Richard North, 27/12/2016  

The thing about Christmas is that, while men (and women) of goodwill take a break, stupidity goes on regardless. Unlike 1914, there is no let-up in the torrent of material swimming round the internet, popping occasionally on Twitter to keep the flow information topped up.

One of the more wearisome things I've had to deal is the mistaken claim that sudden adoption of the WTO option would not lead to catastrophe on the border as a result (party) of the breakdown of the conformity assessment system. 

It has been argued that, because firms could make alternative arrangements for testing those products which needed certification, they could continue to meet conformity assessment requirements and export to EU Member States could continue, more or less uninterrupted.

What such arguments do not take into account is the "suddenness" factor – the scenario where the UK falls off the "cliff edge" and firms are faced with having to work to WTO rules without any notice or preparation. And even an inspection rate of five percent of inbound consignments could bring the system to a halt, not forgetting that there are vastly insufficient BIP facilities to deal with animal-based products. 

Given time – some have estimated that within three months, following emergency talks with our former EU partners – a system could be patched together and trade could resume after a fashion. But for the first months, without extraordinary emergency measures and goodwill from EU Member States, export trade to the Continent is at risk of collapsing.

The problem with the internet is that it is possible from someone to get hold of the wrong end of the stick, run with a perverse interpretation of the facts, then to have willing drones broadcast their mistakes, giving traction to something which did not deserve a second glance.

Currently doing the rounds on t'internet, though, is a huge collection of mistakes, assembled into a briefing note from the UK Trade Policy Observatory (UKTPO), a front operated by the University of Sussex and Chatham House.

In a mere twelve pages, these geniuses are aiming to provide an evaluation of the feasibility of different options for a "hard" or a "soft" Brexit that the government might take.

To be fair, probably the only way anybody can deal with this momentous issue in so few pages is to rehash every passing cliché and fashionable nostrum and throw them into the mix.

Even a few months ago, we were settling on the standard three options: WTO; bilateral (Swiss); and multilateral (Efta/EEA) but fashion dictates that we now also consider a full customs union with the EU-27; a partial customs union with EU (based on the EU-Turkey customs union; a Free Trade Area (FTA) with the Single Market (EEA); a straight FTA; and then the WTO option.

Needless to say, these are all wonderful straw men, but knocked off for the "usual" reasons. We ignore something as simple as the fact that the customs union always was a non starter and instead rule it out on the two "comfort" grounds: a CU cannot negotiate separate trade agreements and a proportion of tariff revenue must be handed over to the European Commission.

Actually, there is no way that we can stay in the customs union without also remaining in the EU, so any such arrangement would be along the lines of the EU-Turkey deal. And contrary to the assertion of our geniuses, this is not a partial customs union. It simply excludes agriculture.

This is a common and – for historical reasons – an acceptable conclusion. That no more makes it "partial" than is the Efta/EEA deal, when all three Efta states exclude agriculture and fisheries (not that there is much deep sea fishing going on in Liechtenstein).

However, whatever the nomenclature, UKTPO deep-six it on the basis that "such an agreement would eliminate the UK's unconstrained ability to set its own trade policy with third countries". It also seems unlikely, we are told, that the EU would agree to mutual recognition of standards.

The third one for the chop is "the FTA with Single Market (EEA)". This is the Efta/EEA option and I've never heard it called this before. This is dumped partly because "EEA countries make annual contributions to the EU budget". Actually, 27 "EEA countries" do make contributions, but then they are EU members. The other three don't. But you can't expect academics to do subtlety.

Sadly, EEA countries are subject to the EFTA court, "whose job is to ensure that non-EU states in the EEA comply with the Single Market" – which is not exactly it role, but never mind. And although it isn't a supranational court, UKTPO says it is, so that is another "red line".

Rules of origin then get the thumbs down, as does "unrestricted labour mobility and compliance with EU norms", so that sees the Efta/EEA option dumped, alongside the Swiss option which is lumped in this third option. But then, who needs to make a distinction when they are all going to be dumped anyway.

That leaves the FTA, the "only preferential option that satisfies all the UK's red lines". However, it would entail the need for rules of origin and possibly tests to demonstrate compliance with EU norms.

The real killer here, though, is that any FTA option is likely to be largely concerned with shallow integration. It will be difficult for such an agreement to contain much of substance. Thus agreements such as EU-Korea or EU-Canada are only flagged up "as a starting point for a bespoke EU-UK agreement".

That leaves the WTO option, which is slated as possibly better or worse than an FTA, depending on whether MFN tariffs are more or less costly than the costs associated with rules of origin.

But all of this is just a curtain-raiser for a spiffing "special deal" in which cars are in a both a customs union and the single market. And even though it is acknowledged that a trade agreement covering a single sector would be WTO incompatible and therefore "undesirable", these geniuses still go on to assert that the UK could do this.

Amazingly, they argue that the UK should agree to keep the same external tariff as it has now (the EU's Common External Tariff) on and also on the key intermediates that are used in the production of cars. And if this is "difficult", it is suggested that it could however be generalised – i.e., widened up to include other, unspecified industries.

The nub of this, though, seems to be that, although a partial FTA is not permitted under WTO rules, we could have a sectoral single market (regulatory union) and a partial customs union folded inside that. Two wrongs, apparently, make a right.

One now has to stand back and read the UKTPO again to see if we've missed something of great significance, which turns this into some sort of sense. But if it is there, we've missed it. Stupidity really hasn't declared a truce this Christmas and – it seems – there is much more to come.

comments powered by Disqus

Brexit - the first year - New e-book by Richard North
Brexit - the first year - New e-book by Richard North
Buy Now

Log in

Sign THA
Think Defence

The Many, Not the Few