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.


The Irish Taoiseach’s Fireworks

Further to my last blog on ‘Much ado about nothing’ what are we to make of the Irish Taoiseach’s comment on the sale of fireworks?  He is reported as saying that the rules do not have to be all the same by giving the example of fireworks.   It is illegal to sell fireworks in the Republic of Ireland but they are sold legally in Northern Ireland.  He thus makes my point for me.  It is entirely up to the Irish authorities to root out any activity which is illegal including the sale of goods that are not authorised in the EU.  Brexit will make no difference to this principle.  If Ireland can control the sale of fireworks it can control the sale of chlorinated chickens if the UK decides these are fit for sale.

On the day after Brexit (if it is ever to come) all the regulations will be in full alignment.  What happens after that date is what is matters.  If the UK changes its regulations – relaxing some rules on animal health for example then the Republic of Ireland will have to take steps to ensure that non compliant animals are not offered for sale in their territory.  They already seem to be able to do this with respect to fireworks so why not everything else?

The UK has repeatedly stated that it is not going to impose a hard border between Northern Ireland and the Republic.  If nasty things from the EU turn up in Northern Ireland its authorities will pursue and punish those who have imported them.  Same for the Republic.  That principle is the way the EU works anyway.   All the laws and rules of the EU are enforced within each separate member state.  Some of them are good at this, some are not.  The debate thus far seems to indicate that the Irish Republic wants a hard border unless all regulations are for ever the same.  If Ireland feels that its administrative structure is too weak to cope with the new arrangements for trade then it clearly needs to strengthen its capacity to prove its fidelity to EU norms.   If it does not it will be pursued in the European Court of Justice for infringements of EU rules.

In some exceptional circumstances a ‘hard’ border may have to be introduced around a particular area – foot and mouth disease is an example.  But that border may not be contiguous with the border between the Irish Republic and Northern Ireland.  And, perhaps no one has noticed that several EU member states have erected razor wire fences to stop migrants getting in and out of their countries.

The whole border issue can easily be solved.  It does, however, require politicians to learn how trade actually works within the EU and between the EU and third countries.  Mr Varadkar’s fireworks are the first sign of connection with the reality of economic life.

The Irish/UK border – much ado about nothing

Sitting here in Wales, looking out of my office to England across the river Severn, I am totally puzzled by the Irish/UK border dispute.  A list of 142 cross border activities that might be negatively impacted by Brexit has been drawn up, according to a report in The Guardian.  The list includes medical services and access to education.  Well, from my vantage point in Wales the extent of cross border cooperation between the Irish Republic and the UK seems entirely laudable.  If only we could have similar cooperation here in Wales.  You still have to pay to get into Wales via the Severn Bridges.  Even in 2018 the toll will merely reduce but not disappear entirely.  How easy is it for someone in Monmouthshire to elect to be treated in an English hospital?  How easy is it for a student to enrol in an English school?  Welsh students pay less in fees for their University education than do English students. If a Welsh student goes to an English University they have to pay the English fee.  If a Welsh student goes to a Scottish University they are treated as though they were from another planet – no free tuition for them.  Yet all these differences are tolerated without the imposition of a ‘hard border’.  They are merely reflections of different priorities set by different administrations.

Far, far too much is being made about this ‘fake’ problem.  Take agriculture and the issue of standards for food.  There are EU rules but all EU rules are implemented and policed entirely within the borders of each member state.  If, post Brexit, the UK decided to import chlorine-washed chickens that does not mean that the Irish would be obliged either to import or to eat them.  They would remain prohibited under EU law and it is entirely up to the Irish authorities to ensure that they are not on sale in Eire.  If one was smuggled across one of the many crossing points that would be an illegal act.  The Irish authorities would have, within their territory, to take steps to catch and punish offenders.

