Mrs May's damp Florentine squib

Friday 22 September 2017  

Mrs May has today given her much vaunted Florence speech. Billed as a set-piece aimed at unlocking the talks, it has fallen flat. It is remarkable only in how little is actually said. May laid out nothing in terms of the financial settlement and only vague platitudes on everything else. On future relations she has said neither a CETA or EEA agreement would be right for the UK but has left the question hanging as to what would be appropriate. We are no further forward. 

The real question, we suspect, is really one of what she intended to say when she booked this speech. The location and timing were far from accidental and talks were delayed to make space for the speech. It had to have been something more substantive originally. She can't have thought this was worth our time. 

There is a good chance that Boris Johnsons's intervention on the weekend was designed to sabotage the intended speech and what we actually got was Speech B, designed to buy time to avoid a civil war before the Tory conference. This though, only adds to the uncertainty. May has to make choices before spring next year or major banks will walk

Troublingly, this speech takes no account of what the Commission has already said regarding the negotiation process or future relations. It is as if anything Barnier has ever said simply does not exist - so it looks like we will have wasted an entire year before getting down to business. The danger is now accidental Brexit.

As to talk of a two year transition - this is wholly meaningless. Spacefiller. Entirely disposable noise. Ultimately there is nothing at all to take seriously here. We are still left to guess what Brexit looks like. Meanwhile, the clock ticks. 

22/09/2017 link

Brexit: a starter for ten

Tuesday 19 September 2017  

One of the particularly prevalent myths in relation to the EU is the wrong-headed belief that because we already have "regulatory convergence" or "equivalence" with the EU (having adopted and implemented its acquis), concluding a free trade agreement will be a simple matter.

This is precisely the error made by Liam Fox who argues that: "The free trade agreement that we will have to do with the European Union should be one of the easiest in human history". "We are", he says, "already beginning with zero tariffs, and we are already beginning at the point of maximal regulatory equivalence, as it is called. In other words, our rules and our laws are exactly the same".

Tariffs, as we have said many times, are not significant. But non-tariff barriers, mainly (but not entirely) expressed in terms of regulatory differences, are a major concern when concluding free trade agreements. Under normal circumstances, "regulatory equivalence" goes a long way to reducing them. But it does not eliminate them – especially in the context of agreements with the EU.

Underlying the myth that regulatory convergence/equivalence gets you through the door – as is so often the case with EU related issues – is a fundamental misunderstanding of the way the EU works, and how it organises its affairs.

The root is the failure to appreciate the difference in the control regimes as between member states and external actors, such as third countries seeking to export goods to the territories of EU Member States.

The crucial difference is not so much in the controls applied, but in where the controls are applied. For EU Member States, border controls have been abolished, so control is exercised internally – often at the point of production.

Looking at the meat industry gives as good an illustration as any of this system in practice, not least because this sector has the best developed example of Union controls and their enforcement.

For those wishing to market fresh meat, the system starts way back up the food chain, with extensive controls over animal feed, on rearing systems, on the pesticides that can be applied and the veterinary medicines used.

But not only are the controls specified, the methods of enforcement are set out, and the "competent authorities" are required to report periodically to Commission, giving evident of their enforcement activities.

And in the case of food products, the Commission has its own "police", in the form of inspectors employed by its Food and Veterinary Office. These officials can carry out inspections of any national systems, with complete access to records, personnel and premises, following which they produce reports setting out "recommendations" which national authorities are more or less obliged to implement.

Once animals reach the slaughterhouse, a new raft of controls apply, including prior approval and licensing of the premises and on-site supervision by veterinary officials. There is 100 percent ante-mortem inspection of animals and post-mortem inspection of all carcases, together with a mandatory test schedule for pesticides and veterinary medicine residues.

Temperatures of the meat are rigorously monitored and controlled throughout transport and storage. Carcase meat can only be boned out and jointed at approved cutting premises, again under veterinary supervision, and cold storage plants must be licensed and approved.

Through the system, copious records are kept, and then held by the national authorities, the details processed and routinely submitted to the Commission in Brussels. All meat has to be marked and labelled so as to identify its origins and the establishments in which it was processed.

