Brexit: the Mills file

Saturday 27 August 2016  



Over three days earlier this weeks I have had a long and detailed exchange of e-mail correspondence with John Mills, chairman of Labour Leave, the exchange initiated by him. His main objective, according to his later e-mail, was to try to draw on my knowledge and experience to help those on his extensive e-mail list: "establish whether the Brexit negotiating position which I think most of us would favour is feasible".

This is a lengthy exchange, but I believe it to be an important illustration of the state of the debate in certain quarters. I have, therefore, reproduced it here in full for the public record, with John's permission. Initially, I had proposed making this anonymous, but Mr Mills preferred to be named. I have made minor corrections and improved the paragraph spacing, but otherwise it is unchanged apart from third party references, which have been obscured.

In the very near future, I will post a critical analysis of this exchange, which starts here:


22 August 2016

Dear Richard

In strict confidence, please find below an exchange of e-mails from influential people who, I am sure you will think, are taking much too simplistic a view about the process of disengaging ourselves from the EU.

All the same, I am sure they are right in saying that the more we can keep the negotiations simple, the better. What it seems to me we need out of all this is as short and clear a guide as possible to the simplest way as possible of achieving both of the following objectives, treated as alternatives, or why they cannot be achieved if there are compelling reasons why this is the case:
1. Your preferred choice of the UK being in the EEA, at least on a temporary basis, and thus with free trade with the EU, but out of the Single Market as far as possible. What realistically would we then be able to do about border control, payments to the EU and justiciable obligations generally?

2. Being completely outside the Single Market but with free trade with the EU at least on goods and hopefully on services, which is where I think most people in favour of Leave would like us to be - including me if it is achievable.
Would you be able to get a Monograph produced to cover these two options, cutting to the quick and keeping it as simple as possible? I think it would be greatly appreciated if you could do this.

Very best wishes,

John

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22 August 2016

John

Look at an old Bakelite telephone from the 1940s and now look at an i-Phone. If simplicity was the ultimate objective, then we should scrap our i-Phones and return to those clunking black telephones, which we used to keep in the hall.

The thing is that, just as telecommunications have become more complex, so has governance (not least you need some pretty sophisticated international governance to run the telecommunications system). If you try to simplify, you lose functionality. If you look to simplify our exit negotiations, then we risk conceding issues which, had we fought for them, we would have got a better deal.

Essentially, there isn't a quick and simple way out. The EU project is nearly 70 years old, and the UK has been undergoing the process of political and economic integration for 43 years. The EU systems are intertwined with our own to such a huge extent that it is quite impossible to extract ourselves quickly without causing damage.

Thus, my central thesis is that we plan a phased withdrawal. We extract ourselves step-by-step, in much the same way we went in. And this is the reason for electing to go for the Efta/EEA option as a first step. It was treated as a half-way house for those countries wanting to join. In my view, it has equal utility as a half-way house for those wanting to leave. It is Phase 1 of a six-point programme.

To stay in the EEA is to stay in the Single Market. The EEA is the Single Market. But it takes us outside the EU and, therefore, outside the jurisdiction of the ECJ. We will have to pay some money to continue cooperating with the EU. But then international cooperation costs money.

As to the Single Market, I am getting exceedingly weary with the likes of XXXXXXX bleating about it. Since he was first involved, we've had the conclusion of the Uruguay Round, the formation of the WTO and a huge surge in globalisation.

There are now more international regulatory/standards bodies in existence on the planet than there ever have been in the history of mankind. The Single Market is being globalised - we need to be part of that. Far from withdrawing from it, we need to be extending it, completing the globalisation process and wresting control of the Single Market from Brussels. We need to take ownership and manage it on an intergovernmental basis.

In this context, "free trade" and the negotiation of a free trade agreement with the EU to cover the longer term is an irrelevance. FTAs are dinosaur agreements with no relevance to the 21st Century. Most of "your" people are locked in the last Century. We need to move on ... until we can, there is no progress.

Best

Richard

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23 August 2016

Dear Richard

Thanks for your e-mail. I understand your frustration but if the key people are going to be won round to your point of view they need to be persuaded to do so rather than just being told that whatever they think is wrong. I agree with you that there is not a simple and quick way out but, whatever the constraints may be, the quicker and the simpler our approach is, it seems to me the more successful it is likely to be.

I know you want a phased withdrawal and maybe that is what we will finish up by having but to get there the other options – involving a cleaner, earlier break - need to be considered. If they really are not feasible, clear persuasive arguments showing that this is the case need to be advanced. Is it possible for you to set these out?

Take the WTO option, for example. I know this is not an ideal outcome but is it really impossible to envisage it being implemented, given at least two years to put whatever administrative arrangements might be necessary in place?

If WTO is possible, it seems to me that this puts us in a much stronger position to negotiate the UK being outside the Single Market – and thus no longer bound by free movement of people, our current level of contributions and justiciable by the Luxemburg court – but with free trade on goods and some sort of deal on services.

This is what I think most people want. What, in your view, would stop this happening? Of course there would be difficulties along the way but what would be the game stoppers? Are there any which, with the best will in the world, simply could not be negotiated away?

Very best wishes,

John

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23 August 2016

John

I think, before anything else, two things are needed: clarity, and (intellectual) honesty. Without both, it is not possible to have a sensible debate.

In terms of our exit, I have sketched out three broad options. These are the generally accepted "industry standard" if you like. No serious commentator disputes them, although some break down the primary categories into sub-divisions. The three options are: (1) the "unilateral" or WTO option; (2) the "bilateral" or Swiss Option; and (3) the Efta/EEA option.

In Monograph 2, I have defined the WTO Option. This is taken to be a scenario where, for whatever reason, the UK eschews any form of directly negotiated trading agreement with the EU and trades solely and exclusively within the framework set by the diverse WTO Agreements.

That is the baseline. The definition is distilled from countless papers and public pronouncements, and it the basis of my further analysis. If you change the definition (as was the effect of Mr XXXXX's comments), then the calculus changes. However, as I remarked, if you take the WTO framework as a baseline and then negotiate agreements around it, to make it more workable, it is no longer the WTO option. It becomes something different. It becomes a (weak) version of the "bilateral" or Swiss Option.

Sticking strictly to the definition, I have written Monograph 2, to demonstrate that the WTO option (as defined) is a non-starter. I am not alone arguing this, although I have perhaps written at greater length and with more clarity as to why this should be.

As regards persuading people, I am reminded of the homily: you can take a horse to water but you cannot make it drink. If like Mr XXXXX, you ignore my definition and change the framework of the discussion, then it is not possible to have a sensible argument - we end up with a debate over "chalk and cheese" that takes us nowhere.

Thus to reiterate. The WTO option (as defined) is a non-starter. Furthermore, we know already that HMG is not deliberately going to embrace it. The most likely (and probably only) scenario is that it happens by accident. My Monograph was written partly to warn people of the consequences, in the hope that this will help prevent it from happening.

Having thus completed that task, I see myself has having provided the water. I have led the horse to that water and invited him to drink. If that "horse" cares not to drink, then there is nothing I can do about it. The horse will die of thirst. Meanwhile, as I see it, I have much more water to dispense, and to more willing horses. I have neither the energy nor the inclination to waste my time on recalcitrant horses.

Very best

Richard

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23 August 2016

Dear Richard

I am probably a good deal more sympathetic to your point of view than many other people on the circulation list which you have seen but I – and I think lots of other people - still do not really understand why it is possible for China, the USA, Australia, Japan, etc., all to be able to sell product to the EU on WTO terms but it would be impossible for us to do so. I am not saying that this is the ideal option. Nor am I suggesting that there would not be difficulties, for example over recognition of standards, which would need to be overcome. The issue is whether it would be possible. Can you help me?

Very best wishes,

John

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23 August 2016

John

I've written multiple posts on the blog, and then summed up and cross-referenced the arguments in Monograph 2. I've further elaborated on the arguments in Monographs 5 and Monograph 7. The works separately and collectively point out that there is more to trade than the traditional Free Trade Agreement. For many reasons, some nations (China, USA, etc) prefer to order their trade relations using forms of agreement different to the traditional Free Trade Agreement.