The entire EU legal edifice is constructed on the principle of common rules implemented and enforced within each separate member state.  Of course, if a member state fails in its duty to enforce the law it can be brought before the European Court of Justice.  The member state itself must rectify its faults.  Enforcement of EU law takes place at the level of the member state, that is at the point of DESTINATION of goods and services.  Why is destination in capitals?   Because it is such an important principle.  It has not been easy for the EU to apply this principle to all activities.  It took more than four decades for the Commission to realise that Value Added Tax should be collected at the point of destination rather than at the point of origin of goods and services.  Collection of VAT at destination is now to be the ‘definitive’ i.e. the permanent method of collecting VAT for cross border transactions.  This decision means that there are still borders in the EU’s single market but that these borders are rendered invisible by control in the country of destination.  This fundamental principle of how the EU works requires each member state to have an efficient and corruption free administration and police force.  And, that is not something that the Irish Republic seems to have just now as the present row over whistleblowing reveals.

Good research topic – pity about the research method

A Conservative MP, who happens to be a Whip and thus on the government payroll, is in hot water for having written, on House of Commons notepaper, a letter to University Vice-Chancellors requesting information about courses on the European Union.  What was his motive?  To collect information for a ‘book’ apparently.  If that book was to have any credibility as a sound reflection of the state of politics teaching in British Universities this was a strange way to go about ‘research’.

Why write to Vice-Chancellors who are largely highly paid business operatives distant from the academics who toil in their lecture rooms?  Better to ask them about the University’s profit and loss account and the success of its fundraising efforts.  The first port of call would surely be the departmental websites.  These give details of staff, courses, research grants, publications and often much more.  Some are very informative others less so.  This is where the research begins.  Many websites give email address of staff so why not go to the horse’s mouth?

This Conservative MP was, sadly, all too typical of the way in which ‘research’ into politics is undertaken in University politics departments themselves.  Its all too easy to get huge sums of money to do ‘surveys’.  But there is a great void between those who teach  and ‘research’ ‘politics’ and those who practice the art.  Would you really want to go through an entire degree in chemistry without once encountering a lecturer who had ever set foot in a chemistry lab?  Would you want to study in a department of music where none of the staff had ever played an instrument or could read music?  Would you want to study architecture without ever hearing from a practising architect?   There is certainly a place for theory but today’s students want and need more than the curriculum of the Platonic academy.  Few of those teaching ‘politics’ have themselves been active players in the field.  And, there is, as with economics, much more professional status in overseeing a vast expensive survey or model than there is in padding around the House of Commons or the corridors of Whitehall taking the pulse of political life.  Its even worse with the European Union where a key question to ask of Universities is ‘how many of those teaching courses in the EU have ever worked in its corridors?’

I taught the politics of the European Union (it was the EEC then the EC when I started) from the early 1970s to the end of the 1980s when I escaped from the theoretical world of the academy to practise real politics as a business lobbyist.  When I started the EEC did so little that the course had to be padded out with a run round the political systems of the member states.  When I stopped at the end of the 1980s the landscape had entirely changed.  And, so had I.  Why?  Because in the mid 1980s I became a practitioner.  I was made a member of the EU’s Economic and Social Committee.  It was a shock to discover that this was in effect another European Parliament.  During the next seven years I was from time to time a Rapporteur responsible for delivering the ‘Opinions’ required before Commission proposals can become law.  I chaired the Industry Section.  I had easy interaction with Commissioners.  I was besieged by lobbyists.  I found out that the EU was, even by that time, a deeply dysfunctional organisation where opposition was not acceptable.  Not at all.  Any whiff of scepticism about a Commission proposal was met by severe ill-treatment.

I can only hope that someone with a better grasp of suitable methods of research will tackle the question of how politics is taught in Universities.  The challenge is already on in the field of Economics.  Time to look at the rest of the ‘social sciences’.  The MP asked an interesting question but spoilt his chances of finding out much of value by his clumsy research methods.



Brexit talks – A glimmer of common sense from Donald Tusk

Reports are circulating of a draft document said to be the ‘Conclusions’ of yet to be held talks at the forthcoming European Summit of Heads of State to be held in Brussels at the end of October.  This document appears to have been obtained by Alex Barker of the Financial Times.