But, because of this phenomenally complex (and intrusive) internal system of control, there is no requirement for border controls. These have been abolished, allowing free movement of goods throughout the Union.

And, as a final longstop, if any national authority fails in its duties to enforce EU law, the Commission can intervene, issuing warning letters, and taking infringement proceedings, up to and including taking the Member State to the ECJ, which has the power to impose draconian fines.

Now, when it comes to "third countries" exporting meat to the EU, in the interests of a level playing field, the controls imposed must be at least as rigorous as those applied to Union businesses.

However, there is a big difference. The Commission has no jurisdiction over the internal organisation and the enforcement of controls within the sovereign territories of third countries. It cannot take the governments to the ECJ and they cannot be fined for non-compliance with EU law.

Nevertheless, the EU will require as conditions for entry, compliance with EU production regulations, licensing of establishments and much more, in a graduated hierarchy of controls. But, to compensate for the inherent limitations of its power within the third country territories, the EU also imposes border controls.

When we thus turn to Article 229 of Regulation (EU) 2016/429, we see a five-tier control system in place, carried over from legislation already in force.

Firstly, goods must come from a country officially listed as permitted to export the relevant categories; secondly they must come from establishments which are approved and listed; thirdly, they must comply with all relevant animal health requirements laid down by the Union; and fourthly they must be accompanied by animal health certificates and by other declarations and documents as required.

Finally, the consignments must be presented to a Border Inspection Post (BIP) – now called Border Control Post (BCP) – where they must pass inspection. Only when the fees due are paid and the "Common Veterinary Entry Documents" are endorsed can the goods be presented for customs clearance.

Now the point here is that regulatory convergence is implicit in the country listing, in the approval of establishments and in complying with the relevant animal health requirements. But convergence is not an either/or requirement.

The Member State cannot argue that, because it is convergent, it can be exempted from other controls – particularly border controls. Put simply, convergence is the "starter for ten" which gets your products as far as the border. Once there, the documentary and physical checks must be carried out.

Essentially, what it amounts to is that, inside the European Union, members "enjoy" a system of internal controls, which allows free movement of goods throughout the Union without border checks.

For those operating outside the Union, conformity with EU rules is still required, but additional checks are applied before the goods can pass through the external border to enjoy free circulation within the Union. Regulatory convergence/equivalence is a necessary but not sufficient condition for entry.

And while we have used fresh meat for our regulatory example, similarly complex arrangements apply in other sectors, to other goods. And in all cases, border checks will apply. Regulatory convergence/equivalence is not a "get out of jail free" card. It is merely a "starter for ten".

19/09/2017 link

We can afford no more dithering from Mrs May

Sunday 10 September 2017  

Brexit watchers need no reminding that the clock is ticking. All the while there are intractable dilemmas to be resolved which require urgent decision making. By now we should have seen progress but instead Theresa May is held hostage by her hard Brexit fringe. They are determined to stop May making the necessary concessions to progress.

The fundamental folly here is that May is hoping to avoid a confrontation when a confrontation is inevitable. This is one of those instances where making no decision is as bad as making the wrong decision. Either way, we walk away empty handed. There is simply nothing to be gained by trying to evade the inescapable. May must make her move or be damned. History will not be kind to the prime minister who dithered her way to oblivion.

The undeniable truth is that if we seek to avoid a hard border in Ireland then we must negotiate a special status for the province, maintaining much of the technical and legal infrastructure of the status quo. That has obvious ramifications for trade with the mainland - and largely dictates that we stay closely aligned with the single market. Meanwhile, business is sending a clear message that frictionless trade must be preserved and the minimum requirement is a meaningful transition period.     

Consequently we are at an impasse. Reality is wholly incompatible with the aims and ambitions of the Brexit zealots. It is, therefore, up to Mrs May to decide whether appeasing her backbenchers matters more than Britain's future. If she is incapable of making a choice then she must be removed. If that means the break up of the Conservative Party then so be it. The gravity of the situation now requires courageous and extraordinary measures. 

10/09/2017 link

Another Norway myth collapses

Monday 28 August 2017  

000a EEA-030 acts.jpg
There can be few more tiresome canards in the Brexit debate than the oft repeated assertion that Norway (as part of the EEA) accepts three quarters of EU rules. The truth, as always, is very different. Having contacted the EFTA Secretariat, which administers the EEA agreement, they report that 10,862 acts have been incorporated into the EEA Agreement since its inception in 1992 (see screen-shot above). 