When it comes to China and the USA, the networks of trade agreements are complex and extensive, relying on the interaction between the bilateral and the multilateral, with constructive and imaginative use of coordinated unilateralism as an overlay. This I have made especially clear in Monograph 7, to the extent of pointing out that the traditional FTA is obsolescent and largely redundant.

It is the case, therefore, that none of these nations rely on the WTO option. For us to enjoy the same trading relationships with the EU as are enjoyed by the US and China, we would have to see replicated exactly the same complex combinations of unilateralism, bilateralism and multilateralism. Complex, they are and poorly understood, but that does not mean these arrangements do not exist. They do.

If people do not want to entertain the notion that such arrangements do exist, and insist on arguing that the likes of China and the US trade under WTO rules, without the benefit of these complex trade agreements, then all I can do is refer them to the already published Monographs. If they are not prepared to invest the time reading them, then once again we are in "horse and water" territory.

The facts are that trade systems are extremely complex (and intricate) networks of different types of agreement, all of which - in their totality - interact to produce their current effects. They are not static, but very much dynamic, always changing and evolving.

One of the latest (although not entirely recent) changes is the inter-institutional agreement that does not, in the first instance, even involve national governments. Nevertheless, these are having a profound effect on the trading relations between nations, and have to be factored into the discussion as well.

Overall, understanding these systems requires an investment in time, and a willingness to set aside often dearly-held preconceptions. Most of what the current public debate is covering is twenty years old or more, with no recognition of how much the world has changed in the interim.

That said, we cannot have a sensible debate if those involved will not step out of their comfort zones and refuse to update their knowledge base. So far, I've written eight Monographs. The ninth is in production. People need to read them. They are based on extraordinarily detailed research and analysis by one of the best in the business.

If people don't read (and then seek to understand) the material I send them, I can’t help them. I can't help people who are intent on refusing help.

Very best

Richard

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23 August 2016

Dear Richard

Thank you for your e-mail. I have carefully read all your Monographs and it is clear from the responses which I have received from other people on the distribution list that they have done so too. I understand also that for the UK to move to trading with the rest of the EU on WTO terms would not be anything like as simple as many people seem to imagine that it would be.

What I don’t understand is why it would be impossible. Clearly there are obstacles. What I - and I think many other people - would like to have is a list of what these obstacles are and what can or can't be done to overcome them. So far, I know that you have listed mutual recognition of standards and a variety of different protocols and agreement on detailed procedures which need to be observed. These do not appear to me to be impossible to deal with. Can you please let us know what else stands in the way? I really want to know!

Very best wishes,

John

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23 August 2016

John

I have listed a number of obstacles - that's the subject of Monograph 5. Clearly, those obstacles can be overcome. That is what trade agreements are for. We overcome them by negotiating trade deals - issue, by issue, sector by sector. The point though is that the moment you start negotiating trade deals, you are no longer relying on the WTO option. You are moving into the "bilateral" option. You would no longer be trading on WTO terms.

In other words, it is impossible to trade under the WTO option, because of the huge barriers involved. The moment you start negotiating your way around the barriers, your WTO option ceases to be the WTO option and is transformed into a bilateral agreement(s).

Thus, what you are actually talking about is making a bilateral trade deal with the EU ... the so-called Swiss Option. The point then about bilateral deals is that they are as long as a piece of string. You have the Turkish deal at 55 pages and the Canadian deal at 1,598 pages. The precise nature of the obstacles depends on the scope of the agreement, and the degree of market access required.

However, we can add to this with a few other observations. Firstly, bespoke market access (bilateral) deals take a long time to finalise. It would be extremely optimistic to expect a comprehensive agreement to be concluded within five years. Since the chances of getting a time extension are slight - and there would be a political penalty to pay - the bilateral route is hazardous and uncertain. That leaves the off-the-shelf Efta/EEA option.

However, if we chose the bilateral route, there are certain basic components. Firstly, we will have to agree the scope of the agreement - the range of goods and services to be traded. Secondly, in terms of the goods and services traded, we will have to agree to match EU standards or come to an agreement on equivalence. Thirdly, we will have to come to an agreement on a verifiable system for ensuring regulatory convergence in maintained. Fourthly, we will have to agree a mutually acceptable agreement on conformity assessment. Fifth, we will have to harmonise customs procedures and/or agree on mutual recognition. Sixth, we will have to agree a market surveillance/complaints system, to monitor the functioning of the agreement. Seventh, there will have to be a dispute settlement procedure.

These are the bones of a trade agreement, none of which are dealt with in the WTO agreements. And that does not include the "peripherals" which in the UK-EU relationship, would be considerable.

Very best

Richard

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23 August 2016

Dear Richard

Many thanks for your very helpful response. To make sure that I understand what you are saying, can I please ask you to answer some additional questions?

1. I understand that the UK would not be able to fall back on the WTO option without at least some co-operation from the other EU members. Would there, however, have to be any more co-operation than there is with, say, China or the USA? If so, which of the points enumerated in your penultimate paragraph applies to the Chinese and the Americans, with which we would also have to comply?

2. I understand why the deals between the EU and Turkey (which at 55 pages sounds quite short to me) and Canada involve relatively complicated agreements but, if we are prepared to come right out of the Single Market, why would we need to have any more complicated agreement than whatever subsists between the EU and China and the USA?

3. Accepting that we may well not get the passporting deal which the City wants – although I understand that this is going to be overtaken by the "equivalence" regime in 2018 – and that we will not get full access to the Single Market on services, what obstacles do you think there are which would prevent us having access to the EU market on the same sort of terms as China and the USA which we would be unlikely to be able to overcome given a two year negotiation period?

With many thanks for your patience, which I really appreciate. I am really trying to understand the position.

Very best wishes,

John

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23 August 2016

John

We can't fall back on the WTO option - full stop. If we devise a trading arrangement in cooperation with the EU (not other members - it has to be directly with the EU) then it is not the WTO option. It becomes a bilateral agreement.

As to China, the USA, they have extensive but still limited trade with EU member states. We could copy the US relationship, but it would take time. The current arrangements have matured over time since 1993. However, even the Canadian agreement would not approach the level of agreement reached within the EEA, and Canada took seven years to negotiate.

We would still only have limited access to the EU's markets. The loss of access would be quite considerable. We export over £220bn to the EU each year, in goods and services, compared with less than £20bn goods and services to China.

What you have to appreciate with the EEA is that the individual texts of the Regulations, etc, are appended to the EEA Agreement, as amendments. Effectively, that makes the EEA Agreement about 50,000 pages long. That is what is needed to give full access to the EU's markets.

If we sought a comprehensive trade agreement with the EU, we might expect it to take five years or more.

Very best

Richard

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24 August 2016

Dear Richard

I am in some difficulty because the e-mail above does not answer the questions which I put to you in the e-mail which I sent to you yesterday. I understand that, if some measure of co-operation is required by the other EU member states to make what would otherwise be the WTO option work, this entails some bilateralism.

What I don't understand is why you think that it would be impossible to get this organised within two years, if whatever had to be agreed was kept as simple as possible. Why is it possible for China, the USA, etc., to trade with the EU without being in the Single Market or the EEA, but not the UK?

Please let me have answers to these questions.

Very best wishes,

John 

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24 August 2016

John

What is so troublesome about this exchange is your seeming reluctance to abandon the notion of the WTO option as a working solution. Yet the WTO Option is a unilateral approach. That means that, if you adopt a bilateral approach, you cannot then argue that this is simply a way of making the WTO Option work, as you seem to be doing. We are talking about two different animals. For the life of me, I don't understand why you are having such difficulty with this idea.

You then ask me why a settlement which "entails some bilateralism" would be impossible to get organised within two years. The problem in giving you a simple answer to this is that you have already restricted the framing of the question. You talk about "some bilateralism", as if you could simply bolt-on a few additions to an agreement and call it a workable settlement. That cannot be the case.

If you want a high level of market access (far more than has the United States or China), then you have no option (short of adopting the Efta/EEA option) but to negotiate a comprehensive free trade agreement. In one of my previous e-mails, I set out the basic structure and requirements of such an agreement, comprising seven core points without taking into account the "peripherals".

Given the complexity of a comprehensive FTA, it should not require much imagination to realise that this will take some time. International agreements do take time. Based on current experience, it would be unreasonable to expect an agreement to be concluded in less than five years.

