Wednesday, 19 July 2017

Brexit: wishing it were simpler

One of the more annoying canards from Brexiteers is that no other "trade deal" requires a court to sit in judgement over it. I think it was blogger Tony Edwards who remarked just recently that there can be no combination of words more imprecise and aggravatingly useless than the words "trade deal". No truer words.

There are of course many levels of "trade deals" but it would be better to call them intergovernmental relationships. Any relationship will begin with basic agreements, not especially detailed and largely open the door for the development of closer relations. A memorandum of understanding grows into a free trade agreement which can then evolve into something much more sophisticated like an association agreement.

In a more basic relationship disputes are resolved through normal diplomatic channels but the busier agreements may require a joint committee, establishing domestic offices to service that relationship. When things get as serious as a free trade agreement extending into areas of regulatory cooperation there is then a need for a formal dispute resolution system. These can vary and as yet there is no uniform approach - not least since the methodology of dispute resolution is always evolving as trade relations become more complex.

In the case of the EU-Chile association agreement there is an arbitration procedure - one of the first to specify fully open hearings. This is a method subsequently adopted by the USA. Where it gets more complex is that, as we have noted before, EU FTAs very often reproduce whole tracts of WTO law, particularly in regard to phytosanitary measures to protect humans, animals, and plants from diseases, pests, or contaminants. Increasingly EU agreements go much further, embedding large tracts of the WTO agreement on Technical Barriers to Trade.

This causes overlaps in terms of legal interpretations where WTO law cannot be disregarded and arbitration panels cannot rule in place of the WTO dispute settlement body. This creates a complex relationship between FTA and WTO law. As I understand it, dispute resolution has a sequencing order where complaints are first put through diplomatic channels and if no resolution can be found, a complaint is referred to the arbitration body and then the WTO as a last resort.

This is further complicated when dealing with agreements between two blocs where a far more sophisticated mechanism is required as the relationships are usually far more comprehensive - none more so than  the EEA agreement between Efta states and the EU. Originally Efta had a far more informal structure but with the EEA agreement it became clear that a more robust and authoritative system was needed to further relations with the EU. This brought about the creation of the Efta court.

The purpose of a court is to bring about some finality to ongoing complaints. Normally disagreements can be resolved through joint committees and normal diplomatic relations but if a serious complaint drags on, a referral to the court brings it into formal focus where the court must bring about a resolution in a timely fashion.

For EU members there is the ECJ but with Efta states being outside of the EU and not under ECJ jurisdiction the Efta court is used for ironing out serious issues which cannot be resolved through normal channels. The rulings themselves are not binding, but a failure to implement them carries consequences - usually retaliatory measures which can be justified either under the EEA agreement or WTO law.

A persistent canard of the single market debate is that Britain in the EEA would still be under ECJ jurisdiction. This is wrong and those who speak it often know full well that this is wrong and they are in fact lying. In most circumstances the Efta court has to take ECJ rulings into account - which for some is still a red line, but this is no different to the EU taking WTO rulings into account where there is overlap between WTO law and law set out by the FTA. The Efta court respects the ECJ and Efta member states respect the Efta rulings. In a theoretical and practical sense, sovereignty is preserved.

Some remark that Norway has never exercised any kind of veto - which as far as I know is true but there are two considerations to take into account. Firstly every day complaints are dealt with through ongoing relations through the EEA secretariat and very often there is no need to elevate it to a court, and secondly, with the UK being a larger and more diverse economy, and one with sufficient economic power to say no, the UK most likely would exercise its right of reservation - commonly described as a veto. This of course is not the only way for member states to secure resolutions in that there are country specific protocols and annexes in the EEA agreement which can be negotiated by other means.

The depth and complexity of an agreement largely dictates the shape and scope of any dispute resolution mechanism. As Britain will necessarily require a deep and comprehensive agreement with the EU it follows that whatever form our relationship takes, there will need to be an arbitration system and a formal means of bringing complaints.

Since we will need what is called "frictionless trade" and we are seeking to enjoy the same level of free trade in goods, that will require that we conform to EU import controls and the ECJ will be the means by which interpretation of the EU's own rules is done. That is currently the position Switzerland has to endure on animal product exports because there is no system of co-determination. This is what makes the Efta-EEA arrangement a superior agreement and one that gives more scope for the exercise of sovereignty.

While it is true that other countries have FTAs with the EU without a court system, they do not enjoy the same level of customs cooperation. Any partner wishing to enhance their level of cooperation will have to work toward harmonisation - and as the EU is the larger market, that relationship will largely be asymmetrical. That means they do as the EU says with little or no independent adjudication.

Brexiteers a plagued by a certain mindset. They believe a new relationship with the EU cannot and must not be complex, expecting all of the same advantages without acknowledging that there are systems involved in order to make it all work. To be fair, you can sort of see their point. Trade and customs rules and regulations are mind-bogglingly complex and only super-humans have a full grasp of how it all works. But the point being that when we need a relationship covering everything from fisheries to space policy, we will need the structures, systems and institutions that go with it. Only if we were considering breaking off much of our inter-EU cooperation could we arrive at a simpler framework.

This is of course is what Mrs May in her Lancaster House speech said that we were not going to do. The words "deep and special relationship" are her words and they are not chosen at random. A deep and special relationship requires an extensive agreement and if that isn't the EEA then it will have to be something similar - and there will have to be a dispute resolution system - and it will be one that takes its cue from the ECJ. This is why I think leaving the single market is a particularly stupid idea. we would be reinventing the wheel only to come up with something that wouldn't be nearly as fair and transparent as Efta. You really would have to be "thick as mince" to consider it.

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