Very often, though, acts repeal other acts, and some acts are time-limited as cease to have an effect. Taking this into account, there are 4,957 acts remaining in force today. 

The very latest count of the EU laws in force (today) stands at 23,076. As a percentage of that number, the EEA acquis of 4,957 acts currently stands at 21 percent. In effect, the EEA (and thus Norway) only has to adopt one in five of all EU laws – not the three-quarters that is claimed. 

The three quarters claim originates from a Norwegian Government report in 2012, which makes a mistaken claim in the introduction, repeated in Chapter 1 of the English version (the only chapter to be translated), which is not repeated in the body of the report (available in Norwegian only).

The error made is to claim that "Norway has incorporated approximately three-quarters of all EU legislative acts into Norwegian legislation", when the detail is to be found on pages 794-5, which do not support this claim. 

What we see there is a chart setting out the EU legislation in force (the same source that we have used), only for July 2008 – over seven years ago. In this overview, which comprised a total of 28,031 legislative acts, of which 1,965 were "applicable directives".

The report takes this figure for directives, and compares it with the (then) 1,369 directives adopted by the EEA, then concluding that "about 70 percent of all European Union Directives also apply to Norway through the EEA". 

This is where the error lies, for the 70 percent of all directives is wrongly changed to "all EU legislative acts" in the introduction, expressed as "approximately three-quarters", the figure which has been lifted and used by the Prime Minister. 

However, the report then goes on to observe that EU had 7,720 current regulations, whereas the EEA Agreement comprised 1,349 applicable regulations, approximately 17.5 percent of the EU regulations. When both were taken together (directives and regulations) – 2,718 adopted by the EEA compared with 9,685 in the EU EU acquis, amounting to about 28 percent. 

Interestingly, when the comparison is made on the same basis that we have used (with 24,061 EU legislative acts), the actual percent comes to 11 percent – a far cry from the "three-quarters" claimed in the introduction. 

Even without going into the depths of this report, there is plenty of work to show that the claim has already been discredited. The report we cite, however, looks at a snapshot of 2000-2013, when it finds that only ten percent of EU laws were adopted. But this ignores the fact that many laws are repealed each year. So as we add to the law book, old laws are dropping off the end. 

Thus, the only valid measure is a comparison between LAWS CURRENTLY IN FORCE. We are making the comparison between the total number of laws on the books of the EU and of the EEA - the laws currently in force. That brings the figure to 21 percent, which can be regarded as definitive at this time. 

Yet the three-quarters figure is routinely cited by the BBCOpen Europe and even the Westminster Parliament, even though there is no evidential support for it, based as it is on an error in the Norwegian report. This careless and even mendacious use of a discredited and inaccurate figure, however, characterises this whole debate, where truth is the first casualty of war. 

28/08/2017 link

EEA cannot be used as an interim measure

Sunday 27 August 2017  

A modern trade agreement will set out a number of areas of mutual concern and cooperation. Even the most rudimentary ones will set up working groups and joint committees. They work on the assumption that there will be problems and problems need to be resolved through ongoing relationships. The new Japan-EU agreement is one such example. Larger and more comprehensive deals up-scale all of these things, often forming formal institutions.

The EEA agreement, however, is a different animal in that it is far more extensive in terms of regulatory harmonisation and cooperates through EU agencies and institutions. It is moderated by the EEA secretariat and the Efta court. It covers considerably more than an FTA.

What this government wants, oblivious of other concerns, is "frictionless trade" which in their minds means a comprehensive FTA. Some say this can be achieved by way of Mutual Recognition Agreements (MRAs).

MRAs have only ever been used as a precursor to full regulatory harmonisation. It is one thing to establish an MRA but you are then faced with the problem of maintaining an agreed level of convergence which means any new laws have to be put to a joint committee to ensure they fall under the MRA. This though does not fully allow for free passage of goods. Only full regulatory harmonisation can achieve this. The EU has made this clear. 

In this the EU is actually giving us a helping hand by closing down a few of these delusions. It should help progress the debate. But for the die-hards of Conservative Home, very few still uphold this misapprehension. 