You then return to the premise that whatever is agreed should be "kept as simple as possible". Yet I have already addressed this issue. A settlement with the EU, undoing 43 years of economic and political integration, and forging an agreement which will give a similar level of market access to that which we currently enjoy, is not going to be simple. This will be one of the most detailed and complex negotiations ever undertaken with the EU. To expect it to be concluded inside two years is risible.

Turning to the next issue, you then ask "why it [is] possible for China, the USA, etc., to trade with the EU without being in the Single Market or the EEA, but not the UK?" Yet the answer to that has in part already been given, and you should have no trouble answering the point yourself. It is a question of the degree of access.

Within the Single Market, the UK has an unparalleled degree of access to the markets of EU Member States. China, the US and other countries have very limited access to EU markets. Volumes of trading may be high, but penetration is narrow. For instance, by far the bulk of Chinese exports to the EU is focused on in manufactured goods. The more complex and diverse economy of the UK exports a much wider range of goods and services, and needs much wider access to the European markets.

If you wish to restrict yourself to the limited degree of access enjoyed by the US and China, then the consequence would be a savage curtailment of trade. You would have some trade, but nothing like the £220bn in current levels of goods and services. That is the crunch point ... access is graduated. You can have partial, very limited access, right through to full access. If you want a "quick and simple" agreement, the price will be limited access.

Very best

Richard

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24 August 2016

Dear Richard

Let me try once more to explain. The vast majority of the Brexit people who are on my mailing list would like us to be outside the Single Market, outside the EEA but with an agreement in place which leaves conditions for trade in both goods and services between the UK and the rest of the EU on the same basis as they are at the moment or as close as we can reasonably get to it.

They understand that there will be obstacles to getting this done and they therefore want to have an alternative available in case it proves impossible to get what might, for short, be called a free trade deal with the rest of the EU within the two year A.50 time frame. Having an alternative would be a way of putting pressure on the EU to get an agreement in place reasonably quickly and on reasonable terms.

We all know that you do not think this is the best way to proceed but it makes a big difference in terms of persuading people to your point of view if you are able to show that the alternative which nearly all of them favour is not just worse than your solution – on which there might well be a reasonable debate – but impossible.

The alternative would be to trade with the EU on WTO terms, accepting that this would involve at least some co-operation from the other EU members, so call it WTO+.

The key issue is then whether there are good reasons for believing that the WTO+ terms which the UK could reasonably be expected to negotiate would be different from and worse than those enjoyed by, say, China and the USA to such an extent that no reasonable person would go along with them It may well be the case that WTO+ terms would reduce the amount of trade the UK does with the EU – although presumably the reverse would also apply – and let us assume for the moment that this is a price which everyone would be prepared to pay.

My question to you, therefore, is not whether you think that WTO+ is a better option than staying in the EEA (we know you don’t think so) or whether it is better or worse than anything else (which may or may not be the case, and we know your views on this too) but whether it would be possible for the UK to have the same amount of access as China and the USA, and, if not, why not.

Please let me have answers on these points.

Many thanks

John

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24 August 2016

John

I would like to have the exclusive franchise for Lunar Green Cheese, with a quota of 1000 tons a week, beamed down directly from the Sea of Tranquillity by a matter transporter.

The point, of course, is that that is not possible – any more than it is possible to settle a deal inside two years that has us "outside the Single Market, outside the EEA but with an agreement in place which leaves conditions for trade in both goods and services between the UK and the rest of the EU on the same basis as they are at the moment".

It is not that there are "obstacles to getting this done" – it is impossible. There is no case in the real world where we could negotiate this within a two-year time frame.

What you have to confront, therefore – if you want to stay outside the Single Market, outside the EEA, is a severely limited agreement which will probably give us a fraction of the access that we currently have. I am not even sure that it is possible to conclude a coherent agreement within that time frame.

The nearest equivalent is the timeframe for the EEA Agreement negotiations. The process formally started with the Luxembourg Declaration of 1984 and the Agreement was signed in 1992. It came into force in 1994. The Swiss Agreements took 16 years.

The point therefore, is you are asking the impossible. It is simply not possible to get an agreement in place "reasonably quickly and on reasonable terms". If you seek speed, then you have to concede access.

You then suggest that having an alternative would be a way of putting pressure on the EU. But it wouldn't put pressure on the EU. Why would it? How could it? It is for the UK to present its proposals – the EU will then respond. The pressure is on the UK, as the price of failure impacts on the UK not the EU.

However, "you tell me that the alternative would be to trade with the EU on WTO terms, accepting that this would involve at least some co-operation from the other EU members, so call it WTO+."

Yet, in my last e-mail I wrote to you saying that the WTO option was not an alternative. I've also stated that you can't simply bolt on bits to this option and expect it to work – and nor can you call it WTO+. That name is already taken. I've also explained why the China and US schemes would not work … we have different trade structures and need wider access.

As to your next point, I have also written about the issue of asymmetric discrimination. We can open our markets to EU products, but that does not mean to say that the EU can or will reciprocate.

Thus, you conclude with the question as to whether it would be possible for the UK to have the same amount of access as China and the USA, to which you have already had an answer. I doubt, ab initio, whether it would be possible to replicate the China arrangements or indeed the US arrangements – both of which have evolved over the last 20 years. And even if we could, they would not meet our needs. Our trade structure is different – we need different agreements.

To make a final point, I am not alone in this. No end of quite sensible people have said that leaving the EU will be a complex procedure. In fact, it is not only complex, but unique. Never before has something of this scale been attempted, and nothing even close has been considered within the insanely short timescale.

For that very reason, I came the conclusion that there are very few options left to us.

Very best

Richard

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24 August 2016

Dear Richard

With the best will in the world, I just don't seem to be able to get straight answers from you to some fairly simple questions. Can I please try once more:
1. What obstacles would need to be overcome to enable us to trade with the EU on no worse terms than China or the USA, accepting that this may well leave us with less access to the EU markets than we have at the moment?

2. Which of these obstacles are so onerous and difficult that it would, in your view, be impossible to negotiate a settlement on them within a two year period?

3. After the Norway referendum in 1972, when there was a "no" vote, I am told that it took just under eight months for the Norwegians to negotiate a trade agreement with the EU. If the intention was to leave everything as it is as much as possible, but accepting that there are some things which might have to be left as loose ends for the time being, why do you think it would be not easy but impossible for a deal between the UK and the rest of the EU to be struck within two years – especially if there was a less attractive but realistic alternative for us to turn to, thus providing an incentive for everyone to come to a deal as quickly as possible. Even if we could not get an agreement on nearly everything, would it be impossible, in your view, for us to be able to secure one at least on major elements of our current trade with the EU, such as on motor vehicles.
I am not trying to trip you up or to persuade you to adopt objectives with which you disagree. I just need to understand what the problems are, what may be difficult but is not impossible and what really is impossible. I need this so that I can pass on to the mailing list clear and persuasive information which hopefully they will accept. Just telling people things are impossible – as opposed to being difficult - without explaining clearly why this is the case will just leave them unpersuaded. Please help me!

Very best wishes,

John

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24 August 2016

John

I am not being difficult – the very reverse. I've answered your questions honestly, in depth. Let me repeat. 

1. What obstacles would need to be overcome to enable us to trade with the EU on no worse terms than China or the USA, accepting that this may well leave us with less access to the EU markets than we have at the moment?

As framed, this question is unanswerable. You are trying to compare chalk and cheese. The structure of the UK economy, and its trade composition, are very different to those of China and the US. Therefore, the terms on which China and the US trade with the EU are irrelevant to the UK. Even if we could replicate their complex deals (which is almost certainly not possible), they would be of little value to us.

2. Which of these obstacles are so onerous and difficult that it would, in your view, be impossible to negotiate a settlement on them within a two year period?

If you seek to negotiate a bilateral, comprehensive trade deal with the EU, it will demand that the negotiations conform to a basic structure. I've already set this out. For convenience, the elements are numbered below. We will have to:
(1) set out the scope of the agreement - the range of goods and services to be traded.
(2) agree to match EU standards or come to an agreement on equivalence.
(3) agree a verifiable system for ensuring regulatory convergence is maintained.
(4) agree a mutual recognition on conformity assessment.
(5) harmonise customs procedures and/or agree on mutual recognition.
(6) agree a market surveillance/complaints system, to monitor the functioning of the agreement.
(7) agree a dispute settlement procedure.
Potentially, each of these could be an obstacle. It is impossible to predict, up front, which might prove onerous. That is the nature of negotiations. Often, until you are face-to-face, you can have no idea of how the other side it going to react to your proposals. This is especially so when you are dealing simultaneously with 27 other countries, each of which many have their own agendas.

