albeit rather belatedly – its pledge to bring net migration down below 100,000.

Given the high profile of the immigration issue during last year’s referendum campaign, it is the least the government can do. In summary, free movement will come to an end on Brexit day. A scheme for seasonal workers will allow our fruit to be picked, but work permits will be time-limited, with those for low-skilled workers lasting only two years, with no right to settle. For all new EU workers, the right to bring family members will be significantly curtailed. UK companies will be encouraged to take on UK workers where possible.  Though it does not give precise details, the document says the UK is minded to introduce an income threshold for some EU citizens before they will be allowed to reside here.

It all sounds good in theory. There are good,sound reasons for slashing immigration. The pressure exerted by migrants is making it harder for native Brits to get onto the housing ladder or, in some places, to see a GP or find a place for their children in a local school. The use of short-term work permits will give the government  – and indeed, business – greater flexibility, especially as advances in robotics will drastically shrink the numbers of low-skilled workers required. Some experts suggest that we will have problems finding work for all the current UK working age population within 30 years. We certainly don’t want to saddle ourselves with lots of migrants whose jobs have been taken by machines but who have a right to stay here.

Of course, a Tory party which has found itself on the back foot since the General Election will be keen to do all it can to rebuild its support and there are plenty of voted to be garnered by being tough on immigration.

Yet the welcome given to this document must be tempered with a feeling that the Government is rather putting the cart before the horse. We know what it wants to do about immigration but very little about its proposed relationship with the EU. We would probably be able to implement most these restrictions as a member of EFTA and accessing the Single Market via the EEA agreement and applying restrictions in the same way as Liechtenstein, in spite of claims by one EU official that  “Limits on numbers of people or categories of migrant worker are incompatible with single market access.” They seem to have forgotten this small Alpine country which invalidates their argument.  Likewise, we would certainly be able to restrict migration if we stormed out of the current negotiations and left the EU in March 2019 with no agreement and some commentators are suggesting that this is seriously being considered.

The EFTA route has thus far not been in favour while walking out would be foolish and lead to the “cliff edge” which we are repeatedly being told the Government wishes to avoid. So what, then, is the Brexit framework into which these immigration proposals will fit?

Furthermore, if the Government is serious about reducing net migration below 100,000, what about immigration from outside the EU? The most recent statistics did record a drop in arrivals from EU-27, but arrivals from the rest of the world stood at 266,000 during the same period. The government could act here and now to stem the flow if it so desired. Then what about illegal immigrants? Will the Government finally get serious and deport them?

So while this document is a step in the right direction, a lot of questions remain unanswered.

 

Avoiding the cliff edge?

Brexit news has come thick and fast this past week. While we don’t see the need to comment on every twist and turn, some recent developments have been quite significant.

In particular, following reports of disagreements within Mrs May’s cabinet over how “hard” Brexit should be, we are now informed that the Cabinet is united over the need for a transitional deal pending full departure from the EU.  There has been considerable pressure from business leaders worried about the relatively short timescale to prepare for departing the EU. According to the Daily Mail, Mrs May told a group of senior figures from industry that she wanted to avoid a ‘cliff-edge’ exit from the EU.

The article also said that even David Davis, one of the ministers keenest to leave the EU as soon as possible, is reconciled to a transitional Brexit period lasting until 2022.

Of course, with 2022 is now the new date for the next General Election, this puts a great deal of pressure on the Government to make sure we’re through the transition period before voters go to the polls. A recent survey by YouGov studied the main reasons given by voters for supporting the two big parties in this year’s election. Among Tory voters, Brexit came top of the list with 21% citing it as their top concern. By contrast, Brexit (either supporting or opposing it) did not feature at all in the top 10 reasons why people voted Labour.  Achieving a successful Brexit looks like being essential for the Tories if they are to stand a chance of remaining in power next time round.

One big issue in many voters’ minds was immigration and it is possible from the snippets revealed by a government source that no attempt will be made to restrict migration from the EU during the transition period, although when the BBC reported on this topic, it merely used the term “might be” no restriction. If this is the case, it would confirm Mrs May’s statement earlier this week that whatever the transitional arrangement may be, it is not going to include remaining within the Single Market. If so, what will it include? A safer transitional option, the EEA/EFTA route, would enable us, via the Liechtenstein Solution, to start imposing restrictions  far sooner.

Opposition to housing development in greenfield sites and in small towns is not going to go away either, particularly as an increasing number of people are starting to make the obvious link between housing shortages, concreting over the countryside and immigration. This will only add further pressure on the Tories.

