Monday 16 May 2016

Rachel Reeves hasn't done her homework

Rachel Reeves writing for Stronger In takes Vote Leave to task on their view that Britain should leave the single market. To my mind this was always a poor strategy, Reeves says "Their most recent claim – that the single market doesn’t work for Britain – is one of the weakest political arguments I have ever seen". Regrettably, I agree. Watching Arron Banks and Dominic Cummings giving evidence to the Treasury Select Committee was one of the most depressing spectacles of the whole campaign. Reeves makes it clear that she's unconvinced.
Knowing that they are losing the argument, Vote Leave are resorting to make-believe. They claim that the EU isn’t working for British exporters. But this is based on highly selective and misleading use of statistics. In fact, ONS data shows that the UK’s total exports to the EU grew 44 per cent between 2004 and 2014, the most recent decade for which data are available. That was an increase in value of almost £70bn – greater than the value increase to the whole of Asia combined.
This is greater value growth than to any individual country, and more than all major regions such as to the whole of Asia or the Americas, North and South. Similarly, ONS figures for the 15-year period 1999-2014 show a 73 per cent increase in total UK-EU exports, with goods exports increasing by 43 per cent. This is particularly impressive considering that the financial crisis happened during this period. In the past year, as the TUC recently highlighted, exports to the EU have increased in importance as growth in emerging market economies has slowed.
It is true that UK trade with the rest of the world, not the EU, has been growing as a proportion of our overall trade, but this only undermines Vote Leave’s central claim that we must leave to trade more with non-EU countries.
This, however, is to miss the point. Remaining in the EU means remaining inside the walled garden economy which makes it harder to export to Britain. That has two pitfalls. Firstly is prevents us sourcing cheaper components for assembly lines thus undermining our competitiveness. Secondly, it is widely citied that the EU protectionism is one of the key factors in keeping Africa poor, which a great way of stalling external demand for EU produce.

Moreover, Reeves has misunderstood the argument. There is nothing preventing us trading with the rest of the world, but we do so under terms dictated by the EU. Trade is an exclusive competence of the EU and our continued membership means that we cannot pursue individual agreements to remove barriers to trade. Instead we must go via the EU, and in some instances that means, to coin a phrase, going to the back of the queue. Reeves says:
The fact remains that the EU is the UK’s main trading partner, and that fact is unlikely to change, in or out of the EU. Almost half of our goods exports go to the EU. If Britain leaves, this trade would be under threat as new trade barriers – whether tariffs or regulations – would be imposed.
And what would the impact of that be? Why not listen to experts, rather than Vote Leave’s back-of-the-fag-packet figures? Both the IMF and the Bank of England have said that leaving the EU could send our economy into recession. And those hit hardest would be working families on low and modest incomes – as was the case in the last recession, from which we are only just recovering.
No wonder every major trade union is calling for a vote to remain. And PricewaterhouseCoopers has also shown that almost a million jobs could be lost in the event of a vote to leave. The Treasury has shown that families could be worse off to the tune of £4,300 and public services could be hit by £36bn in cuts; £250bn of UK trade and £200bn in investment would be at risk.
Here is where Reeves drifts from making reasoned arguments to dabbling in appeals to authority and empty rhetoric. This entire debate is mired in an obsession with tariffs. As it happens, I have yet to see an analysis where Britain does not secure an agreement on tariffs. What matters is the regulatory aspect. The EU can erect tariffs but probably won't. But what it cannot do, by international law and its own law is refuse goods which conform to standards on which EU regulations are based.

Since Britain is a signatory to all the global bodies which form the basis of EU regulations, UK goods cannot be subject to regulatory barriers, and since there are dozens of other states who also use the same regulatory frameworks, there is little chance of us deviating from them. This rather undermines Vote Leave's position on deregulation, but it rather makes the case for Brexit. Free to make our own agreements we can increase our own competitiveness by sourcing cheaper goods and components.

In being free to make such agreements we can further remove costly technical and physical barriers to trade. That is the lead focus of most global trade talks now. Something which the EU has proven inept at with TTIP looking dead in the water and CETA looking to have stalled. If we can reduce transaction costs by five per cent why should we worry about tariffs as low as two per cent? Assuming we don't reach an agreement on tariffs.