Obviously, though, the greater the scope that you aim for, the more difficult and protracted. The list of products for which you may seek access runs to over 900 pages.

You can seek an en bloc agreement, which is fine if the EU accepts that. If they wish to go through the list, line-by-line, you are going to be there forever. Alternatively, you can go for a de minimis list – but that means huge sacrifices in terms of access.

Agreeing to match standards should be straightforward, as we already have a high degree of convergence. But the system we agree for ensuring continued convergence is one of the most contentious areas, and extremely difficult to satisfy. This may limit the scope of the agreement.

Mutual recognition of conformity assessment is done product by product, sector by sector. The more products you include, the longer it takes. It could take several years.

Harmonisation of customs procedures should be relatively uncontentious, as long as the UK is prepared to conform with EU systems. Drafting is a long and complex job. I can't think of any developed country which has had to do it from scratch. We will have to – we can't use the EU's procedures because we are not a Customs Union.

Market surveillance is complex – and we have to buy into EU systems. The dispute procedure is one of the most complex and contentious areas of all.

All this, however, is just the basics. You have all the peripherals and then there is likely to be considerable conditionality. Until that is spelt out, you cannot even begin to estimate how we might respond.

3. After the Norway referendum in 1972, when there was a "no" vote, I am told that it took just under eight months for the Norwegians to negotiate a trade agreement with the EU.

The 1973 Norwegian trade agreement was 113 pages long, including schedules. The substantive treaty was six pages. It was a very basic treaty, dealing with a very limited range of products, concerning tariff reductions. The treaty was replaced in 1994 by the EEA Agreement. That took from 1984 to 1992 to agree. The way that treaty is structured is that each "EEA relevant" EU law is added to the treaty as a treaty amendment. In approximate terms, that makes the Agreement, with Protocols and Annexes, about 50,000 pages.

If the intention was to leave everything as it is as much as possible, but accepting that there are some things which might have to be left as loose ends for the time being, why do you think it would be not easy but impossible for a deal between the UK and the rest of the EU to be struck within two years – especially if there was a less attractive but realistic alternative for us to turn to, thus providing an incentive for everyone to come to a deal as quickly as possible.

I really do not understand that question.

Even if we could not get an agreement on nearly everything, would it be impossible, in your view, for us to be able to secure one at least on major elements of our current trade with the EU, such as on motor vehicles.

It would not be impossible, but it would be up to the EU to decide, on the basis of a proposal we put to it. The EU might, or might not, accept a limited deal. We can't know unless we ask them.

I am not trying to trip you up or to persuade you to adopt objectives with which you disagree. I just need to understand what the problems are, what may be difficult but is not impossible and what really is impossible. I need this so that I can pass on to the mailing list clear and persuasive information which hopefully they will accept. Just telling people things are impossible – as opposed to being difficult - without explaining clearly why this is the case will just leave them unpersuaded. Please help me!

I have not said anything is impossible, without explaining why. I have explained why the WTO option is impossible. I have explained why it is virtually impossible to agree a comprehensive bilateral deal within two years. We could seek a truncated deal, but we would not know how limited it would have to be until we had put our proposals to the EU and got their responses. The cost could be politically unacceptable.

Even the Efta/EEA agreement could be very tight, in two years. We could even find ourselves having to seek an extension of time.

This has to be the last communication on this. I've spent hours answering your questions, and we seem to be no further forward than when we started.

Best

Richard

******

At the conclusion of the exchange, this was Mills's position:

1. Despite what Richard says, I just do not believe that it would be that difficult, within a two year period, to put in place whatever agreements were necessary over mutual recognition of procedures, etc., to enable the UK to trade with the EU at least on goods on no more disadvantageous terms than apply to, say, China and the USA. I accept that there may be more difficulty on some, although not all, services.

I cannot, therefore, see why the WTO option would be impossible to implement event though Richard may be right in saying, post Brexit, that the total volume of trade done between the UK and the rest of the EU would be lower than it would be without Brexit, but this would not necessarily be to our disadvantage, because of the very large trade deficit which we have with the EU.

2. I think that we have to accept that negotiating every detail of a free trade agreement with the EU with the UK outside the Single Market might be difficult within the two year Article 50 period, although perhaps not impossible if both sides were determined to keep as much as possible of existing arrangements in place. It might therefore be necessary to exclude some areas to enable most of what needs to be in place within two years.

3. I am sure that Richard is right in saying that a lot will depend on how helpful and co-operative both the UK and the EU are in the forthcoming negotiations. If both sides are determined to make the negotiations successful and mutually fruitful, this will obviously be a big help. If not, we need the WTO option as a fall-back to avoid the negotiations being dragged out to a point where we might be forced into a bad deal by time pressures and lack of progress.

I hope you will find these comments helpful. I would also like to thank Richard for the very large amount of time that he has put into providing information to us and for all the care and trouble he has taken in doing so. I am sorry if he feels upset about the fact that there are still differences between us.

Best wishes,

John Mills



Richard North 27/08/2016 link

Brexit: looking at the end game

Friday 26 August 2016  



We didn't call it Flexcit for nothing, with the "c" standing for "continuous development". And for some time, I have felt that we've been focusing far too much on the mechanics of leaving and not devoting anything like enough time and attention to the end game.

For Monograph 9, therefore, which I have just published, I've taken a closer look at the shape of the relationship between the UK and the EU, after the dust has settled. Entitled "A European Economic Space", the Monograph charts the early days of the EEA, when it had that title, with the negotiations kick-started in April 1984 with a Ministerial meeting between Efta countries and the EC and its Member States in Luxembourg (pictured).

After a slow start, European Commission President Jacques Delors transformed the situation on 17 January 1989, with a visionary speech to the European Parliament in Strasbourg. First, he referred to "our close Efta friends", for whom he suggested "a new, more structured partnership with common decision-making and administrative institutions to make our activities more effective and to highlight the political dimension of our cooperation in the economic, social, financial and cultural spheres".

Then, "not forgetting the others who are knocking at our door", he referred to Mikhail Gorbachev's notion of a "common European house", which had been articulated as early as 1987. 24 As an alternative, Delors offered a "European village", in which he saw a house called the "European Community". "We are its sole architects; we are the keepers of its keys", he said, "but we are prepared to open its doors to talk with our neighbours".

This was exactly what the Efta states wanted to hear. On 14-15 March 1989, they responded with the "Oslo Declaration", declaring their readiness "to explore together with the EC ways and means to achieve a more structured partnership". Predictably, they emphasised the need for common decision-making. The houses in the village were to be a community of equals.

Common-decision making became the key issue of the negotiations. Jón Baldvin Hannibalsson, Iceland's foreign minister, said that it was of "crucial importance" for the political acceptability of an EC/Efta agreement, and Jean-Pascal Delamuraz, the Swiss economics minister, declared: "Let us be clear and state openly from the outset", he said, "there will be no new forms of co-operation between the European Community and the Efta States unless there exists the machinery to prepare and take decisions jointly".

As the talks had progressed, though, the cataclysmic and unexpected fall of the Berlin Wall changed the whole calculus. The newly liberated Soviet satellites of central and eastern Europe were in flux, their relationship with the EU yet to be defined.

Former French President Giscard d'Estaing sought to fill the gap, expanding on the Delors vision of a "European village". He suggested it could be made up of five "homes" comprising the Community states (EC), the Efta countries, the East European countries of the Warsaw Pact; the "isolated" countries - Yugoslavia, Albania, Malta - and the European part of the Soviet Union.

Delors, however, had other ideas. He wanted the former Soviet satellites to become full Community members in a "big bang" enlargement which, with Cyprus and Malta, was to add another ten members to what was soon to be the European Union.

A European Economic Space, a "village of equals" with common decision-making and full membership of the Single Market would have been more attractive than EU membership.

