Friday, 15 July 2016

It takes more than five minutes to understand Brexit

Ian Dunt of Politics UK invites Brexiteers to respond to his five minute explanation of the Brexit negotiations. I won't fisk it line by line because it's a tiresome pursuit. Regular readers might as well skip this post because it's nothing you haven't known for many months.

To understand the situation we face you have to wipe the slate clean and appreciate a few caveats. Firstly there is a massive gulf between what politicians and various sources are saying now and what they were saying before the referendum. The chances are that everything said before the referendum is tainted by politics and wishful thinking on both sides. You have to treat this week as ground zero and ignore much of what has previously been said.

Secondly there is a massive gulf between what the politicians are saying and what is actually possible. For instance, David Davis wants a Canadian style agreement. This deals mainly with tariffs and says nothing of regulatory harmonisation and doesn't even begin to approach all the other areas of cooperation from air travel to food safety, space policy, defence cooperation, academic cooperation and Europol.

If we wanted a CETA agreement that would only be a minor fragment of the entire Brexit process. Since we lack the domestic capacity to take over many EU functions we will want a transitional agreement on all the rest of it. It doesn't tackle the complexity of unpicking forty years of technical and political integration. What we end up with will look nothing at all like a CETA agreement. There is nothing economically desirable about it either.

David Davis will rapidly be disabused of his fanciful notions after a month in his new post. If we are still hearing noises like this after a months we can only assume the civil service has been stripped of any expertise and that Mr Davis is just not showing up to the various select committee meetings.

Then there is the WTO option. If we elect to leave the single market without an agreement the EU erects tariff barriers, not out of spite, but because it has a common external tariff. That's just the legal default. We become a third country. The EU has a common external tariff that it must apply to all third countries. If we match it in reciprocation, under non-discrimination rules, we have to impose tariffs on all our other trading partners. That creates havoc, so we end up not imposing tariffs on the EU while they impose tariffs on us.

Put simply, it is completely out of step with reality. As much as we don't want it, that would be the default position should talks fail. Nobody gains from that. Nobody will let it happen. Listening to various select committee meetings and experts on both sides, nobody serious proposes this option. More to the point, the EU doesn't want it either. 

So, Switzerland. There isn't a single agreement between Switzerland and the EU. There are several. 120 in all. And they are problematic. It took several years to get to where they are and nobody is happy with it. To replicate it would require opening up several silos for minute level of debate which would add unnecessary complications and delays. It's not practical.

Frankly, with all the information in the public domain it's a wonder any of our politicians are still stuck on any of these ideas. The single market is the largest and most complex entity of its type in the world. We are not negotiating access from scratch. We are talking about negotiating an exit which is an entirely different kettle of fish. 

Politicians have yet to grasp the scale and complexity and the real world ramifications for what they propose. Only when they begin to realise the scale will the realise the need for a transitional agreement based on the EEA. I do not see any other way of doing it without causing major harm to the whole EU economy. 

But then the EEA does not go far enough either. It does not include fishing and agriculture. To unpick that alone will take several years and there is no putting things back how they were. To say it is complex is an understatement. And so we will have to append the CFP and the CAP to the EEA agreement with a further agreement to revisit it later. The Article 50 negotiations will have to focus on producing agreement that deals with the basics only. We do not have the diplomatic not administrative capacity to take it on all at once. 

So why are we even talking about leaving the single market? Immigration. Throughout much of the referendum debate, it has been assumed that, in order to continue participating in the Single Market, we would have to accept freedom of movement. Any number of high-ranking Commission officials have warned us that this is "non-negotiable". But this is not strictly true. There is a good deal of wiggle room using the EEA Article 112 "safeguard measures" as leverage to broker a permanent amendment to the EEA Agreement which permits the adoption of a quota system on EU/EEA immigration. Some are calling this the Liechtenstein solution.