The fact is that the EU takes several years to complete comprehensive bilateral deals and because they overreach we end up investing years in order to achieve very little. In that regard, the EU preventing us making partial scope deals and having agreements on specific goods and services between more relevant trading partners means we are trying to take off with the brake parachute deployed. We lose out while we wait.

There is no mention of this dynamic anywhere in the PWC report because of the myopic fixation with tariffs. To ignore such a vast development in the global trading sphere makes any such tea leaf reading wholly worthless. Moreover, the figure of £4300 per household is based on the straw man WTO Option which is a work of fiction. The Brexit scenarios Reeves uses are all predicated on the bogus notion that we will in fact, as Vote Leave suggests, leave the single market. We won't.

From the look on her face listening to Dominic Cummings she clearly thinks leaving the single market is batshit crazy. And it is. More to the point, not actually possible and highly improbable. There is no appetite for long and drawn our Brexit talks and no great desire to open up every last silo for renegotiation. The EU will look for the deal that causes the least disruption to its own agenda and one that safeguards its own interests. In that regard it will use an off the shelf option. The most sensible and risk averse option is an EEA based solution. We'll be given the choice of that or be cast adrift with no preferential deal.

The EU knows as well as anyone that such a choice means we'll take what's on the table and swallow it whole without much wiggle room. It will be an ultimatum and if Britain wants the EU's help in getting the Member states to ratify it, we won't be messing them around.

Reeves asserts that "The other countries in Europe are not going to give Britain a better deal than the one they have, because it is not in their interests to do so. It would be like allowing a former member of a club to use the facilities without paying the membership fee or sticking to the rules, a deal not available to actual members" - so she as much confirms the wisdom accepted on all sides.

But Reeves views this as an entirely negative position. "If we leave the EU, our home market will shrink from 500 million consumers to 65 million, we will be cut off from certain sectors and we won’t have a say over the rules of doing business across Europe, leaving all the power in the hands of our European competitors." This is histrionics.

Norway is not cut off from the single market and is only subject to tariffs where it chooses regulatory divergence. Leaving the EU does not mean we necessarily have to diverge, it just means we can if parliament decides the trade off is worth it (that democracy thing). And where fishing and agriculture is concerned, she'd find there was plenty scope for divergence.

As to the the whole having no say in the rules, the WTO Agreement on Technical Barriers to Trade busts that myth for good. "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 including Codex, UNECE, UNEP, ILO and the IMO.

Codex Alimentarius 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".

Reeves says "Leaving the single market is simply not a risk worth taking" - and for the time being she is right. There is no immediate advantage in it. But as a member of the single market being independent of the EU we take back control of key policy areas including trade and aid which makes us better able to respond to global challenges without going through the EU middleman. Having the EU speak on our behalf, as the world's fifth largest economy, makes no sense and can have disastrous consequences for jobs where the EU abuses its power. 

The fact is, as a rule making entity, the EU is being increasingly superseded. The europhile arguments are now wholly redundant and based on thinking a decade out of date. There is a global single market emerging and we need to be heard. The argument for taking us into the EEC in 1975 was that we needed to be at the top table to have our say in the rules. If that logic was true in 1975 then it is true now. We need to be at the global top tables with a full vote and veto. 

Brexit is not a binary choice between the devil and the deep blue sea. It means we can have the best of what the European single market has to offer but we can show leadership in bringing the rest of the world up to speed. We cannot do that while we are trapped in the EU as a secondary concern to the fate of the fragile Euro currency. 

There is so much more to this debate than Rachel Reeves is prepared to entertain and in so doing condemns us all to euro-parochialism - based on empty and vapid sentiments and dodgy numbers cooked up on the back of bogus scenarios.

In that regard, Rachel Reeves is only doing half a job. She has rightly seen through the thin gruel of Vote Leave's arguments, but if she genuinely does want the best for Britain then she owes it to us to admit that there are wider concerns and other options available to the public. Otherwise she can add her name to the list of MPs who conspired to keep the truth from the public to keep us in the EU for entirely dogmatic reasons. That in itself is unforgivable. 

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