Saturday, 28 October 2017

Brexit briefing

I have been asked to contribute to a Parliamentary briefing on the matter of the single market. This is my current thinking on the matter.

With regard to being a rule taker, that is an inevitability of modern trade. That is going to be the case whether we are in an FTA or a more comprehensive relationship like the EEA. With an FTA it tends to focus mainly on harmonisation of standards. EU FTAs are themselves written with a view to upholding the obligations of the WTO agreement on Technical Barriers to Trade (TBT). The tract inside EU FTAs is very often prose lifted verbatim from the WTO TBT agreement. What one immediately notices is that the EU is converging on global standards from OIE/Codex/ILO/IPCC/UNECE/ISO. This convergence is what allows for mutual recognition agreements on things like conformity assessment and recognition of qualifications.

Irrespective of our relationship with the EU we will use the standards from those global bodies as the basis for all domestic regulation. There is, therefore, little point in leaving the single market or substantially diverging.

The Tory assumption is that because we are already convergent on the EU there should be no difficulty in establishing a network of mutual recognition agreements for the purposes of trade continuity. This is a grotesque oversimplification. Alignment on standards is only a starter for ten and it does not imply frictionless borders. They assume that the EU will allow us free access without formal structures for harmonisation but the EU is not in a position to make any special exceptions because of rules on preferences set by the WTO.

If we want to maintain frictionless borders then we will need regulatory union and a customs agreement that deals with Rules of Origin. This will require that we track the common external tariff. Any new third country agreements will likely have ramifications on the frequency of inspections to check that the UK is not being used to circumvent single market protections. This is why a customs agreement is also necessary for frictionless borders.

Had we never joined the EU we would have an FTA that broadly covered most of the above. The crucial point, however, is that we are not starting from scratch. Reverse engineering is no easy feat.

Just about every area of technical governance is regulated by the EU Acquis. Simply copying and pasting all that regulation on to the UK statute book does not mean we automatically have a functioning regulatory regime. EU regulation has multiple dependencies on other standards and sub regulation and names a number of systems, authorities and agencies. To fully repatriate every area of governance we would have to edit out all of those references and build domestic administrative bodies.

Naturally this is going to be time consuming and expensive and there is precisely zero chance that this kind of legal engineering can be completed in a short implementation period. We would have to rebuild our institutions, equip and train them while rewriting the syllabuses in technical colleges etc. Divergence means that officials will have to re-qualify. Insurance companies will demand it. This is what happened when we joined the Single Market. Meat hygiene inspectors were suddenly told they had to re-qualify. 

The Tory ultras are presently pushing for divergence as quickly as possible and they seek to put sunset clauses on the EU rules we adopt. The reality, however, dictates that we cannot repeal any of this legislation until we have a fully functioning domestic regime with all the appropriate institutions and agencies. We are looking at a number of years to do this. There are no short cuts. So this is not a question as to the respective merits of the EEA, rather it is a practical necessity to maintain membership of it (and the institutions therein) in order for us to gradually diverge without a cliff edge.

There are a number critiques of the EEA option. All of them look at the option in isolation rather than looking at it in the context of the Brexit process. The EEA is a tool, not a destination. To understand this you have to properly understand the exit sequence. This is where MPs are utterly failing.

First we have to deal with the phase one issues and the terms of separation. The future relationship (whatever that may be) will have to be negotiated inside an interim framework, one which more or less mirrors EU membership. Only when you have something to implement can you then begin an implementation period.

For Brexit we can either choose a deep and comprehensive FTA (DCFTA) or we can go down the EEA route. The former is the longer more uncertain path. We would be opening every single one of the three hundred subject areas for negotiation. What we will find when we do that is that a DCFTA doesn't come close to our needs and if we want enhancements then we will have to make major concessions.

This will be a deeply political process both at home and among the member states. That will make a slow process slower. All the while we are in a state of Brexit limbo. We can avoid this entirely and have a "clean Brexit" by adopting the EEA. That dictates that we continue to be members of various EU agencies such as the EMA. That then commits us to financial obligations but David Davis has already alluded to the fact that we will continue contributing to some EU bodies whatever happens.

Currently the debate is distracted by what sort of interim period we will have. As much as the language is muddled, this is irrelevant. For a number of technical and legal reasons the interim framework has to be EU membership in all but name. There will be no divergence in this period nor will we be signing any new third country FTAs. It is impossible. What concerns us is the framework for divergence. This is what May is calling the implementation period which is different to the interim period. 

Because we have to develop our own domestic governance capacity we have no choice but to use the EEA acquis and maintain membership of EU bodies simply so that the regulatory regime functions. Were we to simply copy and paste EU regulations they simply would not function. Regulations are not simply technical by-laws. Regulations are regulatory systems.

Additionally, until such a time as we are freed of EU it is a requirement that we have a dispute resolution system. This will be an essential instrument for the process of divergence (which will trigger disputes of its own) and for all other matters in the future. So we have the option of using Efta or we can spend some considerable time negotiating a new framework for dispute resolution but it will have to mimic the Efta model because nothing else works. It is either that or maintain ECJ rule. Like it or lump it.

In effect the EEA Efta model is a matter of technical necessity if we want a well structured Brexit avoiding all the cliff edges. This is why all of the criticisms of the EEA option are utterly irrelevant. We know it is suboptimal but it hands down beats the alternatives. I know of no other practical way of doing it. I suspect that we have already missed the boat on Efta membership therefore we have to look at a shadow EEA with a form of associate membership of Efta in order to use Efta courts.

