Wednesday, 27 April 2016

They do not know what Brexit looks like - but they should

Just from the illustration you can see what the FT thinks of Britain and how it views the EU.

Martin Wolf and the Financial Times do not know very much. He said as much. He says "the uncertainties would be pervasive: we do not know what the UK government negotiating an exit would want; we do not know what the rest of the EU would offer; we do not know how long negotiations would last; and we do not know what the outcome would be." And while we do not know for a fact what would happen, we can make some reasonable estimations - which is what financial sages are supposed to do. For instance we do we do not know exactly what the UK government negotiating an exit would want. But we can safely assume that it does not want a disorderly and messy withdrawal.

Wolf says that "There are three plausible alternatives". This is where we are in straw man territory. He cites the WTO option which does not in any way address the multiple cooperation agreements or issues surrounding non-tariff barriers and in fact would likely cause asymmetric tariffs in the EU's favour. If Wolf was a halfway credible analyst he would know that much. It's a non-starter and would in fact case the very chaos that remainers have been talking up. So we are back to the age old question. Ignorance, dishonesty or both?

This means of exit is commonly associated with unilateral withdrawal, which no government intends to do nor would even consider it when faced with the practical ramifications. And so we can say with absolute certainty that we are looking at a negotiated exit.

With regard to the Swiss Option, comprising of membership of a trade arrangement in goods, with bilateral deals in other areas, Wolf is right to say it is "complex" and given that we have only two years under Article 50 to negotiate a settlement, we can safely assume that a bespoke deal is not on the cards. Talks may be extended but the tolerance for uncertainty will be short. Any UK government entering negotiations would rapidly be disabused of any fanciful notions of recreating the relationship from the ground up.

So actually, an off the shelf agreement based on the EEA is looking the most probable exit means and since it is the least disruptive for both parties and the most achievable, that is most likely what will be asked for and the only thing on offer. Having done a scoping exercise in advance of submitting our Article 50 notification, we can say with some confidence that a transitional deal could be arranged inside the mandated two years. To ensure it does not drag on, we will in all likelihood adopt most of the existing cooperation agreements as they are without opening them up fro scrutiny. We will swallow the lot. Wolf has it that the UK would have to retain free movement of people membership of the European Economic Area, which is true, but actually irrelevant.

At the end of negotiations what we end up with is more or less the same access to the single market and no real changes in the business environment. Cooperation agreements continue as before and nothing looks that much different on day one. This renders much of the speculation about Brexit entirely redundant. Wolf as much admits this.

It is however Wolf's view that it would deprive the UK of a say on regulations. "In all, the more sovereignty the UK wishes to regain, the less preferential access it retains. This trade-off cannot be fudged." he asserts.

Now I need not go too deeply into the regulation issue once more. The "no say" meme is now in tatters. In any area of regulation you care to look, the EU is a recipient of rules as much as anybody else. Its rules are subordinate to global standards and such standards from the basis of nearly all new EU technical regulation. Brexit not only gives us a right of opt out at the WTO/UNECE level, we would also enjoy EU consultation before any rules went as far as the EU parliament for what they laughingly call scrutiny. What that means is we will never again see the EU abusing its power to foist rules on us that we do not want.

Wolf is right however when he says that there are trade-offs. Asserting sovereignty in regulatory areas does have trade-offs. Because Norway has heavy protections on its own aquaculture and agriculture it is subject to tariffs. It remains that way because that is what Norway chooses to do. Their parliament examined the balance of issues and decided on a case by case basis whether the trade off was worth it. In more areas than one, Norway has concluded that sovereignty matters more. This would be that democracy thing. And the whole point of Brexit as it happens.

And while the regulatory regime doesn't change that much, it does mean that we are free to change it where we deem change is appropriate. It categorically does not mean a huge administrative undertaking to establish a separate regulatory system. All it means is we can change it as and when we want to - and when we want regulatory reform, we have a direct line to the global bodies that make the rules rather than having the EU speak on our behalf. The clout we have in that regard in on the basis of what we bring to the table in terms of soft power and expertise which is considerable when you consider the UK's many assets.

In respect of immigration, while we retain freedom of movement we do have a unilateral EEA emergency brake and if this is deemed insufficient, Britain joining Efta makes Efta the fourth largest bloc in the world. Norway is not alone in wanting reforms to immigration rules and we would have the collective clout to bring about a round of talks for reforming the EEA agreement.

There are then only really the peripheral matters of continued trade with third parties. Where there are no fundamental changes in circumstances many of the agreements we have via the EU can either be replicated or continued under the presumption of continuity.

What matters, though, is the future of trade. The dinosaur hacks of the FT are fixated on "free trade deals", many of which are not actually that useful to UK industry and we would benefit more from independent participation on global forums to remove technical barriers to trade. In that respect the traditional bilateral trade deal (or FTA as they insist on calling them) is obsolete. The future is the development of common regulatory frameworks that extend far beyond the confines of little Europe. Being independent of the EU ensures that we put the brake on the EU's gold plating tendency while having first dibs in the global arena.

In so many ways, Brexit gives us the best of both worlds. The continuity of single market access along with trading agility, free association with global alliances and a functioning veto. All we get from the europhiles is that we can't have our cake and eat it. It turns out we can eat the cake and ask for seconds if we so choose.

The fact is the petty problematising is not insurmountable, and though we can say they will be some disruption, we are looking at a system of European governance that most definately needs disruption, along with shaking our domestic government out of its complacency and rebuilding our expertise in managing the many challenges a globalised world presents us with. Brexit means we end up with a more agile, more democratic Britain and for the first time in as long as anyone can remember, we will have resolved our battle with Europe and both are free of a long standing dispute which has ultimately done nobody any favours.

It seems to me that there is everything to gain from leaving the EU and to remain in it would be a squandered opportunity. As Europhiles are keen to remind us, the EU takes several years to complete a trade deal. I don't think we can afford to wait. If we don't leave all we're going to get is slow economic strangulation and stagnation and an absolute guarantee that neither the EU nor domestic politics will be reformed. This is not the "certainty" I am looking for.

Time and again we have financial sages saying "we do not know what Brexit looks like", but really this says more about their own incomprehension than it does Brexit. They are out of date in their understanding of trade issues and largely oblivious to how regulation works, instead fixated on economic projections that take no account of the political realities of how we will leave the EU. What these people in the FT and elsewhere are telling us is that they don't know the politics, they don't know the law and they don't know where to look. They are telling us that they suck at their jobs and really if we want to know what Brexit looks like, the FT is the last place you are going to find any grown up answers.

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