Saturday, 14 January 2017

Brexit and beyond

Unless the UK adopts the EEA as a framework for relations with the EU then we can expect the axe to fall somewhere in terms of single market participation. Noticeably so. Brexit was always going to have consequences. In that regard we are about to go through the mill of what Switzerland has experienced - engaging in a constant dialogue with the EU to improve terms of trade.

In the case of Britain we can expect a certain amount of foot dragging and churlishness, especially if Cecilia Malmstrom is involved. She is very much of a "you pays your money, you takes your choice" demeanour.

In that it will be a useful learning curve for the UK as we experience what it is like to be on the other side of the divide and we will better understand the difficulties experienced by other non-EU states. There is no reason why we should take that lying down. In fact, it' a real opportunity to take soundings from other countries and form strategic relationships in order to put pressure on the EU. Having lost the world's fifth largest economy, with three of its major members in financial trouble, the EU is a much weaker position after we leave.

As far as Article 50 talks go, much of the leverage is in the hands of Brussels because the roadblocks are administrative not economic. That is why I am more pessimistic than most about the exit terms. The usual mantras of "they need us more than we need them" don't really stack up. Our strongest asset being the City will most likely be the means by which we secure curbs on freedom of movement and after that we are looking at a number of buy-ins for continued participation.

This shouldn't distract us too much. It's all in the game. The real concern is the space race that comes afterwards. The EU is already making moves to weaken our post-Brexit position by wrapping up a number of deals elsewhere which will reduce the scope for comprehensive bilateral deals for the UK. The EU will make demands for regulatory concessions or further harmonisation which will reduce our scope for divergence and any deals we secure will have to be cross referenced with existing deals with the EU.

It is also likely that, for the purposes of a smooth transition, we will be locked into our existing tariff regime for some time to come. Some Brexiteers think that leaving the EU is like letting a whippet of a leash where the moment the lead comes off it goes racing into the horizon. In truth it's more like extending the give on a flexi-lead. We will still be constrained and still bound to our global regulatory obligations.

It is unlikely that this particular penny will drop before we leave and the buccaneering Brexit free traders will be wiping egg off their faces as the bilateral deals they secure fail to impress. Marginally cheaper tinned sardines from Ghana are unlikely to compensate for increasing the cost of trade with the EU.

Only when we have been through this learning experience will it dawn on the UK government that our trading interests still lie in liberalising European markets. In this it will become apparent that the trading advantages we seek are of a nature that we have never had even as EU members.

Though the UK businesses notionally have the right to operate inside the EU, very often it's the local internal bureaucracy that stands in the way. Recognition of qualifications, obtaining insurance and banking facilities can prove to be prohibitive - and this asymmetrical. It's easier for Poles to get UK bank accounts than it is for UK citizens to get a Polish account - not least because of the language barrier which stacks mostly in their favour.

This is something the EU has attempted to address but improvements in services continue to be elusive. Further improvements require a further transfer of sovereignty at a time when member states are already asking questions about how much they have already surrendered.

This means we are going to have to be creative about how we go about doing things. What we gain by leaving the EU is the right of initiative in terms of regulatory innovations. In order to approach many of the global regulators we presently have to filter our initiatives through Brussels - which then get bogged down in the system or vetoed outright for entirely unrelated reasons.

Free of the EU will will be able to deal directly with the various global institutions which form the basis of EU rules. In so doing we can build alliances and find backers for initiatives so that the EU is pressured on all sides to sign up. This is how Australia has been able to modify the CAP from the outside.

As discussed previously on this blog, one of the emerging issues on the block is government procurement and the OJEU system which publishes calls for tenders, contract awards and pre-information notices for public procurement. It is based on the WTO Agreement on Government Procurement - which was very much a British initiative. In this regard it is our market clout and our expertise that opens doors. Market size is not so relevant. These are the sorts of initiatives that can add real value, effectively enhancing our market participation without having to modify our existing agreements with the EU.

In effect, by acting at the global level and floating initiatives that give other allies a back door into the EU we might find that we can liberalise the EU in ways we never could as a member. This would be both amusing and ironic. I suspect it would be a lot harder to exploit if we leave the single market - and at this stage it looks like we probably will. Such is the short-sightedness and lack of vision among Brexiteers who are still pegging their fortunes on outdated bilateral deals and tinkering with tariffs.

In an ever more connected world with multiple treaty overlaps and interdependencies there is no absolute sovereignty nor is there complete freedom to do as we please. There is a nexus of global bodies and agreements we must navigate and where possible enhance and it will be our agility and pragmatism that ultimately pays off for us. Britain is not without allies and is perfectly capable of securing strategic alliances with less friendly countries to push Brussels into a corner. If we act with a view to increasing global access to EU markets then eventually we will have more clout than we ever did as EU members.

Through trade facilitation measures we can enable African exporters to take advantage of the zero tariff agreements they already have with the EU but cannot exploit due to regulatory barriers. There is nothing the EU can do to stop us.

When Mrs May notifies the EU that we are leaving she is moving the first pawn in a long game of chess which extends well beyond the Brexit process. The EU has already calculated the first few moves hence why it is in a sudden rush to complete outstanding trade agreements with third countries. With drongos like Liam Fox in office, surrounded by LSE nerds obsessed with tariffs, for the time being we will be outmanoeuvred and be left with a rag bag of marginal bilateral deals that impress nobody - except for the Tory right who will hail any deal with an English speaking country as stunning victory.

In fact, the malign influence of the Tory right and the general ignorance that exists in Westminster will add ten years of dithering and losses where we could otherwise have been making progress. This will be the unrecorded cost of Brexit. That though is a consequence of having disengaged from trade as a whole and having dismantled our domestic diplomatic capability.

Having abdicated from our role in the world Britain has suffered from diplomatic atrophy. Our foreign and trade policy went into stasis some time ago, we lost all our best people to Brussels and now we find that our collective knowledge is decades out of date and completely at odds with the world as we find it. That is why we should never have joined the EU and that is ultimately the price we pay to correct a historic mistake.

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