So then we get to the question of how we get from the EEA state to the next state (whatever is negotiated). Even Brussels doesn't have a good answer to this. I take the view that we stay in the EEA framework and simply evolve our relationship over time rather the making a leap to a different structure. I do not see the point of a bespoke DCFTA. In form and function the EEA model does what we want. It fulfils in spirit the relationship outlined in the Florence speech. It carries more obligations than May intends but she is living in a fantasy world anyway. 

This is where you have to turn it around on opponents and spell it out. Any which way, we are going to end up with a deep and elaborate treaty with the EU with its own court and membership of a number of EU bodies. It might as well be the EEA for all the difference it makes.

As much as the EEA option simplifies any implementation, it does not require substantial legal engineering and we do not have to transpose all of it on to the UK statute book. It can stay where it is. For whatever differences there may be between a new Florentine fantasy relationship and the EEA, they can be engineered into country specific protocols in the EEA agreement. The EEA agreement is a system for EU relations. It is configurable and there are opt outs and exceptions. It does not contain regulation rather it points to EU regulation with EEA applicability. It is therefore also possible that we could have an EEA style agreement that does the same but that is reinventing the wheel. 

Ultimately it is the technical reality that dictates the EEA as the only viable instrument, otherwise you are making it ten times more complex and drawn out than it needs to be. The biggest and most attractive feature of the EEA agreement is that it gets us out without getting bogged down in minutia. 

So to win this argument you first need to make it absolutely clear that there is zero chance of the process being concluded inside Article 50. David Davis and Theresa May continue to pretend that we can fast track a bespoke deep relationship and have it all tied up in two years. As much as this is a ridiculous fantasy, it is also a lie. We are looking at five years at least to build a bespoke agreement and many more to implement. EEA Efta shortens the process and simplifies the implementation.

Ultimately it's as the old saying goes. The best way to survive a knife fight is not to get in one. The same is true of EU negotiations. An off the shelf solution avoids having to negotiate things we definitely do not want to end up negotiating.

Addressing the issue of being a rule taker, firstly the EEA acquis is substantially less than the whole EU body of law. It pertains mostly to technical governance and it embodies the standards from OIE/Codex/ILO/IPCC/UNECE/ISO which we would adopt in any case. This is the critical component of the whole argument since we are routinely told that we would have no say in the rules. Being that the EU itself is a rule taker we would simply shift our lobbying from Brussels to Geneva to ensure that we shape the rules that the EU adopts. I cannot overstate the significance of UNECE and ISO.

The Tories think that ditching the EEA means we have total sovereignty. They are dreaming. We are not going to diverge substantially. Business doesn't want it and they will continue to work to global standards regardless because insurers and commercial contracts will demand it. There is no economic value in divergence and all you get for your trouble is more red tape and more barriers to trade. All you actually achieve by leaving the single market is losing substantial market participation.

The only real fly in the ointment is the matter of freedom of movement. Now in this, there is a means in EEA Article 112 but it is a hard sell. Everybody is determined to ignore it or shoot it down. It is true that politically it would complicate matters with the EU and if we were to try that on I rather expect we'd be hit with a number of vetoes elsewhere. So this becomes a matter of political strategy.

The way to tackle it is to make a big deal of the fact that there is no concept of EU citizenship in the EEA. That substantially changes the nature of freedom of movement. That is a considerable legal distinction. What we would need to do is tell the public the priority is to complete the technical process of leaving before we address matters of immigration. What we then do, once we have left the EU and started work on implementation, is start a big programme of immigration reforms.

I won't go too deeply into this but ultimately the immigration that bothers people is not from the EU. A very big gesture will have to be made to compensate for maintaining a liberal EU immigration regime. People will expect to see a change in the balance of immigration so some of the loopholes will have to be closed to slow immigration from south Asian countries - and we will have to substantially liberalise borders with Canada, New Zealand and Australia, even if we have to do it unilaterally. It will improve attitudes to immigration. It's as much a matter of changing perceptions.

The most important point I would make is that we are very seriously running out of time. The absolute priority is buying ourselves more time and forcing the government to admit that the process of leaving will take substantially longer. The nature of our future relationship is a secondary matter to the successful conclusion of Article 50 talks. That requires that the government properly engages in the phase one issues as per the EU sequence. We then have to establish the shape of the framework for the interim period with open acknowledgement that this is continuity membership without voting rights. Only then can we seriously talk about the future relationship.

The danger right now is that the government has a seriously flawed idea of how the mechanics of Brexit works and is seeking to do far too much in an unrealistic time frame. I am unable to say if it is a genuine misapprehension or an elaborate web of lies. My worry is that when Barnier once again reiterates that the deal the UK seeks (as outlined in Florence) is not possible under the aegis of Article 50, it will be presented as evidence of EU intransigence and subsequently used as a justification to walk out of talks. They will get away with that if the public continues to believe Article 50 is the whole process.

It is fundamentally important that MPs understand that we are looking at a long and delicate process that will take a number of years. The Tories are trying to rush it because they want it done and dusted before the next election. They are playing fast and loose with the future of the country. It is therefore incumbent on the opposition to seek to educate all involved on the timeframe, the structure and the constraints. The lack of coherence and comprehension is inexcusable.

Once we conclude Article 50 talks we are not up against the clock and there is then space for a more reasoned debate about the future relationship. Presently it is a luxury we do not have. The immediate mission is to expose the government's misapprehension of how the talks work. If we can get that kind of clarity and we progress to the interim phase then the arguments for the single market will make themselves. We will then be in a phase where the agenda is dictated by technical realities.

Securing the interim period (continuity membership) is the immediate goal for the opposition. All they then have to do is run the next election on a platform of Brexit competence with a view to staying in the single market. By that time attitudes will have shifted and they will walk it.

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