Some have questioned whether this is possible. That is a debate we have yet to fully explore. We have seen it denounced by Professor Michael Dougan, but he is not the only expert on the block and there is an element many experts are blind to. Politics. If all parties agree to a particular framework as a precedent by consensus then it can be used. The debate then becomes one of probability, not possibility. That all depends on what leverage we have or what we are prepared to pay for it.

If this cannot be achieved, it may have to be a political fudge on freedom of movement, exalting the virtues of the existing EEA safeguard measures. We may be able to leverage some other concessions but we will pay a price for it. A big one. In the end, with all political realities considered, and especially if parliament is in any way involved, they will insist on an EEA option. Not least since single market membership will be a red line for Scotland.

Where I take issue with Ian Dunt is his later literal interpretation of Article 50. He asserts that "the two year Article 50 timetable doesn't even apply to trade. Article 50 only applies to constitutional and legal arrangements. And more importantly it only applies to ending your current arrangements - not building ones for the future."

The origin of this nonsense started with a statement from Cecilia Malmström. I can only assume that she is either sending out a political signal or that she simply doesn't know what she is talking about. Or both. Article 50 actually states:
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.
It's that latter part that matters here - "taking account of the framework for its future relationship with the Union". If we are talking about EEA accession then we are talking about trade. Inside this we will also look at grandfathering EU trade deals and access rights to extended agreements in the same way Norway negotiates its access and exemptions to TTIP. I suspect nothing I say will disabuse Dunt of this notion so I won't dwell on it, and he can simply apologise for getting it wrong when negotiations are underway. As it happens, there are already scoping talks in motion with non EU nations.

But there's a downside, says Dunt. "Norway still has to abide by the major single market rules, like freedom of movement, but without any say over them". This is one of these dismal political memes which refuses to die. As much as Norway, as part of Efta, is fully consulted, Norway does have a veto. If, however, it exempts itself from certain rules by way of a reservation then it must pay tariffs for market access on certain products.

There is always a penalty. It is, though, Norway's own parliament which gets to decide whether the trade off is worth it. That would be that "taking back control" thing. If Norway did not have its own protections on agriculture, the chances are that it would not have an agriculture sector.

More to the point, single market rules and regulations are not made by the EU. The EU is a law taker, not a law maker. The substance of the rules is made by Codex, UNECE, UNEP, ILO and the IMO. Codex Alimentarius, for example, makes most of the international standards regarding the production and marketing of food. Not only is Norway an independent member of Codex, it even hosts the all-important Fish and Fisheries Products Committee. Thus, it is the lead nation globally in an area of significant economic importance to itself.

When it comes to trade in fish and fishery product, Norway is able to guide, if not control, the agenda on standards and other matters. The EU then reacts, turning the Codex standards into Community law, which then applies to EEA countries, including Norway. But it is Norway to some extent, not the EU, calling the shots. In all respects, Norway has greater say in Codex Alimentarius affairs than does a UK which is isolated in "little Europe".

By leaving the EU we regain our own veto and right of reservation and can vote independently of the EU. Dispensing with EU exclusivity on trade and regulatory negotiation is one of the most attractive arguments for leaving. This is also why concerns about bilateral trade deals moving forward is less of an issue.

If you have learned anything about trade over the course of this referendum it is that tariffs are less the issue as the removal of technical barriers to trade and the harmonisation of regulation at the global level. We are moving past the era of bilateralism and into the realms of multilateralism. The WTO Agreement on Technical Barriers to Trade makes it clear. "Where technical regulations are required and relevant international standards exist or their completion is imminent, members shall use them, or the relevant parts of them, as a basis for their technical regulations".

That is, in short, the EU's redundancy notice. The rules and standards for the functioning of the single market shall henceforth be decided at the global level through a process of multilateral talks are various global forums. We are seeing the emergence of a global single market where bilateral deals become less relevant than ever. If you can use these platforms to eliminate technical barriers to trade then the cost reduction could well be greater than that of eliminating tariffs. This is where reintegrating our own trade and aid policy could be a major boost to global trade.