On 17 January 1990, therefore, exactly a year after he had offered joint decision-making, Delors clawed back his promise. "There will have to be some sort of osmosis between the Community and Efta, to ensure that Efta's interests are taken into account in major Community decisions", he told the European Parliament. "But this process must stop short of joint decision-making".

Efta fought a valiant rearguard battle but Delors stood his ground. By 19 December 1990, the it was effectively over. An Efta-EC ministerial meeting in Brussels declared that "the decision-making autonomy of the parties should be fully respected", leaving only a fig-leaf.

There were to be "procedures" to ensure that Efta state's views were "taken into account". This was limited to Efta experts being given an equal opportunity of consultation in the preparation of new EC legislation, on matters of relevance to the EEA.

Yesterday, though, I wrote of a "holy cripes!" moment in my research, when I came across something I hadn't expected. The "surrender", it turns out, wasn't the end of the matter.

By way of compensation for the lack of shared decision-making, Efta states insisted on a "general safeguard clause" which could be triggered unilaterally if serious economic, societal, and/or environmental difficulties of a sectoral or regional nature arose. In time, it became Article 112 of the EEA Agreement, on which Liechtenstein was able to rely to exempt itself from the free movement provisions.

Thus, it seems, the "safeguard measures" in the EEA Agreement were not an accidental or incidental add-on, but an essential part of the treaty, a "consolation prize", that held the whole treaty together, when it might otherwise have collapsed.

As to the Monograph, I argue that, in the Brexit negotiations, we could – instead for going for the EEA as an interim option – use the original model in the form of the European Economic Space, based on the concept of autonomous "houses" in a "European village".

In terms of detail, this would require revision of the EEA Agreement, permitting entry to nations which are neither Efta nor EU members, opening it up to the UK and any other European nations that wish to join – as was the original intention of the EES.

I then argue that the institutions might be invited to relocate to Geneva and establish formal relations with UNECE. Then, on the same basis that it is transferring originating authority for vehicle standards and agricultural quality standards, the EU might pass additional legislative chapters to UNECE until it is responsible for the entire EEA aquis.

This, under current provisions, does not require EU treaty change, although the EEA Agreement (Chapter 2 – Decision-making procedure) would need to be revised, relieving non-EU states of the requirement to adopt Community legislation.

Given that the UK and other EES members will already be UNECE members with full voting rights, this transfer of legislative responsibility will have the effect of introducing common decision-making to the acquis, on the lines pursued by Efta states during the EES/EEA negotiations.

From the perspective of the EU, these changes might seem counter-intuitive, calling as they do for a reversal of the integration process. But the rationale is to relieve it of the burden of managing the Single Market, allowing it to concentrate on its self-declared objective of pursuing political integration amongst its willing members.

Then building on the concept of a Europe of "variable geometries", those members that do not want political union should be encouraged to transfer to the EES, enabling them to remain in the European village.

Overall, this is the sort of radical surgery that might be needed to re-energise the continent of Europe and to restore the European Union to health, correcting the damage caused by the reckless enlargement of the past, trimming it to a more manageable size, based on members fully committed to political integration.

Going full circle, Brexit is as much a problem for the EU as it is for the UK, but it also presents opportunities for both. Delors's instinct for the creation of a European village, with separate, autonomous "houses" comprising a European Economic Space, was right. Brexit could be the means by which that "vision for Europe" is brought to fruition.

This is a contentious thesis and I know a lot of people won't like it. But I also take the view that the Brexit negotiations should not be viewed merely as making arrangements to secure the UK's exit from the EU. Rather, we should be defining the framework for our future relationship with the Union – thus picking up from the wording and intent of Article 50.

If viewed in this way, the negotiations are more likely to be seen in the more positive light, the purpose of the resultant framework being a construct which will support further developments.  

Once again, therefore, I am putting the case for a positive vision, turning the "negative" of leaving the EU into an opportunity to treat Brexit as part of broader policy initiative. Both the UK and the EU could thus widen their horizons and look to Brexit as an opportunity to carve out a settlement not just for themselves but for continental Europe as a whole.

That, it seems to me, is worth doing, and could help pave the way for a smoother passage to a post-Brexit Europe.



Richard North 26/08/2016 link

Brexit: that "holy cripes!" moment

Thursday 25 August 2016  



Generally, I'm happiest when I've sorted the topic for the blog by about midday, and am able to start writing by about nine pm. To still be researching the subject at one am, though, with not a word written, is not good news.

For several days now, I've been working on the latest Monograph, which has taken me into a re-evaluation of the beginnings of the EEA, which has huge relevance to our exit negotiations.

One of the points to emerge is that, as the negotiations were proceeding, the Berlin Wall came down, followed by the collapse of the Soviet Union. One response to that was an expectation that the former Soviet satellites would join the Efta states in what was to become the EEA.

That is reflected in the December 1991 cartoon by Hans Geisen, who is illustrating Switzerland's mistrust of the policy of European integration and "emphasising the fact that, unlike the other European states, the country does not wish to take part in the European Union enlargement process".

The point was that the "enlargement" was not as we currently know it, but the creation of an all-embracing European Economic Space, in which the EU, the Efta states and the Eastern European states were to be "houses" in a "European village",with common decision-making rights.

Why that didn't happen, and what happened instead, is the subject of my current research, with a totally unexpected twist at the end which led me to one of those "cripes" moments – more like "clucking bell" – complete amazement at what did happen.

At this time in the morning, I can't possibly do justice to the subject, so I'll pick it up in the morning, when I've had some sleep. But at least I know what my next blogpost is going to be about.



Richard North 25/08/2016 link

Brexit: waivers and safeguards

Wednesday 24 August 2016  



Picking up on Monograph 8 on "WTO schedules of concessions", and my blogpost on the same subject, I have since been able to acquire a copy of a book mentioned in the text, a racy little number called The Law and Politics of WTO Waivers: Stability and Flexibility in Public International Law by Isabel Feichtner.

Feichtner is Assistant Professor of Law and Economics at Goethe University Frankfurt am Main but, despite that, she seems to know what she is talking about, on a subject which is of great importance even to the average Brexiteer – the "waiver" as a concept in international law.

The value of this stems from the very nature of international law, which in being the province of national executives, often lies outside the democratic law-making processes.

As such, says Feichtner, there is tension between international governance and domestic government, in particular between, on the one hand, the constant flux of societal preferences and realities and, on the other hand, the rigidity of traditional international law-making instruments, in particular international treaties.

The role of the WTO waiver – i.e. the power of the WTO Ministerial Conference to suspend any legal obligation of the WTO Agreement or the annexed Multilateral Trade Agreements – is thus vital.

It may be used to "flexibilise" international law and thus address the tensions between domestic needs and international requirements, defusing potential conflict by suspending the law before the tensions escalate to the point where nations may be forced to choose between one or the other.

What makes the waiver so special, though, is that it is a binding legal act which formally suspends legal obligations and thus allows for non-compliance without putting into question the law's validity. Effectively, it is a legal way of breaking the law.

In light of these characteristics, Feichtner observes, it is surprising that the waiver power and waiver decisions to date have not received much attention in the literature on the WTO and public international law in general. This is even more surprising, she adds, since the practice of granting waivers is extensive.

And there's the rub. The "waiver" is not an obscure corner of the WTO domain but a (relatively) frequently used instrument, employed to resolve tensions that might otherwise destroy the legitimacy of the WTO agreement, and force members to leave it.

It is in effect a pressure relief valve, applicable when all else fails and just as important to the functioning of a treaty as the real thing might be to a steam engine. And, although called by a different name, the waiver performs much the same function in a treaty as safeguard measures. These also exist in WTO law and have been subjected to a degree of scrutiny.

But where they have come under particular scrutiny is in relation to the EEA Agreement, where the safeguard measures can be used to suspend free movement provisions, and thereby provide exactly the role of the pressure relief valve.

Arguably, this was precisely the sort of thing that Mr Cameron was seeking in his "renegotiations", which were concluded on 18-19 February of this year. And had he been able to come up with something more convincing that marginal changes to benefits payable to immigrants, history may well have been different – as we've already observed.

What we didn't realise at the time was how closely the European Commission agreed with the British government that a safety valve was needed. What we missed in the European Council statement (tucked away on p.34) was a declaration from the European Commission.