However, if voters may be concerned that the government is kicking its migration target further down  the road, the House of Lords Economic Affairs Committee thinks otherwise, noting that Brexit will encourage firms to replace cheap labour with robots. In a sense, this is nothing more than the House of Lords playing catch-up. Almost two years ago, Andy Haldane of the Bank of England said that millions of jobs would be replaced by robots in the next twenty years. Even allowing for exaggeration and/or technology not developing as fast as suggested by the headline report, if we start to become a world leader in artificial intelligence, we will be struggling to find work for the current immigrants and with the exception of top professionals, certainly won’t want any more.

As the summer recess begins, the government will not have an easy job to  keep everyone happy, be it the many shades of opinion among leave voters, the Business community or even the Cabinet. We are still woefully thin on detail about even its transitional plans, but at least we have now been told that the important players are not only talking to one another but listening and attempting to find common ground that will keep most leave voters and business people on side. That still leaves a lot of concerns unaddressed, but for this small mercy we must be thankful.

Photo by williamcho

Brexit and some alternative facts

In a time of universal deceit, telling the truth is a revolutionary act. (anonymous, often misattributed to Eric Blair aka George Orwell)

The truth is usually more complex and subtle than the simplistic soundbyte beloved of politicians and media headline writers. Fake news is not necessarily the problem; misinformation can be spread because the basic assumptions are incorrect, the background has not been thoroughly investigated or it is just speculation masquerading as fact.

The following are a couple of quite significant examples.  However, please don’t take my word and incomplete knowledge of these subjects for granted.  A much better source is Eureferendum.com and the original source documents.

Control of EU Immigration Requires Leaving the Single Market – NOT TRUE

How often have we heard or read this, but it is not actually correct.  The Single Market (aka European Economic Area), created by the European Union (EU) and to which the members of the European Free Trade Association (EFTA) also belong has free movement of goods, persons, services and capital as basic principles (set by the EU). The conditions of access of members of EFTA to the single market are set out in the Agreement on the European Economic Area which also includes free movement as a basic principle.

However, the EEA Agreement also includes an opt-out which can be applied unilaterally by members of EFTA (see Chapter 4, Safeguard Provisions, Article 112), but obviously not by Members States of the EU.  It states:

  1. If serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist are arising, a Contracting Party may unilaterally take appropriate measures under the conditions and procedures laid down in Article 113.
  2. Such safeguard measures shall be restricted with regard to their scope and duration to what is strictly necessary in order to remedy the situation. Priority shall be given to such measures as will least disturb the functioning of this Agreement.

This opt-out is intended to be temporary (until a permanent solution is implemented), but nevertheless can be invoked and maintained in the absence of that permanent solution.  It has been used already by Liechtenstein to control immigration and Iceland to control capital flows in the wake of the financial crisis.

The EU negotiators are already setting terms for the EU-UK negotiations – NOT TRUE

How often has the media reported that this or that person, with an appropriate grand EU-related title, is already laying down tough terms for us? In reality, at the moment there are no negotiators as such – just political nominations by various posturing organisations within the EU set-up and their self-important leaders or other politicians. The small print of the Lisbon Treaty Article 50 states:

  1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
  2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

Article 218(3) of the Treaty on the Functioning of the European Union states:

  1. Without prejudice to the specific provisions laid down in Article 207, agreements between the Union and third countries or international organisations shall be negotiated and concluded in accordance with the following procedure.
  2. The Council shall authorise the opening of negotiations, adopt negotiating directives, authorise the signing of agreements and conclude them.
  3. The Commission, or the High Representative of the Union for Foreign Affairs and Security Policy where the agreement envisaged relates exclusively or principally to the common foreign and security policy, shall submit recommendations to the Council, which shall adopt a decision authorising the opening of negotiations and, depending on the subject of the agreement envisaged, nominating the Union negotiator or the head of the Union’s negotiating team.
  4. The Council may address directives to the negotiator and designate a special committee in consultation with which the negotiations must be conducted.
  5. The Council, on a proposal by the negotiator, shall adopt a decision authorising the signing of the agreement and, if necessary, its provisional application before entry into force.

Clearly negotiations are with the Council (of the European Union) who nominates a negotiator and, at the time of writing, they haven’t done so, officially at least.

To sum up, all is not what is reported or stated to be true facts and because they are repeated so often, if not vehemently, it is easy to be taken in.

The UK’s strong hand in trade negotiations

The war of words between UK ministers and EU officials continues. Donald Tusk, the President of the European Council, insisted that the only choices available ot the UK were “Hard Brexit ” or No Brexit” – in other words,  give up trying to leave the EU or accept that if we will not accept freedom of movement, we canot have access to the single market. The article mentioned Norway and Switzerland, which both accept freedom of movement. It failed to mention Liechtenstein which, as we have frequently mentioned before, does not.   