Then there is the issue of the two year cliff edge under Article 50. Dunt has it that "We're like a man being thrown out of a plane into the sea with no lifejacket. Seriously. I'm not making this up. It's scary". To put it bluntly, this is silly histrionics. For this to happen talks would have to fail. And for them to fail there would have to be the political will to let them fail. That's not going to happen.

Dunt is right in that the consequences would be unimaginably serious. Our goods would have to be directed through ports equipped to take goods from third countries. Ports with the proper inspection facilities. Overnight we would be redirecting lorries to international ports like Southampton. Think Operation Stack by a factor of ten. As bad as that is for the EU it has massive ramifications for French and German manufacturing and would likely set off a global recession, putting the Eurozone in further peril. That is why, even if we approach the cliff edge, the big three will use all their might to suspend the talks or extend them.

Like I say, it isn't helpful to take anything in this process too literally and it is wrong to assume the EU will be adversarial. It will stand up for its interests but one of its interests is a prosperous UK come what may.

There is a lot more to discuss about WTO accession and agricultural subsidy and if you really want to get to grips with that you would be well advised to watch the treasury committee meeting from Wednesday where there is a broad consensus from three leading experts on trade that WTO accession will be tricky but not impossible. What we're seeing from Ian Dunt is a wilfully negative view, preferring to accentuate all the risks as political certainties.

He is right to point out that the claims made by Boris and Vote Leave will not come to fruition, but Vote Leave does not speak for me, nor does the Tory right and I still want to leave the EU. Dunt is also looking at the EEA as a destination rather than a stepping stone. This is a misconception.

The EEA with added CFP and CAP likely means that when we finally leave the relationship with the EU won't be hugely different to how it is now. We will adopt most if not all EU regulation for the interim, but we will have the freedom to change them in the future - if not unilaterally then by using our new found right of initiative to go to the top tables where the rules are made.

Brexit will be a long process that may take more than twenty years to fully complete. We will not be wrapping it up in two years and and Article 50 will not be the end of it. Brexit is a process, not an event. And though the EEA is suboptimal it is the path of least resistance and the safest landing pad from which to evolve our relationship with the EU and the rest of the world. The naivety of Ukip and the Tory right is that we can leave the EU in a single bound. It's not going to happen and there are no sunlit uplands for quite some time.

Ian Dunt's article won't be the last of its type in fatalistically painting the process as utterly bleak with no advantages, but political realities will soon work their way through the white noise and we will be forced to choose between a ideologically pure but suicidal path or a measured EEA exit. Good sense will probably prevail.

The danger for leavers though is that the Tory right will steadfastly refuse to acknowledge reality and will push for their fantasies despite a mountain of evidence that suggests a non-EEA option would be seriously stupid. They will encounter the political realities during talks instead of before them and when they hit the reality crunch they will have to dash back to the drawing board in a hurry. That could mean that the process will be aborted leaving everybody feeling sour with seriously dented relations with the EU. Nobody wins from that.

On the whole it is good to see that some in the media are finally getting to grips with the magnitude of the process and highlighting some of the traps, and I would not disagree that leavers have unrealistic expectations and woefully inadequate command of the issues but doom mongering is wholly uncalled for. Just because it is large and complicated does not mean it cannot be done and there are still serious advantages to look at outside of the euro-centric debate.

Crucially though, Brexit has revealed the inadequacy of our politicians in dealing with serious matters - and that in part is a consequence of EU membership as our aptitude for governance has gradually atrophied. I think that alone is reason enough to leave. If we lack the necessary competence then that is our own fault and we will have to learn the hard way. If politicians did not want us to pay this price then they should never have done this to us without our consent in the first place. Taking us in on the proviso that it would be too scary to come out was their hubris. It backfired spectacularly. Now suck up the consequences.

No comments:

Post a Comment