If the EU can let Japan ‘cherry pick’ on a trade deal why can’t it offer the same to the UK?

The EU signed a new trade deal with Japan last week.  It is worth reading (at least in summary)  its provisions.  There are a number of striking features in this deal which expose the weakness of the EU’s current negotiating position with the UK.  The UK is constantly told it cannot ‘cherry pick’ and that the four freedoms come in a package.  Those principles do not, it seems, apply to deals with the land of the cherry blossom.

The EU Japan deal is primarily about the reduction and/or elimination of tariffs i.e. customs duties.  In some cases like cheese there will be duty free ‘quotas’ not absolute free entry.  As far as non-tariff barriers are concerned the provisions of the deal refer frequently to joint application of international standards on products such as motor vehicles and medical devices.  Services are only partially covered.  Public services are excluded from the deal.

The second striking feature of this deal is that it does not provide for unfettered free movement of people between the EU and Japan.  It only facilitates the temporary movement of company personnel and their families.

Finally, disputes will be settled by an independent arbitration panel as is usual practice in international trade agreements.   There seems to be no problem with allowing the Japanese to ‘cherry pick’ bits of the single market it seems.  This deal must surely point the way to a similar deal for UK.  Only problem, this would not suit the Commission negotiators who have consistently refused to consider any such flexibility towards the UK.   Time to hand over to the member states who are likely to have a more balanced and pragmatic approach.

 

 

 

 

 

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Mr Raab’s pointed present – the Hedgehog and the Fox

It has been reported that the new UK Brexit Secretary of State, Dominic Raab, presented Michel Barnier, the EU Commission’s chief negotiator, with a copy of ‘The Hedgehog and the Fox’ by Isaiah Berlin.  At first I thought what a wonderful sense of humour – and then I thought what a very, very pointed present this was.

The Hedgehog and the Fox contrasts two ways of looking at the world: the monist and the pluralist.  Archilochus, an ancient Greek, said: ‘The fox knows many things but the hedgehog knows one big thing’.  Guess who is the hedgehog – the EU of course.  It is monist, Utopian and rigid, imbued with the philosophical ideas of continental Europe.  The UK’s philosophical underpinnings are those of the fox – it is pragmatic and rooted in the real world of human beings.  By offering M Barnier this essay by Berlin Mr Raab is signalling that he wants to be a grown up wily fox in his dealings with the EU hedgehog. At present he is still very much a cub.

The fate of the two animals in the natural world is instructive.  Where is the hedgehog?  Crushed under a fast moving vehicle as he exercises his single minded ambition to cross the road, eaten up by an ever growing tribe of Badgers who are bigger and nastier than him.  Where is the fox?  He seems to be doing exceptionally well, give or take a few road accidents.  The fox is in the ascendency not only in the countryside but also flourishing in urban areas.  I often saw fox or smelt his presence (faint whiff of skunk) when I lived in central London.

Mr Barnier, the EU’s chief hedgehog of the day, needed reminding of the dangers lurking in a monist, intransigent attitude to the creation of the European Utopia.  Hedgehogs, with only one big idea (the purity of the single market) cannot allow that big idea even to be questioned.  Mr Raab will have his work cut out if he is to become a grown up fox. What he now has to do is to emphasise the realities of human life, of economic activity and the merits of pluralism.  Isaiah Berlin would have been cheering him on.

Meanwhile, the Irish PM, Leo Varadkar, says he will stop UK planes flying over Irish air space unless Irish fishermen can fish in UK waters.  He is trying to be a good hedgehog but the wily fox knows that if he got his wish Irish planes could fly direct only to Spain, Portugal and the Canaries.  Better, better by far for survival for the EU and its negotiators to start to behave a bit more like a fox.

Boris exits stage right (or left perhaps) without a script

Boris has left the stage and is out of the UK/EU exit drama.  He is now without a script.   Unless he and those who think like him can rewrite the scenario they will be out of the cast as the drama moves into its final act.

