Friday, 10 February 2017

A cut and paste Brexit?

As you know I am not given over to Brexit optimism. There seems to be far too much complacency in high places. Unless the government has an ace up its sleeve and an amazing plan they are keeping super secret then there is little room for optimism. Meanwhile the debate is now so hopelessly polarised that there is no possibility of a dialogue - and the government is not listening. I'm pretty sure the public don't want to know either.

The more we look into the technical aspects the more the worst case scenario looks singularly unattractive. Should Mrs May walk away from the table then we are going to have to use every emergency measure in the book. It seems pointless to even argue the case now. Everything from race horses through to nuclear energy now looks like it will be adversely affected.

This though does not enter consideration among the great and the good. Graeme Leach of City AM, for example, has it that "if we leave the Customs Union, we can unilaterally under WTO rules impose zero tariffs on imports". There's several problems with this which we need not go over. The gaping question however, is what do we trade with once we have voluntarily surrendered all of our defensive trade measures?

Leach asserts "The idea that we have to be in the Single Market, at all costs, is nonsense. Leaving aside the political reality that Brexit will require an end to the free movement of people, there is the added factor that EU law and regulation is a cost that applies across the whole economy". Except, of course, the costs of not complying with regulations are considerably greater. If you don't conform then you cannot export, particularly when it comes to animal produce.

Whichever way you expect Brexit to go, there will necessarily be a considerable degree of regulatory conformity. Looking at the EU-Singapore FTA, which is already seven years in the making, the basis for free trade is regulatory harmonisation. In just about every comprehensive agreement you will find words to the effect of:
The Parties may agree on taking into consideration the glossaries and definitions of relevant international organisations, such as the CODEX Alimentarius Commission (hereinafter referred to as “Codex Alimentarius”), the World Organisation for Animal Health (hereinafter referred to as “OIE”) and under the International Plant Protection Convention (hereinafter referred to as “IPPC”).
This largely echos the WTO agreement on Technical Barriers to trade which states:
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 except when such international standards or relevant parts would be an ineffective or inappropriate means for the fulfilment of the legitimate objectives pursued, for instance because of fundamental climatic or geographical factors or fundamental technological problems.
Which is scarily reminiscent of text found in the chapter on renewable energy in the EU-Singapore FTA:
Where international or regional standards exist with respect to products for the generation of energy from renewable and sustainable non-fossil sources, the Parties shall use these standards, or their relevant parts, as a basis for their technical regulations except when such international standards or relevant parts would be an ineffective or inappropriate means for the fulfilment of the legitimate objectives pursued. For the purposes of applying this paragraph, the International Organization for Standardization (hereinafter referred to as “ISO”) and the International Electrotechnical Commission (hereinafter referred to as “IEC”) shall in particular be considered relevant international standard-setting bodies.
If we take the view that the UK seeks a comprehensive FTA from the EU in two years then it follows that it will comprise of a number of re-usable elements, and as the UK is a signatory of the WTO TBT agreement, the scope for deregulation on exports is somewhere around nil.

It is not yet known whether the UK seeks to replicate cooperation agreements with EU decentralised agencies - but if not, any FTA would need to negotiate recognition of UK authorities in order to produce proof of conformity. If, however, the government maintains involvement in EU agencies then in all likelihood that locks us into a number of administrative systems and the regulations therein.

Should we choose to abandon such agencies then we will need our own systems developed with reference to EU systems, probably in conjunction with the EU in order to maintain maximum trade comparability. That will create red tape and uncertainty of its own.

Where it gets messy is that any FTA with the UK will likely be a mixed agreement whereby Member States can secure their own reservations, blocking UK access to the EU single market. For instance, in the Singapore FTA we see various peculiar reservations along the lines of "Natural persons not having Romanian citizenship and residence in Romania, as well as legal persons not having Romanian nationality and their headquarters in Romania, cannot acquire ownership over any kind of land plots, through inter vivos acts".

To take another example, "Marketing of legal advice services is reserved to lawyers with a Danish licence to practice and law firms registered in Denmark. Requirement of a Danish legal examination in order to obtain a Danish licence".

Very soon what should, in a perfect world, be a straight forward enterprise, is bogged down in minutia and defensive measures which the Commission is no longer in a position to overrule given the recent precedent set by the ECJ. This is also assuming that any Brexit deal does not require ECJ rulings where a legal impasse is reached. What this means is that an FTA will not be completed in two years and Article 50 talks will need to carry over EU membership until the FTA comes into force.

In this respect if the UK wants a deal to be concluded at all it will likely have to accept the foibles of Member States lest the process drag on for years. The UK will have to accept that it will not enjoy the same level of freedoms and will likely have to deal with different strata of law for each member state according to the reservations within the agreement. And this is before we get anywhere near the ratification process where horse-trading could lead to considerably more concessions. This could see us lingering in the EU for years, depending on the shape of the transition agreement.

It is ironic that we should be leaving after the EU Singapore agreement has effectively torpedoed EU trade exclusivity - which was as good a reason to leave the EU as any. This now points to a future where the EU is unable to conclude comprehensive deals leaving it stagnating - while deals under way linger on in uncertainty. This raises massive questions on the future of the EU and its constitution.

Whatever happens, our obligations under international agreements and our Brexit FTA will have significant implications for our ability to trade independently of the EU. Given the nature of the FTAs the EU has with a number of other countries, containing the same regulatory obligations, any future bilateral agreements the UK seeks will be limited to peripheral issues. The scope for horse trading on regulation without going through the international organisations to reach multilateral agreement will be similarly constrained.

To my mind this all points to the obsolescence of the EU. While it is still influential in regulatory affairs, with every agreement it signs, control of the regulatory agenda slips from its grasp. As much as Brexit, and the exclusion of the UK financial markets from any future EU deals, makes the EU as a whole a less attractive target for third countries seeking a comprehensive deal, it would appear that Brussels is no longer the centre of the universe - and if we want to make progressions then we can't wait for the EU to complete ever more complex agreements. Given the high profile failures of late, it could well be that Brexit is the last comprehensive FTA the EU will ever sign - assuming we don't make a pig's ear of it.  

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