Remarkably, this stated that the "proposed safeguard mechanism" was intended to cover "the type of exceptional situation" which exists in the United Kingdom today and, accordingly, "the United Kingdom would be justified in triggering the mechanism in the full expectation of obtaining approval".

This was a proposal to amend Regulation (EU) No 492/2011 on freedom of movement for workers within the Union, "to provide for an alert and safeguard mechanism that responds to situations of inflow of workers from other Member States of an exceptional magnitude over an extended period of time, including as a result of past policies following previous EU enlargements".

For some strange reason, neither the Commission nor the Council referred to the safeguard measures set out in Article 112 of the EEA treaty, although these ready-made provisions could have been used off-the-shelf, without waiting to amend Regulation 492/2011.

Perhaps the Commission had forgotten about the use of safeguard measures in treaties, too embarrassed to admit that such measures are common to most treaties. There had even been such measures in the Treaty of Rome (Article 115), surviving right through to the Nice Treaty (as Article 134), to be removed only by the Lisbon Treaty.

So it is that the "colleagues" have made a serious mistake (one of their many), locking members into a treaty without a safety valve, failing to realise the importance of such a provision. And, in its absence, the UK has opted for the exit.

Feichtner, therefore, has done us a favour – possibly unwittingly – in highlighting the value of these provisions which, until very recently, were virtually unknown to us. More common than we could have begun to imagine, they could play a vital role in the coming Brexit negotiations. 

Certainly, any exit settlement we agree with the EU will require its own safeguard measures, as did our original accession treaty.



Richard North 24/08/2016 link

Brexit: retreat into nostalgia

Tuesday 23 August 2016  



Whenever the "colleagues" are in trouble, it seems, they return to their roots. They've been back to Verdun several times, they went to Messina in 1995 and now they've just been to Ventotene, the small island off Naples, home to Altiero Spinelli in 1941 when he wrote the Ventotene Manifesto for a "free and united Europe".

But this was hubris rather than a learning experience. In a response to the UK's referendum, Italian Prime Minister Matteo Renzi told reporters: "Many thought the EU was finished after Brexit but that is not the case".

He was welcoming François Hollande and Angela Merkel aboard the Guiseppe Garibaldi light aircraft carrier, and went on to say: "We respect the choice made by the citizens of Britain but we want to write a future chapter. Europe after Brexit will relaunch the powerful ideals of unity and peace, freedom and dreams".

This brave new world, however, is nothing more than a rehash of tired old themes, with the "colleagues" pledging to bolster EU security, boost economic growth and give the continent's youth a future. This, they believe, amounts to a "revival".

Just for once, the Mail seems to have got it right. "Instead of such lofty idealism", it reported, leaders of Germany, France and Italy faced the grim reality of a growing backlash to their handling of the migration crisis and terrorism – and disagreements over how to proceed.

Merkel recalled that European integration was the consequence of dark times in European history, but then seemed to confine herself to calling for more information sharing between European intelligence agencies. Inspirational, this was not.

What was clearly lacking – from the public pronouncements at least – was any sense of a greater vision, a rallying cry to pull together a damaged Union and bring it together, or give it a new direction. This reflects a failure to agree on the fundamentals, and bodes poorly for the future.

Following the referendum, it has been very obvious that the UK government is not offering any great vision for a post-Brexit Britain. But the Europeans, it seems, have similar problems, failing to recognise that Brexit is as much a problem for the EU as it is the UK.

Immediately after the referendum, Merkel did seem to recognise the gravity of the situation, saying: "There is no point beating around the bush. This is a blow to Europe, a blow to the European process of integration".

The EU is in the process of losing a major member, with no candidate country of equivalent status that can replace it. In many respects, Brexit represents the high water mark of European political integration – the end of the dream of a United States of Europe, "a dream that has not been able to force its way into the real world".

There are some who would argue that it was the colleagues' lack of vision that pushed the UK out of the EU – on the basis that if they had been more imaginative in supporting Mr Cameron's "renegotiations", history might have been different.

But now the UK is in the throes of leaving the EU, the remaining Member States need to realise that Brexit is their problem as well as ours. Hollande speaks of the EU facing "fragmentation and division", needing a "new momentum", but he too is unable to offer anything inspirational.

Ironically, it would seem, the UK and "Europe" have never been more united, albeit in their inability to offer a coherent response to one of the most important political events of the Century so far. Where there is a difference, it is in the UK Government going AWOL, while the colleagues do what they always do and retreat into nostalgia.



Richard North 23/08/2016 link

Brexit: Monograph 8 - WTO schedules and concessions

Monday 22 August 2016  



The latest Monograph is now available, published here, the eighth in the series. It brings me close to my personal but undeclared target of ten by the end of the month.

As with some others, this one started off as a blogpost, reaffirming the relationship between the blog and my research work, the one being a platform for the other. I believe it's the interaction between the two, with the input from the comments, which gives the work the edge and ensures that it is focused on issues of relevance.

Needless to say, the work is going to be largely ignored by the media – and totally ignored by the intellectual desert of the London think-tank scene (on both sides of the divide). Unless it can steal it, it will simply pretend it doesn't exist.

This creates a certain ambivalence. One writes work to be read – that is the purpose of it, and for most writers, the larger the audience the better. But in this case, the writing is for those who appreciate it. If it is a small, select audience, so be it.

On the other hand, there are those who say they're interested in Brexit yet avoid this site like the plague, justifying in all sorts of ways – if pressed – their refusal to read material from one of the foremost experts in this field. They do me no favours by reading the material, and I'm entirely indifferent to their reasons for not coming here. If they don't read these Monographs, that is their problem – their loss. 

One person I'm pretty sure won't be reading this particular Monograph, which is on WTO schedules and concessions, is Charles Grant, director of the Centre for European Reform. He has made a complete fool of himself on this issue, having made some fundamental errors that would shame even a novice.

He argues that Britain is currently "a member [of the WTO] via the EU" and thus asserts that the UK would have to undergo the WTO accession process on leaving the EU in order to attain full membership.

How people of Grant's supposed status can make such basic mistakes is a puzzle to me, especially as the reality is so easily demonstrable from the WTO website. Perhaps the answer is here in my own earlier comments. If I made such an error on this blog, there would be any number of people, friends and foes, who would be quick to tell me. The mistake would be corrected.

With the Charles Grants of this world, however, they are above the fray – far too grand to admit to their mistakes and totally impervious to correction. They live in their secure bubbles, where they hear only adulation. The tragedy for them (and, indirectly, for us) is that they have robbed themselves of the opportunity to learn from their mistakes.

Another person who will probably be avoiding this blog (if he has ever heard of it – which is unlikely), is former WTO press officer Peter Ungphakorn. He has attracted many plaudits for his analyses and his suggestions for resolving the issues which could arise from Brexit in relation to our WTO membership.

Mr Ungphakorn, by virtue of his former employment, is one of those fortunate to enjoy an amount of prestige when it comes to taking about the WTO, although one wonders why. Whenever, in a professional capacity, one needs to contact press officers, it is invariably to get access to someone who knows what they are talking about. One does not naturally expect information from press officers.

Interested readers, however, are entitled to be irritated by the efforts of Mr Ungphakorn and, for that matter, Charles Grant. Having invested the effort of reading their work, they have a right to expect to come away from it better informed. But from neither do we get any reliable picture as to what the situation might be.

What are lacking are certain essential points, hard won from the research which went into the current Monograph, without which it is not possible to make any sense of what might happen.

Firstly, one must appreciate the key difference between the EU and the WTO. In the former, compliance with treaty provisions is an end in itself and non-conformity is actionable. In the latter, intervention is predicated on there being evidence of harm. Once this is appreciated, most of the complications attendant on the UK having to regularise its relationship with the WTO fall away, and become of very little importance.

But then, as we see from further research which went into the Monograph, there is that essential element of the "waiver" which allows WTO rules to be suspended if a member has difficulty with compliance – a mechanism which would permit the UK to resolve problems in the short-term, deferring them until it has the time and resource to deal with them at its own convenience.

Despite the absolutely crucial nature of these elements, neither Ungphakorn nor Charles Grant mention them. Yet, to the specialist, neither is any great mystery. The "harm" trigger is fundamental to the way the WTO works, while there is even a 400-page book written on WTO waivers.

