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.

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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.

Getting it right about the European Court of Justice after Brexit

Once the UK leaves the European Union it will no longer be party to the Treaties (the latest version being The Lisbon Treaties).  If it signs a new trade agreement with the EU post Brexit it will be party to a new Treaty specifically between the UK and the EU.

For internal purposes, within the terms of the Lisbon Treaty, the European Court of Justice deals with disputes between the EU and its member states (for example on enactment or not of EU law into national law) and it can provide ‘preliminary rulings’ on matters referred to it by national courts.  Once the UK leaves the EU it will no longer be party to the existing Treaties and thus the role of the ECJ will end.

If a new Treaty on trade is agreed then it will almost certainly require machinery for arbitration of disputes between the EU and the UK under the new Treaty.  This is a well known feature of international law.  This arbitration panel will need to be impartial – that is not beholden to either party.  Thus the use of the ECJ as the arbitrator is ruled out by the conventions of international law.

Where things become murky is the question of how far an arbitration panel will need to refer to either party’s legal system in the event of a dispute.  Recognition of a conflict of laws between the parties will be part of the basis of any process of judgement.  The way in which judges make their decisions is complex – the subject of the philosophy of law is full of different theories.  It is essential to distinguish the legal framework of the parties from the attitudes and experience of those making judgements.

Just as leaving the EU means leaving its customs union and its single market (in terms of law) so leaving the EU also means leaving the jurisdiction of the ECJ.  It means finding a new route to reconciliation of disputes – a route through international law.   Those arguing that the UK’s recent position on this issue is a ‘climb down’ do not know anything at all, it appears, about the nature of international law.

What did Mrs Merkel really mean when she said that Europe would have to rely on itself for defence?

Some commentators on Mrs Merkel’s speech to a recent party rally on the subject of defence seem to conclude that she was condemning the USA and the UK for deserting Europe.  I think she meant something rather different.  She may well have been rattled by the continued reminders from Donald Trump that the European nations have sheltered under the umbrella of US defence spending for far too long.

A couple of years ago NATO met in Wales and agreed that all members should spend 2.0% of their GDP on defence.  They agreed to that and then went away and did nothing to keep their promises.  Germany is a particular outlier being such a rich country.  Surely 2.0% of GDP is a mere fleabite to a country with huge trade surpluses and a budget in credit?  Somehow Germany’s history seems to have made it difficult for Mrs Merkel to keep to what she agreed in Newport.  Let us look at the statistics, courtesy of Eurostat, the European Union’s official statistical data base.

Of the current 28 member states of the European Union only Greece and the UK spend more than 2.0% of GDP.  Greece tops the list at 2.7% but as its GDP is one third below what it was in 2008 and still shrinking this is not a big contribution to the total.  The UK comes next at 2.1%.  Estonia spends 1.9% but its economy is pretty small. The only other large contributor to the common European defence effort is France at 1.8%.  Germany lags behind at a miserable 1.0%.

Worse still, Eurostat estimates that more than half of European defence spending is on employment costs.  Spending on equipment and particularly on Research and Development is pretty small.  Only the UK and France are substantial spenders in the R and D sector.

When the UK leaves the EU it will leave a big hole.  With 14.8% of the EU total economy it represents 25% of its total defence spending and a whopping 40% of EU spending on defence R and D.

The European nations have been hiding under the US and UK (France excepted) defence umbrella for far too long.  It is time for them to get real.  They say they are going to create a Europe army. First they will have to find the funds to pay not only for some fighters but also for guns, helicopters, ships, tanks and all the other equipment necessary to ensure they can take action if required.  That, it seems to me, is Mrs Merkel’s real message –  Germany has been the target of Donald Trump’s pointed barbs and she is rising to the bait.  If, as seems likely, she is reelected as Chancellor of Germany we should expect a bigger German defence budget.

Now Mr Junker claims leak of Downing St dinner was a ‘serious mistake’

Goodness me, now Mr Junker has told the German newspaper Handelsblatt that the leak from the Downing St dinner was ‘a serious mistake’.  In my last post I said that the behaviour of the Commission and its staff rendered them unfit to conduct negotiations with the UK.  Having admitted ‘a serious mistake’ is he now going to apologise and explain what he will do, as the EU’s Chief of Staff, to ensure that nothing like this happens while the negotiations are proceeding?

 

The European Commission is not fit to conduct negotiations with the UK – an independent body is required

I have been pondering the curious behaviour of the European Commission over several days.  The European Commission, both its members and staffers including the President’s Chef de Cabinet, are paid civil servants.  They are supposed to be the details people – and clearly think that they are supremely competent at the details.  In my experience ( seven years at the Economic and Social Committee) they are pretty poor at the details – especially when details get in the way of grand ambitions.