The delusion held by Brexiteer MPs is that full separation from the single market gives us both frictionless trade and regulatory independence. But that is not even true of even the most basic EU FTAs. The latest EU-Japan agreement largely formalises the current trend in compelling Japan to fully comply with standards as defined by UNECE, Codex and ICH. Substantial trade deregulation is not going to happen.

Assuming we did achieve regulatory independence there would be no point. If you want to export to the EU you have to conform to EU standards and register goods within the internal market. Since that regime would offer the most export potential UK manufacturers would ignore the domestic standard. We would be forced to unilaterally recognise EU goods anyway. We could set up our own goods registration system but EU firms simply wouldn't bother with the expense when the EU standard gives them global reach. Put simply there is no deregulation potential even in a basic FTA worth speaking of.

Now keep in mind that this is just the bare bones on trade in goods. There are three hundred other areas of concern all the way up to aviation safety and phytosanitary measures. We are stripping away forty years of systems development for the free movement of goods only to have to rebuild them one component at a time.

By the time we have finished with this we will have pretty much negotiated exactly what Switzerland has only to find we have the exact same barriers to trade they have where we end up trading ECJ jurisdiction for market access. Exactly where we didn't want to be.

Switzerland's meat export regime falls almost entirely under ECJ jurisdiction with zero say in the rules. That then ends up with mission creep where you end up with pretty much the same regulatory harmonisation as an EU member but no EEA firewall like Efta and no system of co-determination.

So what seems superficially appealing in having a more basic agreement with the EU, ignores the fact that trade deals develop over time and come under constant review. We will prune the single market only to end up rebuilding it through the respective strands of our new relationship but ending up on a tether. So much for ending Brussels influence. We suffer a decade of trade limbo for absolutely nothing.

And this ultimately explains the recent intervention by Barnier. The EU knows full well how this plays out and does not want to devote ten years of runtime to this utterly pointless pursuit - not least when they have a system already; The EEA. In fact, we need to move past calling these things trade agreements when they are in fact treaty systems.

So what about using the EEA as an interim to full independence? Well, it should be noted that this in itself is a major legal undertaking. Why would the EU, or indeed Efta, want to go to the trouble for what would be a temporary and disruptive process? Answer: they wouldn't. More to the point, having done this, having given the UK a single market solution, it would not be obliged to invest any further energy in a bespoke FTA. Why bother?

But, like we say, the EEA agreement is not an FTA. It is a treaty system with country specific annexes so it can be tailored and the UK can register opt-outs and trigger safeguard clauses to reclaim those areas it wishes to exclude. To an extent, yes you can pick and choose parts of the single market - but only if you are in the single market framework. There are penalties for doing so but that is a matter for further negotiation.

So in effect, if we want the destination of Brexit to be a far looser trade relationship then the means to achieve that is to join the EEA from the other side of the agreement and then reverse engineer it as far as we can mutually agree. In that respect the EEA agreement is both the transition and the destination.

If, for some boneheaded reason, the UK chooses to avoid this path and tie the EU up in a pointless negotiation for a more basic FTA, the EU will rightly not be very accommodating. It will offer us a threadbare agreement and there will be no offer of a transition and no "frictionless trade". The only transitional status we will be allowed is to a remain a non-voting EU member. We then drop out into an inferior status where we lose a substantial part of our EU trade for no tangible gains.

This all rather points to the inevitability of the EEA. It would seem that the only other path is for the UK to storm out in a tantrum to end up with nothing. Only the nihilistic wreckers on the right of the Conservative Party think that's a good idea.

From our reading of the EEA agreement, for the UK, it is a superior arrangement to being an EU member. We see a lot of potential in it. We can take ownership of it, develop it and enhance it, possibly even expanding it. It works for the UK and is in the spirit of European cooperation. We see no value in reinventing the wheel.

27/08/2017 link

A Brexit wake up call

Friday 25 August 2017  

Farmers Guardian reports that the European Commission has failed to re-authorise the Red Tractor assurance scheme, along with four different schemes from other member states, despite the application for re-approval being lodged six months ago.

