Friday, 6 May 2016

Forced to look inwards

There was a time when it made sense to build a common area for trade, harmonising regulations and getting rid of barriers. It still makes sense. What doesn't make sense is that area ending that the borders of the European Economic Area. The rest of the world is broadly in agreement that things work better if we're all working to the same standards and regulatory conventions. That is we see new ratifications of the WTO Trade Facilitation Agreement and that is why we see Sudan and New Zealand signing up to Codex Alimentarius.

It makes sense for all nations to come together in various forums to discuss the barriers and difficulties and agreeing compromises or identifying areas where common cooperation would be beneficial to all. We can also identify opportunities where a little investment would open up new markets. A road, an airport, a new port between us costs little, but the potential advantages for all are huge.

What doesn't make sense is a powerbroker sitting in the middle of it deciding how a bloc of twenty eight nations must vote. Nor does it make sense for that bloc to then adopt common agreements then modify them so they are different from the world standard. As much as that limits trade growth it also goes against the founding principles of the EU. If common rules were a good idea in 1975 then they're a good idea now.

And if it mattered for Britain to be in at the top table in 1975 to help shape those rules then it follows, since we are seeing the globalisation of regulation that we should break with the past and join the new single market. And this is what Brexit is really about.

The European Union has in most respects reached its high water mark. To complete a genuine single market it would need certain extra powers to standardise banking and telecoms throughout. We may have free movement of people in theory but the practicalities of shifting into another tax authority are not by any means straightforward. Ironically, it is global rules that make setting up a bank account in another country more difficult than we would like.

The only way the EU could ever be what it set out to be is to have a great deal more power than it has presently. Some solutions do require a degree of unilateralism. Sometimes any decision will do just so long as it is a decision. But the EU has repeatedly demonstrated is that the inherent structure means it is incapable of making a coherent decision and instead becomes a matrix of fudges.

That is why Roy Jenkins said in 1999 “There are only two coherent British attitudes to Europe. One is to participate fully and to endeavour to exercise as much influence and gain as much benefit as possible from the inside. The other is to recognise that Britain’s history, national psychology and political culture may be such that we can never be other than a foot-dragging and constantly complaining member; and that it would be better, and certainly would produce less friction, to accept this and to move towards an orderly, and if possible, reasonably amicable withdrawal.”

And so by that estimation we must ask if we ever can participate fully. We can't. As much as joining the Euro is, to my mind, a practical impossibility, there would never be a mandate to do so. And so by retaining our own currency we have need of retaining our own economic governance policies, and in turn there is little scope for cooperation on tax policy. In that regard economic powers are out of reach for the EU where non-Euro members are concerned. 

Meanwhile, we have to look at the rest of Europe. While Greece has been the talking point, not least for its systemic and endemic corruption, Spain is not far off, Italy likewise and Poland is the untold story. If the Euro is to survive then it follows that the EU will need to secure more powers over economic governance. I don't see that it has much choice in the matter. The excessively cronyistic and corrupt public administration have made it so hard for the economies of Europe to recover and we are only another global shock away from another calamitous Euro crisis. 

What the EU doesn't need is that "foot-dragging and constantly complaining" member standing in the way of essential reforms. So this can only go one of two ways with Britain as a member. Either no reform is made and we see Europe stagnating, or that Britain is shunted to the sidelines, becoming part of an outer tier of the EU. I predict the latter. What that means is that the EU is no longer "at the heart of EU decision making" but at the same time its voice at the global top tables is muted. The worst of all worlds with the benefits of neither. 

So what's the alternative? Britain could leave the EU. Since we are never going to be more of a member than we are at present, we might as well formalise that arrangement. Effectively by leaving the EU and joining Efta, remaining part of the single market, we have the genuine brake on ever closer union that David Cameron pretends he has achieved. 

What that means is the EU is free to do what it needs to do and at the same time so are we. While our trade in goods with the EU may be greater than that of the rest of the world, there are a number of sectors where borders are less important where it is more important to be a participant on global forums, forging commonalities with non-EU partners without being told how to vote. 

We are told that remaining a subordinate means that we are the beneficiaries of EU trade deals, but it's starting to smell like TTIP is pining for the fjords. After several years of largely wasted effort we are seeing the inherent weaknesses of the EU's approach to trade and whatever passes as TTIP will be a shadow of its former self. 

But it's also worth remembering what such bilateral deals are for. We lend them gravitas and respectability by calling them free trade deals - but an EU-US super-bloc is not formed with free trade in mind. It is designed to head off multilateralism, sabotaging any effort to form a global market where outsiders can compete. This is very much the old guard joining forces to created a closed economy. We are being forced to look inward.

In that regard, the prospects for Britain inside the EU look even narrower. If the rhetoric of Donald Trump is anything to go by we can expect that America is less inclined to do deals with anyone let alone the EU. The only cooperation we are likely to see is in those global forums where the US is already committed. It is there we could join the USA and over a hundred other countries in developing several global markets without working under the dead hand of EU supranationalism. 

There are any number of global alliances we can join in order to kickstart global trade - and though we get mixed messages over Brexit from the big fish, perhaps Brexit is our opportunity to feed the minnows. It will require a change in our way of thinking but what we can say is that we have gone as far as we can with the ideas of the last century. More to the point, it is not written anywhere that we necessarily have to diverge from the EU. What matters is that we have a choice. 

The Brexit debate is beset by a fixation with bilateral deals between blocs and countries, but seldom do we ask what value they add. What value is a non-tariff agreement with a nation with under-developed ports and airports. While good spoil as they wait in traffic jams due to poor roads. What use is an agreement when varying standards in food hygiene and storage make trade improbable. Where is the value in in trying to conform when conformity costs more than tariffs? 

There is massive scope to liberalise and harmonise global trade, but it's not going to happen while we are down the list of EU concerns while the EU is fixated on big bang deals that never go anywhere. As long as we remain trapped in the limbo of the EU we are stuck with things as they are - with a real danger that it will be the rest of the world telling us what the rules are without ever having had a say in it. 

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