Thursday, 12 January 2017

Get ready for a boneheaded Brexit

From City AM, "In a report published today, compiled by law firm Norton Rose Fulbright on behalf of the Financial Services Negotiation Forum (FSNForum), the researchers note the current European model of equivalence will not provide firms with the same levels of market access as the current passporting regime and is not the "silver bullet" fix to losing that bundle of rights".
Instead, the report calls for a so-called "building blocks" model of equivalence, which is based on the broader concepts of equivalence deals around the world, such as mutual recognition and cooperation on data sharing, rather than dealing with the finer details of the regulation involved.

The report argues this will provide a more dynamic kind of access to the EU market, rather than a static set of rights which, crucially, could be pulled overnight if the UK decides to diverge in its regulation at any point in the future. 

"Equivalence with the EU may facilitate less access than membership of the Single Market, but it is readily provable, less costly in terms of budgetary contributions and avoids the politically challenging conditions of a 'passport'," said Anthony Belchambers, the chairman of the FSNForum's honorary advisory council.
Whether this can work or not is best left to more informed voices. What they are saying though is that we must have a negotiated solution with the EU come what may. What they suggest though is an entirely bespoke set up which they believe can be negotiated successfully inside the framework of Article 50 along with everything else. It is ambitious to put it mildly.

In what will likely prove to be a hard sell it is difficult to see why the EU would go for it as it would mean a framework all of its own used by no other. Negotiation of such could well be bogged down in bickering and could very possibly stall the process, raising the spectre of accidental Brexit.

If Mrs May takes this idea on board as an aid to leaving the single market then we really are in uncharted waters. We can only guess at what she is likely to say in her speech next week but I have a feeling I'm not going to like it. While many are hoping she will elaborate I'm rather hoping she rules nothing out in order to keep options open.

If May is absolutely determined to seek out a "British option" then we are pretty much destined to be negotiating absolutely everything all at once. My view is that this is the worst possible strategy. The goal is not to seek a Brexit settlement, rather it is to seek out a framework for exit. If she has her sights on accomplishing Brexit in a single bound she will more than likely fail.

We have heard much of transitional agreements and though we do not know what that would entail, best guess is that it covers a number of decentralised agencies for ten years at least while we develop our own administrative capacity. In this EU law will apply in Britain after Brexit as Malta’s prime minister has said.
Joseph Muscat, whose country has just taken over the EU’s rotating presidency, also said it was “quite obvious” the City of London could be in line for a transition deal. But he made clear the writ of the EU court was an essential part of any deal to smooth the path to Brexit. "It is not a transition period where British institutions take over, but it is a transition period where the European court of justice is still in charge of dishing out judgements and points of view".
Though the tone is less than friendly he is right to point out that while we are waiting to "take back control", Brussels very much calls the shots. Take just one issue, the certification of UK-made aircraft parts. This is currently handled by the European Aviation Safety Agency (EASA), an agency of the EU. If the UK were to assume safety and certification responsibilities as it did before the creation of EASA in 2002 it would take 10 years to create the necessary infrastructure, asserts Jeegar Kakkad, chief economist for ADS, the trade body for the UK aerospace sector.

EASA’s ties to the FAA also speed up certification of parts in the US, and it is working on similar bilateral deals with aviation authorities in Japan and China. "Maintaining access to the certification regime in Europe is absolutely critical, as there is no UK replacement that can get up to speed quickly enough,” Kakkad says. So as much as these agencies are part and parcel of the functioning of critical economic systems they are also by extension vital trade links where we will need time to negotiate with third countries in order to maintain them.

In this, law firm Bird and Bird remarks that "we cannot exclude the possibility that the US may also have reservations, especially in view of the extent to which members of the US Congress, labour organisations, airlines and even presidential candidates have questioned whether Norwegian Air International's application for a foreign air carrier permit is consistent with terms and conditions of the EU-US Open Skies Agreement". We may wish to negotiate with the EU for the transitional arrangements to become more permanent.

Now if you imagine there are similar complications spread over forty shared areas of competence Brexit starts to look a little precarious. There are any number of opportunities for EU member states to set red lines and capitalise on our departure. Brexiteers shrug this off with the dismal mantra that "they need us more than we need them" but it should be noted that economic clout is not necessarily relevant in such negotiations. We may have the goods and the GDP but the EU holds the real power in terms of granting permissions. It should also be noted that we will need a good deal of goodwill from the EU assisting us in the administrative aspects of returning us to independent status.

Whichever way you look at it, a "British option" sees us beholden to the EU for some time to come with Brussels calling the shots for as long as transitional measures remain in place. That could be forever in some areas - and none of it is going to come for free.

This is the main reason this blog has advocated the EEA as our primary path out of the EU as it takes us out of EU control faster and leaves fewer things to negotiate during Article 50 talks. We have enough headaches just negotiating agriculture and fishing which nearly derailed the process when negotiating entry to the EEC. There is no reason not to expect similar complications and the market panics throughout will be damaging.

What is absolutely clear is that accidental Brexit is simply not an option and there is no "clean break". In fact the pursuit of a clean break leaves us in the EU for longer and is a riskier process. There are only modes of transition - and it seems the Tories are determined to ignore the one that gives them most of they want at the risk of, well, everything.

In spite of this we still have a rump of determined zealots like John Redwood who still believe that a quick deal of tariffs is all that it takes before taking a torch to regulation. After all that has been said and written this Tory fantasy remains as healthy as ever, undisturbed by reality.

The willingness to ignore the entire nature and complexity of Brexit can now no longer be written off as run of the mill Tory stupidity. It is quite deliberate, manipulative and, given the consequences if they get their way, evil. If Mrs May is taking her cue from these people then she is not in any way fit to govern.

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