Brexit: playtime's over

13/09/2017

What we saw yesterday, from my analysis of the Institute for Government's report on "Customs", is that there are people at (or close to) the top of the information chain who simply don't know what they are talking about.

But it also illustrates other tendencies which tend to kick in when facing insoluble problems. If one ignores some of the key factors that make a particular problem insoluble, or redefines the problem in such a way that constraints disappear, then all of a sudden one can find answers which previously could not exist.

This is where IfG went with the Border Inspection Post problem. As we have defined it, it is insoluble. There simply isn't enough capacity in the Channel ports to handle UK consignments after Brexit. And there isn't enough time to install that capacity by Brexit day, even if we started now. Since no attempts is being made to remedy the capacity shortfall, there is not the slightest chance of seeing "frictionless" trade in the sectors affected, after Brexit.

However, if you ignore the "official controls" that regulate the movement of such goods, and instead use the Union Customs Code (which actually doesn't apply), you can invent a solution that couldn't otherwise exist, in the form of pre-export clearance.

As long as the likes of the IfG can do this, and the media fails to call out the fantasists, then we can soldier on in a fog of ignorance, pretending that things aren't as bad as they actually are and that, when Brexit finally arrives, we can continue trading much as we did before.

Unfortunately, where the IfG goes, others follow - and some may even be leading the way in the fantasy stakes. That much is evident from the Legatum Institute paper on Northern Ireland.

By way of background, we have recently had Michel Barnier speaking on the subject, declaring in no uncertain terms that, "The solution for the border issue will need to be unique. It cannot preconfigure the future relationship between the European Union and the UK. It will require both sides to be flexible and creative".

But what he then saw in the UK position paper on Ireland and Northern Ireland worried him. The UK, he said, wanted the EU to suspend the application of its laws, its Customs Union and its Single Market at what will be a new external border of the EU. And it wanted to use Ireland as a kind of test case for the future EU-UK customs relations.

"This", said Barnier, "will not happen", adding: "Creativity and flexibility cannot be at the expense of the integrity of the Single Market and the Customs Union. This would not be fair for Ireland and it would not be fair for the European Union".

With that unequivocal position in mind, we return to the Legatum Institute. It offers its own interpretation of "the challenge" facing us. Despite the talk of an "invisible" border and the UK position paper arguing for "avoiding a hard border", the Institute only wants to make sure that Brexit "will not lead to an unnecessary hardening of the border between NI and ROI".

It then goes on to say that the challenges posed by the border "mirror those that must be resolved between the UK and EU". It also considers that: "The problem presented requires solutions that can be deployed between the UK and the rest of the EU, and could become a model for other border arrangements around the world".

In other words, the very thing that Barnier declares "will not happen" is precisely that which the Institute suggests could happen while also arguing for an all-UK solution rather than the "unique" solution that the Commission has specified must happen.

In quantum terms, this leaves the IfG trailing in the fantasy stakes. In Legatum, we have a think tank going out of its way to suggest options which have already been unequivocally ruled out by the EU's chief negotiator. This simply cannot be considered rational behaviour – unless, of course, there is another agenda at play.

Truly, though, the Legatum Institute is in the land of the fayries. It is not just addressing the Irish question, or even Brexit. It is developing an advanced case of megalomania, seeking to create "a prototype for ensuring smooth, low friction border between nations" which will not only solve the problems for Ireland and Britain, but "can serve as a prototype for ensuring smooth borders around the world".

"Much has been made", says Legatum, "of potential special arrangements between ROI and NI", but it believes that, "any settlement will be determined by the wider agreement between the UK and EU". This creates, it avers, "an opportunity to deploy the kinds of solutions in the Irish context that would also work in the UK-EU".

Not content with this, we are also told that the situation presents "an opportunity in the UK-EU negotiations to seize the initiative and discuss the future trade relationship now, as we cannot discuss the issues between the ROI and NI without discussing the future relationship between the UK and the EU".

This is a special kind of madness. Once again, the very thing that the Commission has said it will not do – discussing the future relationship between the UK and the EU, in the contest of the Irish border – is the very thing Legatum is suggesting we should do.

To follow the Legatum route, therefore, would simply ensure a failure of the Brexit Article 50 negotiations, triggering a "no deal" scenario, which could well be what Legatum's sponsors really want. We really need to go no further with this madness.

However, there is a section in the report which touches on the same ground dealt with by the IfG, where there is a discussion on the cross-border trade in food and live animals. Legatum's solution here, is innovative – to say the least.

Not for Legatum is there the fiction of pre-export clearance. Instead, it advocates the use of the WTO Agreement on Sanitary and Phyto-sanitary measures (SPS Agreement) to put pressure on the EU to agree suitable mutual recognition provisions on the date of Brexit.

