Monday, 21 October 2019

Brexit: why and how?


I'm not one for written speeches so when I give my talk on the missed opportunities of Brexit this Wednesday, it will likely follow the video blog format where I riff off a number of themes and take direction from those asking the questions. I thought, though, that it would be useful to lay out a primer of how we arrive at Efta EEA as the preferred outcome for Brexit. 

Firstly we have to establish a few facts.
  • Just under half our trade is done with the EU.
  • Much of our exports only exists because of the facilitation measures inherent to the single market.
  • Frictionless borders is a product of regulatory harmonisation.
  • The EU is a regulatory superpower.
  • If you want to do business with a regulatory superpower then you follow its rules.
  • It doesn't have to take your position into account. 
  • The cost of non-tariff barriers far exceeds the cost of tariffs. 
  • You do the highest volumes of trade with your immediate neighbours.
  • The EU is the largest contiguous regulatory block in the world, extended by way of its own FTAs and external agreements. 
  • The UK already enjoys tariff free trade via a number of EU FTAs.
  • There is no likely combination of new FTAs that could ever offset the loss of the single market.
These statements I believe to be true. On the face of it, therefore, there isn't an economic case for leaving the EU. If only this were just an economic question. Brexit, though, touches on a range of issues which come into conflict with the direction of travel of the EU.

It is said that the EU wishes to be a federal superstate. EU scholars say that ambition ended with Lisbon with a recognition that member states to not share that aim. To a large extent they are right. It's only really the mouth foamers such as Guy Verhofstadt who still speak to that goal.

But the EU is still an incomplete project and one that is still guided by its founding dogma of "Ever closer union". Economic integration is a tool of political integration. As rules are harmonised authority over them is centralised which diminishes the power of national parliaments to reform or repeal laws according to their own values and political manifestos. If we take democracy to mean the ability of peoples to organise and take power to direct the institutions then the EU does not qualify. It is a benign dictatorship but a dictatorship nonetheless. There can be no democratic choice against the treaties.

The EU may never become a federal superstate with homogenised law throughout but it will continue to weaken member state sovereignty and lay down the parameters in which member states must operate. Primarily the objective is to liberalise trade within the borders of the EU so that national borders are increasingly meaningless. Superstate it may not be but it is most certainly a supreme government with the power to overturn laws of member states.

The effect of such rapid integration on the UK has been profound. Economically and culture it has made a deep and lasting impact. It has transformed the culture of politics and government. All levels of government below the EU are constrained by it and must give over much of their resources and time to implementing agendas devised in Brussels and above. The people can be overruled and their decisions nullified.

That the EU has a parliament does not make it a democracy. Elected representatives turning up to rubber stamp initiatives devised by the EU machinery is a figleaf of consent but one lacking a legitimate mandate. Especially when you consider the Euro election turnouts.

This system of government works toward a "level playing field" across Europe. That level playing field, though, is really about removing the obstacles to commerce so that business and workers can move freely around the continent under a single regime. The grand design, though, fails to accommodate national and local laws derived from the customs and values of diverse peoples. The human touch is subordinate to the economic and political integration objectives, alienating ordinary people from their laws and law making institutions. Brexit is a manifestation of that alienation.

In 2016 the public were finally given a choice as to whether to continue working toward the completion of this project. By a small but decisive majority, Britain voted to leave. Though there are a number of individual freedoms created by the EU and a great many economic benefits, the public weighed up these factors against other concerns and on balance decided, despite a wave of warnings, that the economic was subordinate to the political. The British public were not won over by the economic case for remaining. And it was an economic case. At no point did the remain campaign make a case for the vision that drives the European Union.

The case for Brexit has always centred on the desire to repatriate decision making and restoring a sense of control over economic policies that define our country. Immigration and trade are a huge part of that which the EU, to a very large extent influences or controls outright.

The case for Brexit is easily made. Once viewed in terms of what it truly is - a supreme government rather than a "trade bloc", the arguments tend to fall into place. The case for remaining, however, is based on a wholly negative premise that the act of leaving is simply too damaging to our economy and our international standing. That therefore presents a number of questions as to how we extract ourselves from a 45 year old system of government. That's the hard bit.

I have long spoken of the need for a managed departure in recognition of the fact that Brexit is a process, not an event. Many believe that on Brexit day we terminate our membership of the EU and the matter is finally resolved. If only that were true. Being that regulation is the WD40, it is unthinkable that we leave the EU without a system of alternative agreements.

Trade in the modern world is not simply protocols for moving lorries full of tinned beans from Worcestershire to Lisbon. Trade now encompasses all manner of services and digital services that didn't exist even twenty years ago. The EU governs everything from data adequacy, intellectual property to European space policy. Our departure creates a vacuum that must be replaced by a new relationship.