The Commission may once have thought of itself as the motor of European integration, able to act on its own.  Since the Lisbon Treaty the balance of power has shifted.  The member states are now more clearly the principals, the Commission is their agent.  In conducting negotiations with the UK the Commission is acting on a ‘mandate’ given to it by the remaining 27 member states.  At all times the Commission must be cognisant of the interests of the members they have been appointed to serve.

It is true that Commissioners swear allegiance to the European Union on taking office.  This is an indication that they must leave behind any national preferences and act only in the interests of the Union as a whole.  Acting in the interests of the Union as a whole does not mean that they should prioritise the project of European integration even if pursuit of that objective harms the member states and the people who live in them.  The European Union is an international organisation, formed by Treaty between sovereign nations.  The Commission is not fulfilling its purpose if its ideals, schemes and actions do not reflect the interests of its members.

The way in which the Commission President, Jean Claude Junker, and certain Commission staff (including M Barnier who is temporarily on the Commission’s books) have spoken about the UK in recent days indicates that they believe that they, and they alone, are the true interpreters of the interests of the 27 member states.  They also seem to believe that those interests are best served by insulting the UK for having the temerity to try to leave the EU.  Some Heads of State and national ministers may be shaking their heads at this behaviour.  In the end it is they, not the Commission, who will have to agree on the results of negotiations.  Many of the issues that will come up in the negotiations will require agreement between the UK and another member state – the Irish Border being an example.  Specific trade relationships will also require bi-lateral agreement between the UK and individual member states.  The EU leaders may have met for five minutes to swear eternal agreement and that they will act as one but as the details come onto the table different interests and attitudes are bound to  come into play.  The art of negotiation is to weave all these interests into a coherent whole where everyone is at least satisfied if not claiming total victory.

The European Commission, by its recent behaviour,  has displayed itself unfit to conduct negotiations with the UK.  There have already been suggestions that an independent arbiter may have to adjudicate on the exit bill.  Perhaps the whole thing should come under an independent arbiter.  After all membership of the EU is attained through signing a Treaty and there is international law on Treaties including processes, rights and obligations when a member decides to leave.  The EU is not above international law – whatever the Commission, or some of its leading figures, seem to believe.

Does Mr Junker know how the EU works? Apparently not in relation to citizenship

An ugly spat broke out when ‘sources’, probably a Junker aide, leaked Mr Junker’s apparent displeasure at what he heard from the UK at dinner with Mrs May.  One key issue is that of future ‘rights’ for the millions of the 27 member states’ citizens living in the UK and for those UK citizens living in the 27.

Why the spat?  Because, of all the rules of the EU one matters more than all the others. The right to free movement of all those designated as ‘EU citizens’ in the Maastricht Treaty of 1993 is inviolable.  ‘EU citizens’ may work, live and study wherever they like in the EU together with all their family.  While not necessary for the establishment of a single internal European market, or for economic integration, EU citizenship serves as a powerful political symbol of European togetherness.  Indeed, with support based on economic integration flagging because it has created winners and losers, the free movement of people has become THE most powerful symbol of European attachment.  It is the most highly valued aspect of the EU in polls conducted by Eurostat.

But, there is a catch.  EU ‘Citizenship’ is something that has been tacked on to national citizenship.  It is over and above – a sort of layer of extra rights.  It provides for free movement but it does not provide for national citizenship rights in the country of destination.   You have to be a citizen of a EU member state to acquire EU citizenship.  The basic rights of citizens come only with national citizenship.

The rules by which national citizenship are governed are very varied.  Take the question of birth.  We have one grandchild born in Italy but he has no right to Italian citizenship.  Another was born in Wales and automatically got the right to UK citizenship.  You can apply for Irish citizenship through a grandparent born on the island of Ireland. For a summary of the rules on EU member states citizenship see Wikipedia.  They are astonishingly different with few common threads.

That is why Mr Junker is in such a funk about the negotiations on citizens’ rights after Brexit.  Mrs May can offer her plan but he cannot offer a single plan for the EU.  Offering EU citizenship will not solve the problems that might be faced by UK citizens living in France, Spain or Italy.  Whether or not their rights are satisfactorily maintained is up not to the EU but to France, Spain and Italy.  For the EU to negotiate as one unit it will need to agree to a new Regulation making the 27 sets of rules uniform.  Over to Donald Tusk to bring the other 27 in line on the basis of a draft from the Commission.  The process could take decades.  The only alternative is separate bi-lateral agreements between the UK and each member state.

Before Mr Junker accused the UK of not knowing how the EU works he should have boned up on the rules himself.