The unexplained gaffe has meant farmers whose grain was destined for the biofuels market have been left in the lurch, with some having to fork out for interim storage. The NFU has demanded that the Commission urgently publish its decision on a temporary solution or full approval.

NFU combinable crops board chairman Mike Hambly said: "This current situation is a good wake-up call to Defra, the Department for International Trade, the end consumer and also farmers. No paperwork or tick in a box equals no trade, and it worries me it could happen in many ways, be that through chemical re-registration being missed or even a change in labelling. The importance of these things needs to be absorbed by us all and we need to be active in pushing for timely action to prevent issues rather than waiting until they become a major financial burden".

Though no cause is given for this oversight, one could almost imagine this being a less than subtle hint from the EU. If it isn't then it should be taken as such regardless. We have outlined a number of areas where trade could come to a grinding halt should we fail to reach an agreement - only to be told by hard Brexiters that we are exaggerating - and that it's all just a "millennium bug" panic. Categorically, it isn't. 

From air travel to chemicals registration, if the certification system is not in good legal standing then trade simply does not happen. Now imagine all of these problems hitting simultaneously. Not good is it? How many times does it have to be said?

25/08/2017 link

Britain will remain an influential regulatory player

Thursday 24 August 2017  

It's not often you come across a fair minded evaluation of the Norway option. This post by Nick Sitter and Ulf Sverdrup is one of the better efforts we've seen. Read it! It points to how the EEA agreement is more of a system than a trade deal and is configurable. As a basis for a new relationship with the EU, it's a no-brainer.

The authors have it that the EEA deal allowed Norway to maintain formal sovereignty while delegating actual sovereignty. We think that is perhaps a clumsy assessment in that they outline the many mechanisms by which the institutions of the agreement serve as a firewall where the adoption of rules is a matter of process and negotiation. But they are broadly correct in that the emphasis on formal sovereignty is there - which is exactly what we want from Brexit - the end of political union, while maintaining a framework for ongoing cooperation.

What is refreshing about their assessment is that it recognises the limitations of the arrangement without making a fuss about it. They argue that there is a need for a non-EU state to establish clear priorities and to pick its fights intelligently. "A non-member can have an impact in a policy area if it prioritizes, and explains its domestic constraints. But going for the ‘select all’ option on the conflict menu is not wise. Norway has managed to keep fisheries, agriculture as well as oil and gas out of the EEA. The UK government is well advised to decide – and to signal clearly and openly – what its real red lines are".

Quite! What piques our interest, though, is the final lesson offered.
The final lesson concerns life outside the EU. Non-members are in effect relegated to the role of a lobbyist – albeit sometimes very important lobbyists. This is a new role, in which expertise, policy competence and the wisdom to gather information, advocate solutions, and intervene at the right time counts for more than formal power. As a lobbyist on the outside, the UK will compete with many governments, organizations and firms. Norway’s experience shows that outsiders can have influence on the EU system, particularly in policy sectors where it is a ‘super power’ – such as oil and gas, but most often such influence depends on successfully aligning with the interests of key member states, and arguing in line with what is best for Europe and the EU, not on the need for special exceptions.
This is absolutely critical to the whole Brexit argument. We are repeatedly told that Norway has no say in the rules. A tiresome canard we are so very tired of debunking. The Norway experience shows that when they pick their battles well, enlisting support from other non-EU members it is able to obtain substantial concessions and pressure the EU to revise its policy even internally.

To say that the UK would be a "lobbyist" is a fair assessment but we would go one further and say that the UK would be an active and powerful one. Assuming we can successfully conclude Brexit with an EEA agreement, or something of its type, then the UK does not become a down-and-out charity case. It has a means of coordinating a high level of cooperation while being a free agent on all of the many global forums, capable of acting in the direct national interest without subordination to Brussels. We would still enjoy more economic clout than most EU members, and we should not forget that even as a member of the EU we are a lobbyist and we don't call the shots.

A key thing to note however, is that the authors state that as a lobbyist "the UK will compete with many governments, organizations and firms". The latter is a seriously important observation because it gives us an insight into the bigger games in play. The nexus of power in world and regulatory affairs is a multifaceted, multi-forum exchange where coalitions of big business, unions, NGOs and nation states broker agreements, regulations and standards. The EU is far from being the "top table".