Perhaps back of his mind, and that of Jacob Rees Mogg and other would be thespians, he has the notion that the UK could just leave the EU and trade with it and the rest of the world without any rules of the game at all.  Do they see UK exporters as pirates sailing round the world with cargoes of illegal goods?   That is an extreme view.  Do they have an alternative plan to that drawn up by the UK ?  There have been suggestions that the UK falls back on WTO rules. This still leaves the UK as a ‘rule taker’.  Like the EU, the WTO has rules and a dispute settling mechanism.  It is true that the WTO has not been working very well in recent years having been thwarted in its last major round of negotiations and having to watch while bilateral and regional trade deals muddied the global waters.  Nevertheless, free trade in a global context means accepting rules and standards.  If a UK firm wants to sell into any country it has to accept that country’s product standards.  The mighty German auto manufacturer Volkswagen learned that lesson to its cost.  Some of its top employees have landed in US courts and even in US jails for breaking the rules on emissions standards.

If the UK wants to continue to trade with the EU as it gradually builds up its global markets it surely makes sense to agree a free trade deal.  Like all free trade deals that means respect for common rules and standards – most of which are international anyway.  Free trade deals rarely cover much of the service sector and do not include total free movement of people between the countries.  A free trade deal with the EU is a pragmatic proposal.  Pragmatism is not, however, a feature of the EU’s approach.

The bad fairy in the UK/EU drama is the EU Commission which is the keeper of the religion of the ‘four freedoms’ as if it were the pure Christian theology of the Holy Trinity.   The purity of religious belief must be upheld even if the mass of the people living in the European continent suffers as a result.  The Commission is as wrong as are ‘hard Brexiters’  in its extreme viewpoint.  There should be no room for religious belief or ideology at the expense of the mass of the peoples of Europe.  For a happy ending to ensue in any drama there must be rejection of rigid positions and reconciliation between the players.

 

Mr Davis resigns without an alternative plan

After apparently agreeing to the Government’s Brexit plan at Chequers last week, David Davis has now resigned.  He could not face the long walk down the Chequers drive and the impossibility of hailing a taxi home so he waited a couple of days.

Davis has been notable for his absence from the Brussels negotiations for some time.  The Commission officials have been talking to UK officials.  No surprise at that.  Mrs May meanwhile has been touring the capitals of EU member states.  No surprise at that either.  The idea that a Minister should be locked in day to day negotiations with a bunch of Commission officials was always nonsense.  No surprise, therefore, that Davis felt sidelined.  His position was always impossible.

His resignation does not alter the fact that the UK Government has agreed on the outlines of a new trade agreement with the EU to take effect after Brexit.  It is not a ‘soft Brexit’ but a new trade deal with the EU.  All trade agreements come with strings attached – keep to the rules and product standards and ensure that there is a dispute mechanism.    Mr Davis has not resigned on principle.  He has not published any alternative plan.

The EU, for its part, is defending the integrity of its single market with its ‘four freedoms’ including the free movement of people.   Funny that it has been able to negotiate trade deals with many third countries, most recently with Canada, where there is no requirement for the free movement of people.  Why should the UK not be treated as other third countries are treated in EU trade deals?  Because it must be punished for daring to leave the EU’s Utopian project.

Here the EU reveals its own confusions.  The ‘free movement of labour’ enshrined in the EU Treaties morphed into the ‘free movement of people’ and on the back of that the EU is challenged from outside its borders by mass migration.  The Schengen Agreement on internal borders is already in tatters.  Time for the EU to reconsider just what is and what is not really required for its internal market to operate for the mutual benefit of all citizens of its member states.

 

At last – the outlines of a free trade arrangement between the UK and the EU – what took them so long?