What we are seeing, therefore, are exaggerated accounts of the adverse consequences that might be experienced. This is evidence of a post-referendum phenomenon, whereby former "remain" supporters and others are tending to over-complicate the Brexit process, introducing needless complications. Some, and certainly Charles Grant, appear to be seeking to reverse the referendum decision.

Ironically, Grant is telling the Observer that some "very senior" people in the UK government are deeply ignorant about the single market, and adds that only now are the Brexit-backers beginning to grasp the difficulty of what faces them.

"I think that two months down the line the senior Brexiters are beginning to realise that the whole process is going to be a lot more complicated, time-consuming and boring than they had imagined before, when they had presented it all as black and white", he says. "They are beginning to realise that this will occupy most of the energies of government for the next five to 10 years".

This, though, is the same Charles Grant who so confidently tells us that the much-discussed "Norwegian model" is not viable. Norway, he says, "participates in the single market, but pays into the EU budget and has to accept free movement".

You begin to see a trend here. Grant ignores those aspects of the WTO rules which would militate against WTO schedules of commitments being a problem and then, when it comes to the Single Market, ignores the Liechtenstein/EEA solution.

But just the same is happening on the other side of the divide, with the Spectator airily telling us that, "Think tanks, websites and other groups should make the case for the clear, open version of Brexit that was described, and endorsed, at the referendum".

We don't even need to point out the irony of that, or the fact that the Spectator has been all at sea over an exit plan yet acts as if EUReferendum.com is invisible. For them, information only becomes visible or acceptable if it originates from an approved source, notwithstanding that the ability to cultivate selected ignorance is one of the most powerful tools of the propagandist.

For me personally, I can't quite pin down precisely when I lost interest in these sterile games. But I've decided that our only way forward is to concentrate on providing a consistent flow of high-quality information backed by the most thorough research of which we are capable.

The results so far are listed here, and accessible from the "Monograph" link on our top menu bar. Number 8 will soon be followed by another, and another. As the series expands, nobody will be able to say that the information isn't available. Whether they use it or not is entirely up to them.



Richard North 22/08/2016 link

Brexit: leaving could cost more than staying in

Sunday 21 August 2016  



Of all the ludicrous claims made by both sides in the EU referendum campaign, writes Booker, none was more bizarre than that blazoned on the side of Vote Leave's "Boris bus": that the "£350 million a week" we now give to the EU could be spent instead on the NHS.

The pretence, he says, that we could somehow spend on the NHS all the £17.8 billion a year we give to "EU institutions" was either absurdly ignorant or shamelessly dishonest.

Based largely on the figures in Monograph 3, Booker then goes on to tell us that leaving the EU could cost us more than we pay now. For a start, he writes, £4.9 billion of that £17.8 billion never leaves Britain, because it represents our EU budget rebate. So the amount we actually hand over is not £17.8 but only £12.9 billion.

Of this, as the Chancellor Philip Hammond has now confirmed, we shall continue to spend the further £4.5 billion that goes on subsidies to farming and regional funds. Equally guaranteed is the £1.5 billion which goes to private bodies such as universities for research.

We are also bound by UK law to continue spending the £1.2 billion of our aid budget currently administered by the EU. It would not be wise to discontinue spending most of the £2 billion we give to 27 EU agencies, such as that which regulates medicines, because it would be more costly for us to duplicate their work ourselves.

And if we are sensible enough to remain in the European Economic Area, giving us continued full access to the EU's single market, we would be bound to continue contributing the £2 billion a year we give through the EU to assisting the countries of the former Soviet bloc.

All of which adds up to £11.2 billion, leaving very little over from our current payments. But that is not the end of it. According to one estimate, the EU will be committed by 2027 to spending £300 billion on a whole range of programmes and projects to which the UK has already formally agreed.

Our share of this equates to some £5 billion a year, and any attempt by Britain to wriggle out of those commitments could become a highly contentious issue in the forthcoming negotiations. The EU would have much law on its side in arguing that we must meet those obligations.

Thus, Booker concludes, even if some compromise is reached, it seems quite possible that leaving the EU, however much many of us may wish it, could still be more costly to us than remaining. All that is certain is that it will not leave us with many pennies to spare for the NHS.



Richard North 21/08/2016 link

Norway's PM softens stance?

Saturday 20 August 2016  



Just as YouGov tells us that people prefer a Canadian-style deal to the "Norway option", we get Reuters reporting that Norwegian Prime Minister Erna Solberg sees "some advantages" from the UK joining Efta after leaving the EU.

This adds to the report ten days ago which had Norway saying it had an open mind on the issue, wrongly interpreted by the bulk of the legacy media which had the country poised to block UK entry. That, however, has created the opportunity for a report about a u-turn – which is about as accurate as the original report.

Solberg – a notorious Europhile - accepts that the UK's 65 million people would radically change Efta, currently with a combined population of just 14 million, but she also says that, "It's easy to see some advantages of British membership. It's a big country with a big economy".

Nevertheless, the downside is that the UK might demand conditions that would mainly help it - rather than its putative Efta partners - when negotiating trade deals. "Some countries will probably think it's fine to have a free trade deal with us (Efta), but won't necessarily think that it's equally simple to have a free trade deal with Britain", Solberg says.

She cites farming as one example of a possible conflict of interest. Britain exported food and drink worth £18 billion in 2015 while Norway imposes high import barriers to protect its farmers. As a result, she observes: "I don't think that the Efta path is necessarily the way Britain should be interested in going".

Yet, despite all that, her Conservative Party is in "continuous dialogue" with their peers across the North Sea, which means that the possibility of the "Norway Option" being adopted is still open.

This is especially the case as Solberg's comments are being seen as less sceptical about British membership than she was shortly after the referendum, when she was keen to stressed that it would "change the balance of power in Efta".

Conscious that all Efta states have a veto on the UK's entry, she adds: "It would be wrong to flag a veto or no veto now, and I believe anyway that we will find good solutions to these problems".

She said it was important for all countries to set out their national interests in the debate. "Then all must be prepared for anything, if it turns out that Britain joins Efta". Being "prepared for anything" doubtless also includes using what should more accurately be called the "Efta/EEA option" as an interim solution to the immediate problems of extracting ourselves from EU membership.

That's, of course, where the YouGov survey falls down, in that it offers a limited choice, with respondents favouring a Canadian-style deal, evidently without the first idea of what this entails. Therein lies the fundamental flaw with this type of survey. You can offer the unattainable and it might get the top score, but that doesn't make it any the more attainable.

Similarly, one sees a strong rejection of the idea that the UK should continue paying money to the EU, notwithstanding that payments have already been promised to fill the funding gap for CAP and regional policy, once we leave the EU.

Furthermore, it is inconceivable that we should walk away from the EU agencies and programmes or cease any form of cooperation – all of which carries a significant price tag.

What we are seeing, therefore, is the effects of a distorted debate, where so much of a premium has been put on illusory financial savings from leaving the EU. Come what may, we will be sending some money to Brussels for the foreseeable future – the only question is how much.

On top of that, once we have filled the funding gap, and adjusted our aid spending (while maintaining the 0.7 percent commitment), the amount the taxpayer will be shelling out will hardly diminish. The gain is that we are able to control the spending (most of it), but there are no worthwhile savings to be had.

All of this, though, points up a real problem for Mrs May, when she finally gets a grip with the realities of Brexit. Any sensible choices are not – initially at least – going to be the most popular. Not only does she have her work cut out devising the most appropriate solution, she is going to have a hard job selling it.



Richard North 20/08/2016 link

Brexit: complicating our withdrawal

Friday 19 August 2016  



It's becoming clearer by the day that the remainers are not prepared to let go. They've not accepted the result of the referendum and are working consistently to overturn it. And, being helpful for once, we have the Financial Times giving Richard Thaler a platform to tell us what the "remain" strategy really is.

Basically, from a stance where they were telling us that we could not possibly leave – or that it would be a disaster if we did – they are now telling us that we can leave, but it is soooooo complicated that we'd better not even try.

This is what all this gloom and doom about the WTO "schedule of commitments" is all about – a subject I will be returning to, just as soon as I've completed work on the Monograph I'm writing on the subject. It will show us is how the remainers are needlessly complicating the withdrawal process, adding elements that are really of no great concern, or which can be resolved fairly easily.

