Sunday, 12 February 2017

Brexit does not make a complex world any simpler

A point that is less understood about Brexit is that a simpler relationship with the EU does not make the law any simpler. We could negotiate a free trade deal according to the wishes of Brexiteers, however that FTA will be no small undertaking. Anything we export to the EU (or indeed anywhere) will have to conform to global standards. Even as a baseline that is a considerable body of law.

At present we have our own means of supplying proof of conformity but unless we negotiate a mutual recognition agreement on conformity assessment then EU importers are obliged to clear goods. Naturally the absence of such adds considerable costs and delays.

So, in order to maintain present free trade conditions we are already looking at one device up from the base level FTA. But then we also wish to maintain existing landing rights at airports which means some kind of buy-in to the EU aviation rules. And then there's all the other systems from food safety to space policy, including Galileo. There are several major areas of policy where withdrawal requires a domestic legal device in order to retain some degree of compatibility.

In effect we are looking at a complete reconfiguration of the domestic statute book, removing references to EU authorities and agencies and replacing them with our own. This then creates yet another intricate web of laws, exemptions and complexities. We're not simplifying anything.

Further still, should we wish to maintain equivalence and consequently market participation, we have to ensure that our systems keep pace with theirs. In this we can express an opinion but the EU is not obliged to take into account any of our views and so if EU law changes then ours must adapt accordingly.

So in many respects Brussels will still be calling the shots. For sure the rules and regulations may well be derived from global bodies but the systems regarding their administration, and with regard to its own borders, competence belong to them entirely. The UK cannot be the ultimate arbiter on compliance in respect of many laws. This is up to the commission and/or the ECJ.

In that regard there is never going to be a time when Brussels is not influential in our law-making - except that we will be reactive rather than part of the architecture. This is why it would be better to be part of Efta so there is at least a co-determination mechanism.

The concern among Brexiteers is that we would more than likely end up stuck in EFTA-EEA resulting in the indefinite docking of the UK to the EU acquis in the EEA. I guess my response to this would be who cares? The EEA agreement has its own system of annexes whereby we can unilaterally invoke safeguards and opt outs, as is now standard for all major trade agreements.

The point about the EEA is that the mechanism for continuity of trade is a bilateral process under constant review. Not so with an FTA which remains pretty much set in stone unless you have an arbitration system. The government doesn't seem to think we need one because the Brexiteers don't actually know anything about trade. Or that is how it would appear. The danger there is that we end up with an unworkable agreement where we have to make considerable concessions just to persuade the EU to come to the table.

But then let's be generous and assume this reality will dawn on our Brexiteer ministers. That is then another system on top of a system. A simple trade deal this ain't. And this is without touching on any transitional agreement. So what we then find is that though we haven't wedded ourselves to the EEA acquis, we still have a large and complex body of law dedicated to relations with the EU and no free hand in it.

The real world implications of this is that industry has to adapt to a wholly new legal framework which ultimately makes trade more complex than it already is, using a system designed to give us market access that we already had. This really is Hotel California stuff.

So the questions that really need to be asked is what the government hopes to gain by negotiating a free trade agreement from scratch and just how much extra sovereignty would it gives us that we would not have as part of the EEA? What I continue to suspect is that we will end up cutting off a degree of market participation only to spend the next decade haggling to get it back - and since we will likely maintain a liberal degree of EU trade cooperation, all we have to haggle with is concessions on freedom of movement - or make threats to close down access to City financial services - which is not in the least bit in our interests.

At this point, an FTA doesn't look like it's worth the trouble only to end up back where we started. The Brexiteers have it that cutting ties with the EU makes it more possible to do deals with the rest of the world, but our international obligations oblige us to include international regulations and standards and this will eventually include World Customs Organisation conventions on border systems and databases. The same ones used by the EU in fact.

This actually points to the uselessness of bilateral deals. Since the same templates for FTAs are used throughout, where exemptions and reservations tend to be inconsequential and obscure protectionist measures (which are not altogether harmful) there isn't much scope or any point in deviating from the EU. This is largely compounded by the fact that several countries we have in our sites for FTAs already have agreements with the EU and in the same fashion have adopted their regulatory codes accordingly. We can enter bilateral deals but the foundations will be the same with little scope for haggling.

It is therefore surprising that hard Brexiteer, Peter Lilley MP, said in 2010 "non-tariff trade barriers that limit poor countries’ ability to trade include differing sanitary and phyto-sanitary regulations set by developed countries that impose prohibitively high compliance costs on developing countries. Harmonising regulations across developed markets would facilitate trade and lower the cost of compliance".

This is exactly what is happening. Looking once more at the EU-Singapore FTA we see "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”).

These are your harmonised regulations and standards. When it comes to those "high compliance costs, this is what the WTO Trade Facilitation Agreement is designed to address whereby Technical assistance for trade facilitation is provided by the WTO, WTO members and other intergovernmental organizations, including the World Bank, the World Customs Organization and the United Nations Conference on Trade and Development (UNCTAD). In July 2014, the WTO announced the launch of the Trade Facilitation Agreement Facility, which will assist developing and least-developed countries in implementing the WTO’s Trade Facilitation Agreement. The Facility became operational with the adoption of the Trade Facilitation Protocol.

The WTO Agreements contain special provisions which give developing countries special rights and which give developed countries the possibility to treat developing countries more favourably than other WTO Members. These special provisions include, for example, longer time periods for implementing Agreements and commitments or measures to increase trading opportunities for developing countries.

What this means is that there are already mechanisms we are obliged to use for developing trade where any attempt to trade away non tariff barriers would actually be undermining the system of harmonised rules in a race to the bottom that only leads to substandard goods, possibly counterfeit, reaching our shores. It's a zero sum game.

From where I'm standing it rather looks there is nothing to be gained by taking a wrecking ball to EU trade because it doesn't really free us up to do deals elsewhere unless we are taking up an aggressive posture toward the WTO rules based system, which Mrs May had already announced to the world at Davos that she has no intention of doing.

Effectively, what we are seeing reflected in the government's approach to Brexit is the classic Eurosceptic assumption that we are stepping out of a regulated EU sphere into an unregulated sphere. Such thinking is at least twenty years out of date. The reality of it is that now the rest of the world is caught up - or dancing to the tune of the EU, we have to think about trade in a wholly different way and that means utilising the WTO mechanisms at our disposal, investing in trade facilitation and working through the global bodies to enhance and improve regulatory harmonisation.

This is where Brexit gives us an advantage in that we do have a freer hand in approaching the global bodies, the right of initiative and a free vote. But even then we will have to build sectoral strategic alliances in order to build up a consensus - and sometimes that will mean seeking EU cooperation.

The short of it is that hammering out a custom FTA with the EU will not yield the benefits or freedoms expected of it and will come at the cost of considerably beneficial EU cooperation that we will have to fight to regain or compensate for. This is not to say there are not a number of Brexit opportunities, but it seems to me that quitting the EEA is largely pointless since we would have the freedoms we want. Leaving the EEA means paying a higher price than we need to for a deal that is harder to negotiate, considerably higher risk and ultimately self-defeating.

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