This blog has been silent for four months.  Why?  Because so much utter nonsense has been circulating among political actors and the media about customs unions and single markets.  Unrealistic demands have been based on complete ignorance.  Having decided to leave the EU the UK by definition leaves its institutions including the Council of Ministers, the European Parliament and the Court of Justice.  It also leaves the customs union.  As for the ‘single market’ that is largely a myth.   To assume that it exists for all products and services is to fly in the face of all evidence and common sense.  There are global markets for some products, regional and local markets for others.  The scope of any market depends on the nature of the goods and services on offer and the preferences of consumers.  In so far as a European single market exists it exists for basic manufactured goods and some foods.  But many products and almost all retail services serve local markets.  Even the European Commission recognises that the single market is far from ‘complete’.  Any arrangements concluded between the UK and the EU for trade post Brexit have to confront the facts of. economic life.

The British Cabinet agreed on Saturday to the terms of a White Paper to be issued on the arrangements for trade between the UK and the EU after Brexit next year.  Cue howls of rage from ultra Brexiteers.  This time they are wrong.  By this time next year the UK will no longer be a member of the EU or its institutions.  But the UK and the EU member states still want to trade with each other.  Critics of the UK government position have no alternative to offer if they want a degree of free trade.  Any free trade agreement with the EU, the US or China for that matter would require recognition of common product standards and a mechanism for arbitrating disputes. Falling back on WTO rules for trade means acceptance of the same principles.

Why are people so hung up about ‘European Standards’?  Because they do not know that EU product standards are, by and large, developed in international, not EU, forums.  The EU is a ‘rule taker’ from international organisations as far as standards are concerned.  Were it not to follow international standards it would become a closed autarky trading only with itself.  That is not, at present, its espoused ambition.  The UK will be free to play an enhanced role in the development of international standards once its voice is no longer blended with those of 27 other countries.

From the start Mrs May has talked about a free trade deal with the EU.  Now we have the outlines of that deal.  What is astonishing is that it has taken her administration two years to draw up a proposal based on first principles.  There are obviously details to be finessed, but the UK government should be praised for finally coming to a pragmatic sensible conclusion that fits in with global practices.

But, and this is a big but, the EU Commission may well pull a face and talk the proposal down.  If it does so it risks its own long term future as the member states finally come to the conclusion that they, not the Commission, must be in charge of the international organisation they have created.  Any new relationship between the UK and the EU must one that benefits the citizens of the EU’s member states not one that fulfils the Commission’s dream of a uniform closed Utopia bound together by a tight mesh of inflexible law.

 

 

There is a solution to the Irish border issue and the EU knows what it is

In its draft Treaty published yesterday the European Commission appears totally ignorant of how the EU actually works and what it has already established as its policy in regard to the still extant visible and invisible borders between the member states.  Make no mistake the EU is not ‘borderless’ at all.  It is still an international organisation with 28 member states.  Its single market is by no means complete with one set of mandatory rules and regulations covering all aspects of economic life.  The Commission has always had as its prime objective total uniformity of law but time and time again it has been rebuffed by member states defending their own cultures, and established patterns of legal, social  and economic life.  When laws are agreed they are always extremely watered down versions of the Commission’s original purist proposals.  And, the European Union itself does not implement or enforce any of the rules. European laws are implemented by the member states and enforced in their national courts at the expense of their taxpayers.  And thus substantial differences remain.

In practice, examination of almost any aspect of economic life in the EU reveals a great deal of diversity.  Two sovereign states share the island of Ireland.  Both are at present members of the EU.  Does this mean that all rules and laws are exactly the same in each of them?  Of course not.  Take taxation.  The Republic of Ireland has (to the great dismay of the European Commission) reduced its rates of corporation tax to far below those of the UK  which operate in Northern Ireland.  Take VAT. There are considerable differences here too.  There are some similarities. Take company law.  A shared legal history has produced a similar approach.  The UK and Ireland’s approach to company law is diametrically opposed to that of many of the other EU member states.  Examine each aspect of economic and social life and you will find substantial differences.  They are examined annually by the World Bank for its ‘Ease of Doing Business’ index.  Differences persist within the EU because it has proved impossible to make absolutely everything identical everywhere.   Thus, in practice, borders still exist between member states because the rules and practices that govern economic life are different.

