Monday, 19 June 2017

A deep and special relationship?

For all that we are told we are leaving the single market and the customs union, we have little more than platitudes to go on as to what our future relationship looks like.

Chancellor Philip Hammond told the BBC’s Andrew Marr Show, in his first interview since the election. "The question is not whether we’re leaving the customs union. The question is what do we put in its place in order to deliver the objectives which the Prime Minister set out in the Lancaster House speech of having no hard land border in Ireland and enabling British goods to flow freely backwards and forwards across the border with the European Union".

As readers will now be well aware, the customs union has little to do with border controls. Free flowing goods depends on regulatory harmonisation. If we are to preserve free movement of goods then a regulatory union of a sort will be a prerequisite. We are adopting EU regulations as part of the repeal bill process chiefly so that we can maintain equivalence.  Any trade agreement will require a mechanism of co-determination to ensure future regulations stay in line with EU requirements.

To ensure that we can continue to free trade goods there will need to be a mutual recognition system of authorising bodies and testing houses. All of this is a requirement if we wish to continue the same level of market particpation. This will be an asymmetrical relationship simply because Brussels is the regulatory superpower in this arrangement.

As to tariffs, Hosuk Lee-Makiyama is one of the very few people with anything intelligent to say on this matter. He argues on his blog that given the onerous procedures involving rules of origin (an issue I might well have underestimated), having a customs union agreement would save thousands of jobs from leaving the UK – including the car-manufacturing jobs in Sunderland. Since cars are more than 40% foreign components they do not qualify for tariff free entry into the EU.

He says a customs union agreement would let the UK have the cake and eat it too: The UK could still negotiate its own trade agreements with other countries on services, investments, regulations, e-commerce, food, and agriculture – i.e. on all the areas that the UK disagrees with the rest of the EU. Meanwhile, Brussels would handle the negotiations on industrial tariffs on cars, industrial equipment, trains and electronics.

"Since the EU always negotiate these tariffs down to zero, the only rational reason to reject a customs union is if UK wants to impose protectionist tariffs against non-EU countries. In other words, a hard Brexit doesn’t seem like a very free trade proposition".

We can quibble over the exact syntaxes but broadly speaking I think he is probably right. Breaking away from the customs union regime probably doesn't give us much scope to tinker with tariffs to our advantage, no least since we already enjoy a number of tariff free agreements via the EU - and there are international conventions on a number of products - where those tariffs that do exist are difficult to remove for intensely political reasons.

Political opposition to a customs union agreement doesn't really make all that much sense. At best we save about £2bn which we would otherwise pay to the EU. It's a basic question of whether we want to keep the £2bn in tariff revenues or keep our car industry. The question, therefore, is how comprehensive will a customs union agreement be and what carve outs will we require. Not forgetting, of course, that this would have to be within WTO rules.

From a purist's perspective having the EU negotiate anything on our behalf is a red line but for me, even though I am concerned with sovereingty to a point, I really don't see why we should be precious about this. I'm certainly not going to jump up and down with rage if the government seeks such an agreement.

On that score we're going to have to put up with a torrent of stupidity. I've just been listening to a podcast from Spiked Online featuring Tom Slater waffling about politicians seeking to soften Brexit being "antidemocratic". All a customs union agreement would be is a trade deal of a particular type. The only way you get absolute sovereignty is to not have any trade deals at all. Makes me wonder precisely how much we have to self-immolate before these people are satisfied.

As to the single market, Switzerland is not a member of it but has a massive bundle of bilaterals, nearly all of which require the adoption of EU rules and ECJ authority. Nobody seems to bat an eyelid at this - yet can find ample reason to seethe about the possibility of a Norway EEA agreement. In the rush for a "deep and special relationship" that is the single market while also not being the single market, the likelihood is that we replicate the Swiss experience and end up with an inferior deal to Norway with much less sovereignty.

And this is why I get so very irritated with these such people. They're not actually interested in Brexit. They have no idea what they want or how to get it. They prattle on demanding the impossible or the monumentally stupid without the first idea of the consequences - without being able to specify what it would actually achieve - except for this nebulous "sovereignty" concept which only really exists for North Korea and Belarus.

In the end it really comes down to the sort of Brexit you want to see. I want to see Britain break away from EU political integration with a lot more power of veto and to be able to pursue different foreign and trade policy goals. I don't see any reason to create barriers where none presently exist. It's not anti-democratic to want a soft landing and nobody but a nihilist revolutionary wants to see Britain's export sector wiped out.

There has always been a Hotel California aspect to Brexit. Total independence is unobtainable since interdependency is the global model now. It is a fact of life. There are only degrees of independence largely dictated by proximity and volumes of trade. I don't really see a problem with that so long as the UK retains ultimate right of veto where it actually matters - and we are not simply a star on someone else's flag. If Brexiteers propose that we go far beyond that then they are obliged to provide us with something a little more concrete than "Brexit means Brexit".

We should note though that the focus on free movement of goods is an utterly misplaced focus. Though important the matters of financial services, aviation, space, nuclear and intellectual property open up a world of questions. Though there are pockets of useful debate, very little of this is breaking into the mainstream - nor indeed are the many practical issues we face in repatriating competences. 

We are all now well aware of the need for a transitional arrangement but we have seen no discussion as to what that looks like or how it comes into being. Somehow this will all be ready to fly before 2019. What are they smoking? The only transitional arrangement that isn't the EEA is... the EU. 

More to the point, neither a system of bilaterals or an umbrella FTA will actually address the matter of controlling "laws, money, borders and trade". There is no scenario where we can expect cooperation will come for free, there is no scenario where we are not heavily influenced by EU law. We will no doubt produce a fudge on freedom of movement but it certainly won't be the miracle cure for our immigration woes. 

All of this underscores the absurdity of seeking a bespoke agreement. As much as there is zero possibility of accomplishing all this inside a decade, we are not really going to achive much from doing it. If it really did produce a "clean Brexit", restoring ultimate regulatory sovereingty then I could see the point but if Switzerland is the benchmark then we're going to end up with a very messy bundle of agreements to accomplish the same thing on far less preferential terms. 

More than anything, naivety and ignorance is driving our Brexit approach. It is unconquerable. If at this point the Chancellor is still struggling with the basics, what hope is there? Worse still is the hubris - and the assumption that we realists are being overly negative. Despite the best brains from both sides of the debate pointing these issues out, they are certain they know better. 

Sadly this isn't just academic. The first obligation of this government is to remove the uncertainty but for as long as we are kept guessing, and for as long as we are set on a path that has little chance of succeeding, businesses will be exploring other options. As indeed they are already. The slow bleed will become a flood the longer this drags on. Who can blame them?

Ultimately we are starting Brexit off on faulty premises - that Brexit is the cure, not the catalyst and that Brexit is an event, not a process. What is not generally understood is that any deal is not a one shot deal. This is about reshaping our relationship and the institutions and frameworks for it to continually evolve. This is not a matter of tying up loose ends with Brussels and sailing off into the Atlantic. We remain anchored to Europe whatever happens. We seem to have forgotten that. 

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