So what form does that relationship take? The British attitude to the EU generally been standoffish, not least because it doesn't carry the same cultural significance. We have traditionally viewed it as an economic necessity in the absence of an alternative. Most Brexiteers will tell you "we just want the trade bit".

But Brexit is not only a question of our relationship with the EU but also our place in the world as a midranking power and medium sized market. For half a century the EU has served our political elites as an empire substitute. Going it alone is not something we have psychologically prepared for.

That is where the bland list of realities mentioned above come into play. There are two types of Brexiter. There are those who hold them to be true and those who deny those realities. The latter believes that leaving without a deal has manageable consequences and an an exaggerated economic impact. I therefore have as much difference of opinion with them as I do remainers.

As mentioned much of our high tech just in time economy is a product of regulatory harmonisation and much of our trade with the EU only exists because of it. An overnight departure, subjecting us to the full force of tariffs and third country controls (as defined by the Notices to stakeholders) is a hammer blow to the UK economy with grave ramifications for jobs. Thus far this has been disregarded as "project fear" - with Brexiters ever keen to remind us that this isn't just an economic question.

On the latter point I do not disagree but the economic question is not one we can afford to ignore. In the bluntest of remainer terms, you can't eat sovereignty. Bills have to be paid. Mortgage payments have to be made. Politics impacts our lives.

Here it is commonly assumed that trade is in the mutual interest and that eventually the EU will do a deal with us. The problem with this point of view is that the EU does not see this issue purely in economic terms any more than we do. The single market is a quarantine area as much as it is a regulatory union. It is a system that facilitates trade but also (in its own estimations) embodies the values of the European Union.

One way or another the EU will seek to conclude a trade relationship with the UK, but will not extend any preference that in any way undermines the basis of the single market or gives a third country a competitive advantage over members. You can have the trade benefits of the single market but only if you are prepared to accept the obligations that go with it.

This has never really sunk in with the British polity. This is betrayed by some of the clumsy abuse of terminology we see peppering the debate. Very often we hear Jeremy Corbyn telling us we need to maintain "a close relationship with the single market". But you can't have a relationship with the single market any more than my body can have a relationship with my right foot. It's either attached and functioning as part of my body or it isn't. You are either part of the single market operating under the same rules or you're not.

For many Brexiters, very probably most of them, the obligations that go with single market membership, not least freedom of movement, is too high a price to pay. Brexiters also believe that regulatory independence is a pillar of the Brexit canon. The hardliners believe that unless those two objectives are met then we have not meaningfully left the EU.

The essential problem here is that Brexiter objectives are now decades old. Regulatory independence as a demand stems from the old Conservative belief that pettifogging regulations were a burden on business that stifle international competitiveness and that regulations at an EU level are stacked in the favour of global corporates designed to cripple competition. The latter is partly true and the regulatory process will never not be corrupt and politically skewed according to who has the best lobbyist.

Having looked at this debate from every imaginable angle it's always six of one and half a dozen of the other. But the fact remains that the EEA single market is the world's largest contiguous regulatory area and the most sophisticated and British exporters and service provides face innumerable obstacles to commerce outside of the European regulatory ecosystem.

Complicating it further, the EU has for the last two decades used global standards as the basis of its regulations and the base framework of regulatory cooperation in its external relations. Globally we are moving toward a single regime of standards, leaving only the USA and China as the sticks in the mud. Were we to secure a deal with the USA according to their system of standards, even if it doubled the volume of trade done with the USA (which not FTA has ever done) it wouldn't come close to mitigating the loss of the single market.

The scope for divergence, therefore is minimal and leaving the single market leaves us broadly aligned against a backdrop of a public that doesn't favour deregulation, only we'll have lost the recognitions and authorisations necessary to participate in European markets on the same terms. The buccaneering "Global Britain" dogma does not account for these realities, very often placing undue emphasis on tariffs as the tool of trade liberalisation.

Leaving the single market, therefore is somewhat self-defeating. It would be logical were Brexit motivated by a strain of nationalist protectionism but we are told by the Tories that this move is primarily about free trade. That is not to say there isn't a nationalist protectionist mentality in the mix but that's a relatively recent phenomenon as relations with the EU have soured in the last few months.

The logic of leaving the single market is further eroded as industries such as automotive, computing and electronics are becoming more regionally concentrated, with companies increasingly looking to make their products close to market to be better able to cater for changing patterns in consumer demand and to reduce disruption from political risks such as a trade war, which is known as near-shoring.

Much of what is commonly understood about trade follows assumptions from the previous decade of globalisation when offshoring was the fashion and corporates moved around to exploit differences in tax regimes and labour standards. To some extent the EU has sought to close some of these holes by way of its own "level playing field" provisions and seemingly it has an effect.