Even more disturbing than the Commission’s lack of understanding of the nature of the EU and the way in which it has operated for sixty years, is its failure to remember what it has only in the last two years identified as a top priority, namely the development of electronic systems to end the need for vehicles to be stopped at borders. A ‘Letter of Intent’ signed in Rome in 2017 includes a commitment to work on ‘corridors’ between member states where electronic passage (as in Boris Johnson’s much criticised comment about the congestion charge) will be tested.   Nor does the Commission appear to remember that it has finally, after decades, conceded that VAT is a consumption tax to be collected in the member state of destination.   Gone is the Commission’s long held dream of a EU VAT system collected and distributed centrally.  Now the differences in VAT rates between the two Irelands will not longer be of any concern to the EU.  And, VAT too is to go digital.

The Commission needs to be sharply reminded by the UK Government that it is in danger of making a complete fool of itself by demanding complete regulatory alignment between the two Irelands when no such complete alignment exists between the remaining 27 member states and for hoping that no-one has noticed its recent policy initiatives on electronic border checks.  If the Commission had it way Northern Ireland would be more tightly bound to the EU than its own member states.

Carillion and the EU – dog that did not bark

In all the fuss about the collapse of Carillion one key point has been entirely overlooked by commentators.  It is not the UK that draws up the rules on public procurement but the European Union.  Most of Carillion’s contracts with the UK government will have been concluded under EU rules.  The outsourcing of products and services by public bodies to the private sector is estimated to represent between 15-20% of the EU economy.  That is not trivial.  All member states to a greater or lesser extent outsource the provision of goods and services from the manufacture of arms, airplanes and ships to direct social services to individuals.  This feature of modern economies is certainly not unique to the UK.

In the single European Market contracts for the provision of goods and services to the public sector must be open to competition.  Hence the EU has adopted a large number of Directives outlining the rules under which such contracts may be advertised (throughout the EU), the terms under which contracts are to be awarded (to ensure value for money) and the thresholds beyond which the rules must apply.  The EU is not alone in providing a framework for public procurement.  There is also a World Trade Organisation (WTO) agreement on rules for public procurement.

With exquisite timing the European Commission issued a ‘Notice to Stakeholders’ on the subject of Withdrawal of the UK and the EU rules in the field of public procurement on 18th January 2018 – just a few days after the collapse of Carillion.  Now, reflect that some of the contracts awarded to Carillion were large so they would have been granted under EU rules.  Perhaps there is something lacking in the EU rules?

The Commission’s notice refers to Directive 2014/25/EU particularly Article 85 which lays out the conditions under which a tender may be rejected if the proportion of the products provided originate in third countries (which the UK will be after Brexit) and where the EU has not concluded an agreement ensuring comparable and effective access for EU undertakings to the markets of those third countries.  And, it warns, even if a tender is not rejected it may lose out to a tender where less than 50% is from third countries.  So, after Brexit without a trade deal UK firms might be shut out.

However, as far as Defence and Security is concerned (Directive 2009/81/EU) the issue is even more complicated.   Under these rules member states have more freedom of choice to allow third countries to participate in their defence and security procurement.  Member states will, under this Directive, be able either to include or exclude UK tenders. France and the UK are the leading EU member states in the field of defence and the signs are that they wish to maintain cooperation.

How much public procurement is effectively cross border anyway?  According to various Commission estimates it is far less than might be desirable – that is the public authorities of member states prefer to source domestically.  That is why there are so many Directives designed to increase cross border tendering. Working out the impact of Brexit on public procurement is going to mighty difficult.  But, at least if the EU rules are defective the UK can devise some better ones of its own.