What Thaler is after, though, is a sustained barrage of propaganda to show that the decision to leave was so complicated that the choice was "impossible to evaluate sensibly". But, as the problems are stacked up, and people begin to realise how unwise leaving is, they should "be given the opportunity to change their mind if the facts change - either via a vote of parliament or a second referendum". In short, says Thaler, "Brexit should not mean (an immediate) Brexit".

Sadly, on the other side of the divide, the leavers seems to be playing into the hands of their counterparts, pushing for a "hard" Brexit which will bring about precisely the disasters about which we are being warned. In parallel, they are rejecting the Efta/EEA interim option and the Liechtenstein solution, which could get us out of the hole.

With a media which seems incapable of reporting sensibly on the issues, or getting past laborious Janet and John repetition of poorly understood basics, we have a situation where both sides of the debate are conspiring to deter us from leaving – one unwittingly – while the media hasn't the first idea of what's really going on.

What troubles me at a very personal level is my own ignorance, over a vast array of matters. But while I expend time and effort filling in the details, expanding my knowledge into areas that I feel are essential to understand the issues, we are simply widening the gap between the "knows" and the "know nots".

Pete and I chewed over some of these matters on this audio clip, leaving us to despair at the poverty of the debate.

For a long while, I've been worried by the prospect of Article 50 negotiations that might fail, precipitating us into a disastrous "WTO option", almost by accident. But now, it looks equally possible that we could end up talking ourselves out of Brexit, simply because we've been unable to come up with a credible way of leaving.

The one hope we have is that we're only hearing white noise, and we'll not get any real politics until after the party conferences. But, unless by then the various actors are able to up their games, individually and collectively, there is not so much room for concern as good cause for screaming panic, with us rushing for the nearest exit. And that one doesn't get us out of the EU.

Sadly, though, nothing coming out of Whitehall gives us any confidence that we're going to see much improvement, in which case we need to be reserving places in the queue for that emergency exit. Before that, the greater peril might be that the sheer tedium of the debate will drive us to distraction. If we're going to get anywhere at all, something has to break.



Richard North 19/08/2016 link

Brexit: trading places

Thursday 18 August 2016  



Having for so many years been discussing the complexity of leaving the EU, it is intriguing now to see so many pundits doing the same thing - albeit for entirely different reasons.

One of the latest offerings comes from Ben Wright of the Telegraph although such is grip of media coprophagia that we are seeing something remarkably the similar from Jennifer Rankin in the Guardian.

By some strange coincidence, at the heart of their gripe is a tale of woe originated by Charles Grant published at the end of July by his Centre for European Reform. This followed on from an intervention prior to the referendum by WTO director-general, Roberto Azevêdo , who warned that talks over regularising the UK position with the WTO could be "long and difficult".

What emerges from this, which is gaining a great deal of traction, is the problematic relationship with the WTO, and the need to agree what are known as "schedules" of tariffs, quotas, subsidies and other concessions on market access with the WTO.

Currently, these "schedules" are held by the EU, so that the UK must negotiate with both the EU and the WTO as to its new national levels. And, with not a little glee, Grant recounts how negotiations could be stalled if, for example, Argentina or Russia wanted to create difficulties.

Any one country could block the British schedules, in theory making it extremely difficult for the UK to normalise its WTO membership within the two years of the Article 50 negotiations. Wright lovingly dwells on this, as does Rankin, presenting this as yet another complication to add to all the other complications that Mr Grant has dreamed up for us.

The potential problems are explored in more detail by former WTO press officer Peter Ungphakorn who has attracted many plaudits for his analyses and his suggestions for resolving the issues which could arise. What is remarkable, however, is that so much is being made of what is actually a non-problem, of one of such small significance that it deserves only limited attention.

Keen readers of Flexcit - which excludes the entire corpus of the legacy media – will already have seen the entry in the Agriculture chapter, which illustrates precisely why the issue is of so little importance in the grander scheme of things.

In theory, problems arise if, after Brexit, the UK will be required to conform to the technical requirements relating its WTO membership. If by then it has not normalised its commitment and obligations, it could be in breach of those technical requirements.

However, the WTO is not the EU and different rules apply. Unlike the EU where a member state can be taken to the ECJ merely for infringement (or violation) of the rules, this is not the case with the WTO. Non-conformity with WTO rules, per se, is not an actionable event. Action is triggered only when there is perceived (or alleged) harm. The legal mode of the WTO's Dispute Settlement Understanding (DSU) is seen as a corrective which must be aimed at seeking to repair harm done rather then imposing conformity for the sake of it.

Thus, a peculiarity of the system is that for action to be taken against a member for violation of the rules, there must be demonstrated a prima facie case of "nullification or impairment". From this follows a presumption that a breach of the rules must have an adverse impact on another WTO member.

Ungphakorn himself argues that the UK can seek a resolution by not creating any new commitments but by working within the EU's apportionment – thereby maintaining the status quo. If, by the time we leave the EU, arrangements have not been formally settled, the UK might be technically in breach of WTO rules, but as longs as it is careful to maintain the status quo ante,  no party could claim "nullification or impairment". No action could be taken.

Then, even if there was a theoretical possibility of action being initiated, some consider that there would be a reluctance to invoke the dispute settlement mechanism. Resort to this mechanism is the exception rather than the rule.

Nevertheless, there is an issue arising from the 1995 Agreement on Agriculture, where payments of different types of agricultural subsidies are subject to agreed restrictions. For developed countries (which include the UK) certain types of subsidy, such as domestic production subsidies and export payments, are prohibited unless commitments have been made to reduce those subsidies, set out in formal "schedules of concessions and commitments".

Because schedules for EU member states have been agreed en bloc, in respect of all 28 members, this means that the UK, on withdrawal, could not automatically take with it any rights to EU agricultural subsidies and quotas. Theoretically, if the UK wished to pay subsidies, then the UK and the EU must present new proposals to all WTO members, the sum of which cannot exceed what they have already committed.

However, despite the current fuss, this is far less problematic than might at first appear. Restrictions apply only to trade-distorting subsidies, in what is called the "amber box". So-called "green box" and "blue box" subsidies are exempt. 

The "blue box" subsidies cover payments directly linked to acreage or animal numbers, but under schemes which also limit production by imposing production quotas or requiring farmers to set aside part of their land. "Green box" subsidies must not distort trade, or at most cause minimal distortion. They include environmental protection and regional development programmes.

Specifically, such subsidies have to be government-funded (not by charging consumers higher prices) and must not involve price support. Rather than directed at particular products, they tend to include direct income supports for farmers "decoupled" from current production levels or prices. These subsidies are allowed without limits.

Fortunately for the UK, of the subsidies paid under the current Multiannual Financial Framework (MFF) under the 2010 CAP reforms, 94 percent would accord with "green box" and other exempt categories. They could, therefore, continue to be paid by an independent UK without breaching WTO provisions.

Furthermore, although such a big deal is being made of the need to conclude a new agreement, the provisions for "rectifications and modifications" are actually relatively straightforward.

As the EU has only used €8.76 billion of the €72.2 billion ceiling agreed with the WTO in 2009/2010, a fraction of the allowable limit, re-apportioning subsidy concessions would be relatively uncomplicated. Even if there was no agreement in time, as long as there was overall parity in subsidies paid in the "amber box", any technical breaches in WTO would be unlikely to trigger a complaint procedure.

As to tariffs, establishing new schedules is by no means as problematical as it might seem. Members are allowed to modify or withdraw concessions from their schedule through negotiation and agreement with other Members. Article XXVIII of the GATT 1994 entitled "Modification of Schedules" is the main provision dealing with this. To date, at least 42 GATT Contracting Parties initiated roughly 300 renegotiations between 1951 and 1994. 

According to the WTO, there have been 39 requests to enter into renegotiations under GATT Article XXVIII since the establishment of the WTO in 1995. Five of those have been withdrawn, 14 have been concluded and formally certified, and eight have been concluded, but have not been certified for various reasons. The remaining 12 are in principle still on-going.

In other words, while there do indeed need to be negotiations, they are no big deal and there is no great problem if they are not concluded in time. The worry beads may be out for the media and the Charles Grants of this world, but on this, life is not as complicated as they want to make out. It is complicated, but not that complicated.

For once, I'm trading places.



Richard North 18/08/2016 link
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