Although it seems peculiar to leak the conclusions of a meeting that had not yet taken place, the document appears to be designed to calm nerves after the reported ‘Deadlock’ of the last round of talks between M Barnier for the EU and the UK.  It is the first, very belated, sign of common sense.

There will be no progress until the member states themselves begin to take an active part in a process which directly affects their citizens.  Leaving the talks entirely in the hands of the European Commission has elevated the pursuit of the purist line of ‘ever closer union of the peoples of Europe’ above the real interests of those peoples.  Their elected representatives form the basis of their governments and it is those governments which must ensure that their citizens are not disadvantaged in the pursuit of a rigid ideological objective.  Are those representatives of the peoples really prepared to see their cars stopped at Dover, their airplanes grounded, and their cheese undeliverable to the UK just for the sake of the ideological purity of the European project?  Their voters will not thank them if they cause mayhem.

If the document is to be believed (it can be found on the euronews website) no preparations for the future have been made so far…and these are the people who complain that the UK is not prepared.  The text says ‘The European Council invites the Council (Art 50) together with the Union negotiator to start internal preparatory discussions’.  Have they really not had any discussions during the past 18 months?  As I said in my last post, the European Union is extremely slow at making decisions, but is it really so stupid that it cannot prepare for what might be an extremely disturbing event for European citizens.

These ‘internal preparatory discussions’ are necessary so that it can be ready to start talks on ‘the future relationship and on possible transitional arrangements’.  The transitional arrangements may well have to last a lifetime considering the total incapacity of the European Union, its Commission and the ever shifting parades at meetings of Heads of State to make decisions.  We know from past history that major decisions are only made by the European Union at times of extreme political pressure.  Closed customs posts and airports might just be such an occasion.

Here we go again – a ‘Definitive’ EU VAT system by 2022? Some chance.

On 4 October 2017 the European Commission published a Communication (COM (2017) 586 final on the subject of the future shape of the European Union Value Added Tax regime.  It is entitled ‘Towards a single EU VAT area – time to act’ but the action will take a long time.

The EU has been debating what its ‘definitive’ system of VAT should be for the past sixty years – yes, sixty years.  The EU is not noted as a swift decision maker and it has so far made a dogs breakfast of the VAT rules.  The current structure is complex, costly to firms, and prone to large scale fraud.  It is a mess.  So, one cheer for trying to sort it out.

The Commissioner, announcing the current plans,  which are a very simple twelve page outline said ‘Member States should consider cross-border VAT transactions as domestic operations in our internal market by 2022’.  The details, such as they are, point in a different direction.

The proposals do not envisage a single EU VAT collector and distributor, nor do they require uniform VAT rates.  They are based on the notion of 27 member state collectors of VAT.  The idea of a single set of rates can be abandoned.  Traders will also be able to prepare invoices according to the rules of the member state in which they operate.

It is when one looks at the details – available only in outline – that the plan begins to unravel.  When goods pass from one member state to another VAT will be charged by the supplier at the rate prevailing in the member state of the customer.  That will appear on the invoice but it is not clear how the actual tax arrives in the coffers of the member state where the customer is situated.  How can the local tax collector find out what is available for collection and how can he ensure collection?  This proposal, designed to combat widespread VAT fraud on cross border transactions could simply open the door to a new type of fraud.

Business Europe, in its response to the announcement, supported the move to a destination principle as the definitive system for EU VAT, but wonders about ‘the proposed collection method’.  We have been here before.  This is all too reminiscent of the response of business and member states to COM 320, the Commission’s proposal for the single market programme for 1992.  This introduced the concept of a ‘clearing house’ to reallocate taxes collected.  Both business representatives and the fiscal authorities of member states are likely to spot the weak spot in the 2017 proposal.  And, to succeed in the Council of Ministers, it must be agreed by all member states.  Tax proposals are still subject to the rule of unanimity.  The completion date of 2022 looks excessively optimistic.