Ditching the parochialism of EU politics, we must turn to the more interesting news from last year, regarding the formation of a new international public-private sector coalition, the Global Alliance for Trade, an alliance designed to streamline border management in developing countries associated with implementation of the new WTO Trade Facilitation Agreement (TFA).

The new alliance was announced at the 10th WTO Ministerial Conference in Nairobi, Kenya and consists of governments, international companies such as Maersk Group, DHL and Wal-Mart, and the International Chamber of Commerce and the World Economic Forum. The objective of the Global Alliance for Trade is to accelerate trade facilitation reforms by supporting swift and wide implementation of the WTO Trade Facilitation Agreement (TFA).

Today, customs processes can involve large amounts of documentation that typically are not digitalised. This and lack of coordination between private and government actors adds unnecessary waiting time and delays to traded goods, resulting in added inventory costs and the risks of penalties for importers and exporters. Reforms aiming at reducing transit time of goods across borders can increase trade flows significantly and thus drive growth and job creation in low- and middle-income countries. The WTO estimates that a full implementation of the TFA can add $1 trillion to the global GDP annually and 21 million new jobs globally.

A successful implementation will therefore benefit all countries involved, as well as importers and exporters. The first step for the Global Alliance for Trade Facilitation is to diagnose the largest trade barriers in specific countries. A new player on the scale of the Global Alliance for Trade should actually be major news. News of it came to us not via the BBC but from Maersk's own Twitter feed. That speaks to the irrelevance of the media.

It is not yet clear just how influential this alliance will be but in the past, WTO alliances have helped shape global regulations that even the EU has adopted. It will likely have a much greater consultative input than the EU in opening up new markets - and when it comes to the defining international agreements, it will sit alongside the EU as a power in it's own right.

This is another marker in the timeline of global trade whereby the big deals are no longer between nations and blocs but between non state actors and regulatory agencies. This is very much the birth of a global single market.

In addition to Myanmar, Norway, Vietnam, Brunei, Zambia and Ukraine, the following WTO members have also accepted the TFA: Hong Kong China, Singapore, the United States, Mauritius, Malaysia, Japan, Australia, Botswana, Trinidad and Tobago, the Republic of Korea, Nicaragua, Niger, Belize, Switzerland, Chinese Taipei, China, Liechtenstein, Lao PDR, New Zealand, Togo, Thailand, the European Union (on behalf of its 28 member states), the former Yugoslav Republic of Macedonia, Pakistan, Panama, Guyana, Côte d’Ivoire, Grenada, Saint Lucia and Kenya.

This is a forum where nation can speak unto nation in bringing down barriers to trade. Unless of course you happen to be an EU member, where instead we have to go off to Brussels and ask nicely if they would consider raising our concerns on our behalf.

Just imagine that - a global forum on trade where little old Norway can have an independent vote, yet the UK, the fifth largest economy cannot. This is the real top table - this is the real engine of global trade. This is real global engagement. From this will flow new agreements to adopt new regulations.

The notion that we would be isolated outside the EU ignores the fact that nobody is isolated - and nations are free to pick and choose alliances and coalitions according to what suits their most pressing trade concerns. There are any number of configurations that can rival the EU as a power - and even the threat of voting against the EU (when we have our own vote) would be leverage we do not presently have as members. As members we can be summarily overruled - and we are forced to adopt the common EU position.

Very often that common position is less to do with doing what is best for global trade than it is protecting the EU's internal economy. Far from engaging with the world, the EU is putting up more barriers and acting on the global stage with a view to asserting its own presence rather than working in the spirit of cooperation.

In fact, the EU is often criticised by global regulatory agencies and trade alliances for gold plating regulations specifically to create further barriers and tilt the playing field in its own favour. It stands in the way of better regulation and creates administrative burdens where none previously existed. As it seeks to usurp its own member states, critical regional expertise is muscled out, depriving the global community of valued input.

As we continuously point out, there is a whole universe of trade and governance over and above the EU and the myopic fixation we have with little Europe is damaging our global standing as well as holding back global progress. It's time to cut the apron strings and step out into the new world. The EU will still be our ally and friend, but we cannot allow it to be our master. The world has moved on and the future is different to the one they imagined.

24/08/2017 link


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