But if we are ruling out the single market then we must evaluate the alternatives. Having no relationship at all is obviously not a solution which puts us in FTA territory. In respect of that the EU is increasingly moving toward a boilerplate model of zero tariffs, a 50% Rules Of Origin threshold and, depending on proximity, customs cooperation protocols using WTO conventions as a baseline along with similarly boilerplate affirmations on technical standards. Although the UK could adapt to this model it would soon reveal its own inadequacy. Regulatory cooperation in EU FTAs is only rudimentary where the most advanced it gets is the framework for vehicle type approvals as defined by UNECE.

Under this regime there would be considerable administrative overhead in order to exploit trade preferences. UK goods would not be subject to tariffs and the generous ROO threshold would suffice for most eventualities, but overall we would still be looking at a dramatic reduction of trade with the EU. We are then looking at the next level up where the UK would follow Switzerland in adopting parts of the EU acquis with ECJ decisions having direct applicability.

At this point the conditions begin to erode the logic of leaving the single market. In short, the UK pays a heavy price for prioritising the end of Freedom of Movement and as we rebuild trade relations over time, there si the danger of becoming the "vassal state" as our regulatory relationship evolves.

The truth of the matter is that the UK, not least because of our size and proximity was always going to become a "rule taker" (to use a clumsy phrase). Brexiters could and should have anticipated this and recognised it as an inescapable consequence of Brexit. Had they done so they'd have recognised that the real emphasis should not be on what rules we adopt, rather the mode of adoption. If the intent was to remove the influence of the ECJ and to repatriate the decision making process then the best available model for trade and cooperation with the EU is the EEA via Efta.

I not not here rehearse the argument of how the EEA Efta relationship functions. Some will never budge from the assertion that Efta is a passive recipient of rules and a slave to the ECJ as it suits their own narratives to do so. I only ask that implacable opponents of the option identify a better alternative.

The sticking point, though, continues to be Freedom of Movement - and while "liberal leavers" can (and do) argue that it's a secondary consideration, it has lodged itself into the Brexit narrative as something that must end come what may. The Leave Alliance has always taken the view that the issues must be addressed in order of significance in which case we deal with the process of exiting the EU first and the matter of immigration later down the line. We identified a process beginning with Article 112 of the EEA agreement that could fundamentally reform FoM as we know it.

That, though, is a hard sell especially when we're dealing with full spectrum ideologues who will find any excuse not to acknowledge reality. Put simply, the puritanical sovereignty sought by Brexiteers is possible but of limited utility and the "free trade" envisaged by leavers is based on a faulty premise. We must choose form an array of suboptimal trade-offs.

In this I have always taken the view that our relationship with the EU is a continuum and though from a Brexiter perspective the EEA Efta solution is far from optimal, our weight combined with that of Efta could be applied to reshape and rebuild an agreement which is long due an overhaul anyway. A re-balancing of the equation would make the single market a joint venture rather than the exclusive domain of the EU.

The point of such a relationship is less to diverge from where we are. Rather it is a means to draw a line in the sand to say this far and no further, allowing us to opt out of further integration and allowing for negotiated divergence as and when necessary. This is in recognition that the EU is a power with which we must contend as an independent state. Were you to listen to Brexiteers you could almost get the impression that the EU stops existing after Brexit day and it ceases to have any influence over our internal and external affairs. We may wish that were true but it isn't.

A pragmatic government would recognise that though 52% is indeed a mandate to leave the EU, neither extreme of the debate offers us a sustainable way forward. Britain values its open relationships and its global reputation for open markets but does not see itself as a mere region in a politically motivated homogenising integrationist project. A solution does exist if we are willing to make the necessary compromises but it requires a thorough understanding of the issues and a desire to reunite the country.

Presently both sides of the Brexit debate are playing double or quits, and the Brexiteers have behaved shamefully in trying to provoke the worst behaviours of the opposition in order to advance their intellectually stunted ultra-Brexit agenda. Similarly "lexiters" share a great many traits with Corbynites who believe that once we are free of the EU we can subsidise, bail out and privatise without international reprisals. Leavers seem to have lost sight of the fact that Brexit is not an economic proposition, rather it is an assertion of independence and a statement that we are allies and partners of the EU but not subordinated to it.

Brexit of itself delivers nothing in terms of tangible economic benefits and it is unlikely that we will ever roll back the cultural impact of the EU in our politics, and much of what ails the UK is only tangentially related to EU membership. Many of our problems stem from an antiquated system of government with a flawed democracy which is long overdue a radical overhaul as set out in The Harrogate Agenda. Brexit provides a window of political opportunity but leaving the EU is only a catalyst. A failure to secure a viable outcome to the immediate Brexit process will only make that process longer and more costly. 

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