Article 4 of the SPS Agreement, says Legatum, provides that members should recognise each other's regulations, even where they are not technically identical. Thus, it says, even, if the UK chooses to adopt different food safety standards after March 2019, the SPS Agreement gives the UK the right to take legal action to ensure that it is able to continue exporting to EU member states, provided that the purpose of the regulation (maintaining effective food standards) is secured.

Here, we can see a different fantasy being played out. The Institute is confusing the terms "mutual recognition" and "equivalence", treating them as if they are the same things. They are not. And Article 4, to which it refers, does not mention mutual recognition. It refers to "equivalence" and requires that the exporting state "objectively demonstrates to the importing Member that its measures achieve the importing Member's appropriate level of sanitary or phytosanitary protection".

For sure, there is then a provision that requires WTO members to "enter into consultations with the aim of achieving bilateral and multilateral agreements", but these are on the recognition of the equivalence of specified sanitary or phytosanitary measures.

Legatum, therefore, is being unrealistic in arguing that the SPS Agreement gives the UK the right to take legal action against the EU, should the UK choose to adopt different food safety standards. It would be for the UK to demonstrate its "equivalence" to the EU.

As much to the point, though, Article 4 requires that "reasonable access shall be given, upon request, to the importing Member for inspection, testing and other relevant procedures", which thus legitimises the EU's prior approval system. The UK cannot, come what may, demand access for its goods, simply on the basis of notional equivalence.

Article 3 then requires Members to "base their sanitary or phytosanitary measures on international standards, guidelines or recommendations, where they exist". The EU's standards are Codex compliant and the very existence of such international standards would enable the UK to be excluded from EU markets if it deviated from those standards.

If we then look at Annex C of the SPS Agreement, we see provision for control and inspection of imported foods, with the proviso that procedures must be carried out "in no less favourable manner for imported products than for like domestic products".

As I explain here, internal controls on foodstuffs in the EU are just as rigorous as those applied to imports. But, while controls are applied internally at the points of production and during distribution and marketing, the EU has no jurisdiction over the production of food within third country territories so it compensates by applying controls on imports at its external borders.

Its indifference to real world considerations, though, tends to confirm that Legatum is working to a different agenda. And we got more than a hint of that the day before yesterday, in The Times and the Independent.

In those papers, we saw Crawford Falconer, a former member of the Legatum's "special trade commission", backing a paper produced by the Institute last year. What makes this interesting is that the New-Zealand-born Falconer was last month appointed chief trade negotiation adviser to Liam Fox's Department for International Trade, and now has considerable influence in Whitehall.

What amounts to Legatum's Brexit template wants us to leave the EEA in order to negotiate a series of free trade agreements with a "Prosperity Zone": nations which include Australia, New Zealand, Singapore, Canada, US and possibly Mexico and Switzerland. Access to UK markets will be offered in exchange for commitments to regulatory reforms, especially in the service sectors, potentially enabling the UK economy to make substantial gains.

And the person following this agenda is Mrs May. She is now expected to give formal notice to leave the EEA in her speech due within the next two weeks. In anticipation of this, the EU has announced it is postponing next week's scheduled round of talks with the UK, while they wait to see what she has on offer.

Sources are suggesting that Mrs May might abandon the UK's attempt to agree a comprehensive FTA and instead by-pass the Commission by calling for direct talks with EEA members. The target would be a replacement EEA deal, under a different name, focusing on services and shorn of unrestricted freedom of movement.

Things can change very rapidly but anything close to this would confirm that the Legatum Institute is shaping Brexit, bringing it closer to the agenda of its New-Zealand-born sponsor, multi-billionaire Christopher Chandler.

Someone clearly not in the loop is Philip Hammond who, yesterday, warned the Economic Affairs Committee that UK ports could be plunged into chaos if the country crashes out of the EU without a deal which kept customs arrangements similar to those in place now.

"Anyone who's visited Dover", he said, will know that it "operates as a flow-through port". Current volumes of trade "could not accommodated if goods had to be held for inspection", even just minutes. This "would still impede the operation of the port".

Roll-on, roll-off traffic at Dover, Hammond said, "is predicated on trucks rolling off a ferry immediately, out of the port and the ferry reloading and departing pretty rapidly – Ryanair style turnaround times. Anything that caused delay in vehicles exiting the port, delay in vehicles offloading, would cause significant disruption to patterns of movement".

Work, he said, was under way on contingency arrangements to try to maintain smooth operations even if the UK crashed out of the EU without a deal. But, he admitted, "We have had less engagement than we would like with customs counterparts in our immediate neighbours at the technical level, both to discuss possible deal scenario challenges and no deal scenario challenges".

Clearly, we're not going to get a customs deal and, on current form, it doesn't even look as if Mrs May will try for one. Thus, it's beginning to look as if playtime is over. On 30 March 2019, it isn't quite going to look like the picture I've used. But soon afterwards, it may feel like it.