As we have pointed out, this is not he first instance of the media being less than helpful in reporting the prelimiarnbies to the negotiations. However, sometimes, some useful facts to appear. The article below, from the Economic Research Council,  indicates the importance of the UK as an export market for several leading EU nations. Of course, the UK needs to ensure that our goods meet all the EU’s complex regulatory requirements to access the Single Market, but if we adopt the Liechtenstein route or some sort of shadow-EEA arrangement, we do have quite a bit of leverage.

Summary: The chart shows some aspect of each nation’s position on trade with the UK in the run up to Article 50 negotiations with access to the single market being the key issue. Theoretically, countries with a greater reliance on the UK for exports could (or should!) take a softer stance on Brexit negotiations, in order to safeguard these trade links. Where the export/import ratio increases; this pressure to achieve favourable terms should be compounded.
ercchart4116

What does the chart show? The blue bars show the export/import ratio of each nation. Values above 1 denote that the country is a net exporter to the UK, and values below 1 show that the country is a net importer from the UK (of the nations shown, only Greece and Ireland are in this category). The red dots show each country’s exports to the UK as a % of their total exports to EU28 countries, so higher values therefore signify a greater reliance on the UK trade in their dealings with other EU nations. The data represents trade in goods only (not services) and is from 2015.

Why is the chart interesting? The chart shows that the key European nations individually have a very significant reliance on trade with the UK, with five of the key players doing over a tenth of all their export trade in Europe with the UK. What is also underlined is that, unless a united front from the EU states is shown in negotiations, Britain has serious clout with each of them through the sheer scale of its buying power. In addition, the graph only displays trade in goods not services, which might increase EU state’s reliance on Britain yet further.

There has been much speculation on the tone Article 50 negotiations are likely to take, not helped by entrenched ideological positions. We have seen firm and unequivocal comments from some ministers in EU member states who are taking a decisive ‘all or nothing’ stance. This toughening of tone stands in contrast to early conciliatory statements in the days that followed the result. On the other side, the self-assured attitude of some members of the British government, particularly Johnson and Gove, stems from their confidence in the UK’s strength based on the EU’s reliance on UK trade.

What the chart illustrates well is that for the key states in Europe, these negotiations are about far more than trade, indeed they may well allow their economies to take a hit for the longevity of the political union.

Come back one day? Not on your nelly!

Sigmar Gabriel, the German economy minister, gave an interesting speech in Berlin yesterday. He began with the oft-repeated statement that access to the Single Market must be tied to acceptance of the four freedoms, including freedom of movement of people. This, as any reader of this blog will know by now, is not true. Availing itself of  Article 112 of the EEA agreement, Liechtenstein has restricted freedom of movement from the EU for over 20 years but has virtually full access to the Single Market.

Obviously, it is not in the EU’s interest to acknowledge that a tiny state bordering the EU’s most powerful member offers us a way (if Mrs May so desires) to square the circle between single market access and restricting migration from the EU, but he then hinted  that he would like the “awkward partner” to come back, which was rather a surprise. Our vote on 23rd June was a shock to many across the water, but everyone who counts within the EU has accepted the result. Furthermore, once we’ve gone, they can at least try to forge ahead with the EU army, the EU foreign service and all those other projects which us pesky Brits have been holding back. Good riddance to us.

Well, that is what you might think, but Herr Gabriel went on to say that “We must try to formulate offers in a way so that the Britons remain close to us, also to have the chance that they return some day.”

Some hope! At the moment, lack of detailed information from the Government about the Brexit strategy has caued the pound to wobble and some investors to hold back, but even with these uncertainties, business confidence has recovered to pre-Brexit levels and some of the prophets of doom have admittted they were too pessimistic. With Theresa May talking enthusiastically of using her determination to seize “a once-in-a-generation chance to change the direction of our nation for good,” the tide is turning very strongly against the  hard-core remainiacs who would wish to drag us back into the EU.

Of course, the sickening spectacle of young people painting their faces in the colour of the EU flag and  waving placards in support of EU membership is a reminder that we leave campaigners still have a job to do. De-programming our young people, who have been fed a diet of pro-EU propaganda at school, will take quite a few years, but a successful Brexit will  unquestionably aid the process.  Successful non-EU nations of Western Europe such as Norway and Switzerland command strong majorities opposed to EU membership. Once the benefits of  Brexit become apparent, there is every reason to believe that public sentiment here will likewise become overwhelmingly thankful that we have escaped from an organisation which is likely to continue lurching from crisis to crisis until finally it implodes.  Herr Gabriel, in other words, is living in fantasy land.

Photo by QuinnDombrowski